The wrap fund industry accounts for about R10-billion of this. The danger is that the proliferation in wrap funds will end up as confusing and complex as the problem they set out to solve With the growth in the number of unit trusts came a proliferation in the type of funds, ranging from resources to technology, international and general equity. Investors were understandably confused. In just two years the wrap fund industry has come to dominate flows into and out of unit trusts. The balance of the inflows comes from wrap funds, institutions and funds of funds.
Insiders say most of new flows come from existing investors switching into wrap funds.
Investors also have a habit of chasing historical performance, switching into last quarter's winners after they had already peaked and are on their way down the rankings. Wrap funds promised to take the agony out of this type of illtimed investment because fund selection is handled by professionals. But in reality, wrap funds aggravate the already high level of switching between funds. This suggests wrap funds are reshuffling assets rather than growing the industry. Given their control over the unit trust industry, the business and investment practices of wrap funds inevitably fall under the spotlight.