Abstract
Active vs passive management is a central debate within asset management, with active
managers promising superior market beating performance after fees through their superior
knowledge and stock selection. This study investigates the performance of 34 South African
property unit trusts over multiple periods between 2005 and 2018. Fund performance was
evaluated using three risk-adjusted measures, namely the Sharpe ratio, information ratio and
Jensen’s alpha, in order to determine whether there is significant outperformance amongst the
funds. The benchmark used to compare performance was the South African Listed Property
index (SAPY), which is the most common and well established proxy for the South African
property market. The sample was divided into three periods, long term 2005-2018, medium
term 2008-2018 and short term 2015-2018.
In all periods, outperformance of active funds were shown to be inconclusive, with only a small
number of funds showing significant positive alphas and significantly high Sharpe and
information ratios. A small number of funds achieved outperformance across multiple periods.
On average significant outperformance was uncommon and inconsistent. Furthermore, a
number of funds achieved significant underperformance over multiple periods, with inferior
risk-adjusted returns and alphas compared to the benchmark. However, the volatility of fund
returns were shown to be less than the benchmark on average in all periods, indicating that
active managers were able to reduce volatility compared to the benchmark. In the more recent
short term period, performance of the active funds were especially low with many negative
alphas’ present. The best performing fund across multiple periods was shown to be a risk parity
portfolio of property stocks, which achieved significantly higher returns whilst having lower
volatility than the benchmark and other funds.
Ultimately the results suggest that active managers in the sector do not provide sufficient
evidence for outperformance. Hence investors are better of making use of passive indices or a
risk parity portfolio if they are looking for exposure to South African listed property. This is in
line with other international studies which have also found that active management in the
property industry does not provide significant and consistent outperformance. These results
provide useful insight to property investors in South Africa and contribute to the debate
between active vs passive management within the financial literature.
Rickens, C (2021). An Investigation Into South African Property Unit Trusts: Do Active Managers Add Value To Investors?. Afribary. Retrieved from https://afribary.com/works/an-investigation-into-south-african-property-unit-trusts-do-active-managers-add-value-to-investors
Rickens, Carl "An Investigation Into South African Property Unit Trusts: Do Active Managers Add Value To Investors?" Afribary. Afribary, 15 May. 2021, https://afribary.com/works/an-investigation-into-south-african-property-unit-trusts-do-active-managers-add-value-to-investors. Accessed 25 Nov. 2024.
Rickens, Carl . "An Investigation Into South African Property Unit Trusts: Do Active Managers Add Value To Investors?". Afribary, Afribary, 15 May. 2021. Web. 25 Nov. 2024. < https://afribary.com/works/an-investigation-into-south-african-property-unit-trusts-do-active-managers-add-value-to-investors >.
Rickens, Carl . "An Investigation Into South African Property Unit Trusts: Do Active Managers Add Value To Investors?" Afribary (2021). Accessed November 25, 2024. https://afribary.com/works/an-investigation-into-south-african-property-unit-trusts-do-active-managers-add-value-to-investors