Unit trust ‘merger’ could weigh further on small caps

The imminent amalgamation of one of a handful of unit trusts focused on listed small cap shares will likely add further downward pressure to their share prices.

Should the ballot be approved by investors, the Sanlam Investment Management (SIM) SCI Small Cap Fund will be amalgamated with the SIM SCI General Equity Fund on 9 October.

Along with the small cap fund, the SIM SCI Financial Fund and SIM SCI Resources Fund will both also be amalgamated with the general equity one.

Read: South Africans are rethinking unit trusts …

In communication to investors, Sanlam Investments says these “portfolios were launched between the late 1980s and early 2000s to meet investor demand at the time for specialist sector and market capitalisation focused equity mandates”.

“In recent years, these portfolios have experienced limited investor demand and have remained relatively small.

“Operating specialist funds at this scale can reduce cost efficiency and limit the benefits of diversification available to investors,” it says.

“The proposed amalgamation into the larger target portfolio is intended to enhance scale, improve cost efficiency through the spreading of fixed expenses across a broader asset base, and position investors within a more diversified South African equity portfolio, while retaining the objective of long-term capital growth from South African equities.”

Impact on investors

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SIM says the impact of the amalgamation means “investors will therefore move from a small- and mid-cap focused mandate to a diversified South African equity allocation in which exposure to smaller companies will form part of a broader portfolio rather than being held as a standalone mandate”.

Read: SA banking heats up as Sanlam eyes 2027 launch

The small cap fund is not enormous (there are two funds offering exposure to this sector of the market that are nearly two and three time larger), with assets under management (AuM) of R233 million at the end of July 2026.

The general equity fund is more than 40 times bigger, with its portfolio totalling R9.8 billion.

Following amalgamation, though, one would imagine the general equity fund would look to exit many of these small cap holdings.

They would comprise a tiny portion of the overall fund, but there would probably not be a strong argument to retain stakes in stocks like Grindrod, Advtech and Famous Brands – alongside core holdings of the general fund such as Naspers, Gold Fields, FirstRand, AngloGold Ashanti, Standard Bank and Capitec (all above 5% of the fund).

It holds between nine million and 12 million shares in each of its top five holdings (the three above, plus Netcare and Premier Group).

At the end of June 2026, the small cap fund held shares in 37 listed companies, with six of those (Discovery, Remgro, Reinet, Northam Platinum, Sasol and Pan African Resources) being in the JSE Top 40. These could’ve been added many years ago, before they became large caps.

SIM says the fund is a specialist one “which seeks to achieve maximum capital appreciation by investing in companies with small to mid-market capitalisations and who display the potential to deliver above average earnings growth”.

“This is an aggressive, actively managed fund focusing on small to mid-cap companies with above average growth potential and which have been mispriced by the market.”

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It may invest a maximum of 45% of assets offshore but currently holds no direct offshore assets.

The general equity fund holds shares in 55 listed companies.

A total of 18 companies held by the small cap fund are also owned by the general equity one.

In most cases, the additional holdings following amalgamation shouldn’t materially change the make-up of the larger fund, but there may be a need to rebalance the fund over time, particularly in the financial and resources sectors given the amalgamation of the other two funds.

More broadly, there would also be an incentive to trim these small cap holdings over time as having a South African general equity fund with 74 holdings becomes somewhat unwieldly.

The remaining specialist funds offering exposure to this sector are the:

Old Mutual Mid and Small Cap Fund (R756 million of AuM)
Coronation Smaller Companies Fund (R489 million of AuM), and
Momentum Small Mid-Cap Fund (R203 million of AuM).

Read: Why fund managers still disagree about performance fees

Shares held by both the SIM SCI Small Cap Fund and SIM SCI General Equity Fund
SIM SCI Small Cap Fund holdings not already held by the SIM SCI General Equity Fund

Blu Label Unlimited
Advtech

Boxer Retail
Bytes Technology Group

Cell C Holdings
Clicks Group

Discovery
Exxaro Resources

Northam Platinum
Famous Brands

Old Mutual
Grindrod

Pepkor Holdings
Hudaco Industries

Premier Group
Mr Price Group

Reinet Investments
Netcare

Reunert
Oceana Group

Sasol
Omnia Holdings

Southern Sun
PSG Financial Services

Sun International
Raubex Group

The Foschini Group
Santam

We Buy Cars Holdings
Southern Sun

Wilson Bayly Holmes-Ovcon
Stadio Holdings

Woolworths Holdings
Stefanutti Stocks Holdings

Telkom SA

Tsogo Sun

As at 30 June 2026; shares listed alphabetically.

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