Weekly Thoughts 18 October 2013

Last month I had a chat about a direct share portfolio vs. a unit trust portfolio with the MD of Foord Asset Management. Behind an equity unit trust portfolio is the same asset manipulating the value of the investment – this being the share of a listed company. Foord will run an individual share portfolio for a private client but at a minimum of 30 million Rand. “However,” he said, “that given the relative tax-attractiveness of unit trust portfolios, long-standing clients were increasingly transferring their individual portfolios into Foord’s own unit trust funds and new clients often selected the unit trust funds directly.” They recently had a R250 million cash deposit from one individual straight into their Flexible Fund. This person just wanting this investment view and the tax (especially CGT) benefits associated with unit trusts and didn’t even discuss a personal share portfolio.

We also discussed watching for excessive trading and switching of sectors in a share portfolio, which was sometimes just for the sake of maximising brokerage fees even if the activity impressed the client. Of course, the higher the turnover of shares held the higher the incidence of CGT events. A unit trust portfolio is far easier to liquidate from and it is easier to deal with on death from an estate point of view, with no original share certificates having to be located.

These comments are not for the purpose of saying one way is better than the other, as both can produce similar results. But simply for the sake of expressing the thoughts.