SOUTH AFRICA – Old Mutual, a financial service group, has informed investors that it intends to close two of its longest running unit trusts, the Old Mutual Mining and Resources Fund and the Old Mutual Gold Fund.
According to Money Web, the performance of both funds has been outstanding over the past year and the group wants them to be amalgamated into the Old Mutual Equity Fund.
Siboniso Nxumalo, head of the Old Mutual Equities boutique, says the decision is part of a wider consolidation that has been taking place within the firm.
“What clients have told us is that we have too many products, and that it’s too confusing. The industry is too confusing,” Nxumalo explains. “When they come onto our website, they don’t know which are the best funds for them.”
Old Mutual has therefore slimmed down its offering. Earlier this year, the asset manager received approval to close five other funds – the Old Mutual Financial Services Fund, Old Mutual Industrial Fund, Old Mutual Growth Fund, Old Mutual Top Companies Fund and the Old Mutual Top 20 Fund. These were also all merged into the Old Mutual Equity Fund.
“In the past, clients would use sector funds, like the Gold Fund or the Mining and Resources Fund as building blocks to create their own versions of balanced funds,” Nxumalo explains.
“But over the last 10 years, across the industry, sector funds have been experiencing outflows. Our experience has been no different.”
As Nxumalo points out, the importance of the resources sector on the JSE has also diminished substantially since these funds were started.
“If you go back to when we launched these funds, mining and commodities in general constituted a massive part of the JSE All Share Index,” he says. “But as time has gone by, their contribution has shrunk. In the 1980s, there were 50 listed gold companies on the JSE. Now there are six. So, over time, the relevance of these funds has faded.”
Not all investors are, however, enamoured with Old Mutual’s decision, particularly because the recent performance of these two funds has been outstanding.
While there may be informed investors who understand the risks of these products, Old Mutual’s experience is that they can be a trap for performance chasers.
Investors in the funds are currently being asked to vote on the proposed closures.