Are the ASISA Standards with Respect to Unit Trust Classification Representative of Homogeneous Risk Classes?

Abstract

We examine the information content of South African (SA) equity unit trusts to investigate whether risk is heterogeneous between investment objective groups and homogeneous within groups because those characteristics are vital to proper investment decision making. We find risk differences within SA equity groups especially in the Equity-General and Equity-Growth. However, in the other categories, the systematic risk differences depended on the choice of benchmark. Those risk differences may have significant implications for investors. Examination of between-group risk revealed that not all the equity categories were heterogeneous. We also find that the choice of benchmark is critical when measuring and comparing performance characteristics of funds.