African Alliance, an Africa-focused investment banking group, has launched a R65m ($5.64m) AUM unit trust, the African Alliance SA S&P GIVI Equity Prescient Fund.

African Alliance acts as the investment manager for this product, whereas Prescient provides the underlying legal vehicle for the South African market.

The African Alliance SA S&P GIVI Equity Prescient Fund enables investors to participate in one of S&P’s new South African benchmark products focused on the GIVI Large and Mid Cap capped index.

Nicholas Piquito, African Alliance Asset Management Group CIO, said: “Having worked extensively with S&P in this regard we believe that an actively engineered index like the S&P GIVI provides our clients with efficient exposure to market risk factors which have been proven to deliver alpha over time.”

“The index blends well with ‘traditional’ indices to form a more diversified portfolio. The additional capping factor prevents large overweight allocations to specific counters,” he told Africa Global Funds.

The GIVI methodology combines two important investment ideas – low volatility and intrinsic value weighting.

The series is the first of its kind in the dynamic South African market to combine lower volatility with a factor-based weighting scheme that weights a stock by its calculated intrinsic value, rather than market capitalization.

In South Africa, African Alliance Asset Management is the first investment manager to create a product utilizing this index.

The African Alliance SA S&P GIVI Equity Prescient Fund will enable investors to benefit from this index compilation technique at a portfolio level in a low cost manner.

The Fund will be attractive to both institutional and retail investors looking for a “better alternative to market capitalization indexing at a competitive price”, said Piquito.

“This is a South African domiciled fund, and international investors would be able to invest in the fund by following the normal channels,” he added.

Piquito said that passive strategies within the South African market continue to be one of the biggest growing sectors of the market, both in AUM and the range/complexity of product offered to investors. “This sector will continue to grow as more investors become comfortable with it.”

Many investors have already benefited from deploying ‘smart beta’ portfolio construction techniques to their portfolios.

It is estimated that around 9% of total assets are now invested in this methodology globally and it continues to grow strongly.

“Smart beta technologies provide the investor with low cost access to those risk factors that have been shown over time to generate alpha relative to the return of traditional market capitalization indices which are essentially a buy high and sell low strategy,” said Piquito.

He said that African Alliance will be expanding its product offering in the passive funds space.

“Where we are able to find factors that can continually harvest ‘alpha’ and we are able to exploit that on our clients’ behalf, we would look at launching additional products,” he said.

“As a specialist pan-African asset manager with a long track record of managing assets across the continent African Alliance is well placed to offer innovative and cost effective products to investors,” he added.

African Alliance's asset management business operates in a number of sub-Saharan Africa countries, managing nearly $1bn of institutional client assets.