Local unit trust investors and their financial advisers are almost exclusively investing in South African Multi Asset portfolios, thereby effectively outsourcing asset allocation decisions to expert portfolio managers.
Quarterly statistics for the local Collective Investment Schemes (CIS) industry, released today by the Association for Savings and Investment South Africa (ASISA), show that in the first three months of this year the SA Multi Asset category once again attracted the bulk of all net inflows.
SA Multi Asset portfolios recorded net inflows of R23 billion in the first quarter of this year. In second place was the SA Interest Bearing category with net inflows of R10.1 billion. All other categories of South African portfolios, namely SA Equity and SA Money Market funds, experienced net outflows.
The same pattern presented itself for the 12 months to the end of March 2014. The local CIS industry attracted net inflows of R158 billion of which R114 billion was channelled to portfolios in the SA Multi Asset category. The SA Equity category suffered net outflows and the SA Money Market category recorded a marginal net inflow of only R125 million. Portfolios in the SA Interest Bearing category recorded net inflows of R27 billion for the year ended 31 March 2014.
Multi Asset portfolios make it possible to achieve diversification across asset classes within one fund. Expert portfolio managers determine the appropriate exposure to the different asset classes in line with their investment mandates. The SA Multi Asset category is made up of the following sub-categories: Income, Low Equity, Medium Equity, High Equity and Flexible.
Peter Dempsey, deputy CEO of ASISA, says investors are doing the right thing by entrusting asset allocation decisions to the professionals.
“While these portfolios were not designed to shoot the lights out, they aim to deliver a more stable performance than pure equity portfolios by smoothing out market volatility through diversification.”
Dempsey says the prudent approach taken by the majority of investors has paid off. The SA Multi Asset High Equity category continues to be the most popular with investors and portfolios in this category have delivered an average return of 15.9% over the one year ended March 2014, and an annualised return of 15.1% for the five years as well as the 10 years ended March 2014. By comparison portfolios in the pure equity category delivered only between 3% and 5% more over the three reporting periods.
Dempsey points out that while portfolios in the Multi Asset High Equity category are allowed equity exposure of up to 75%, they are not obliged to maintain such an aggressive holding.
The SA Multi Asset category consists of 507 portfolios and holds almost half of total industry assets.
The industry in summary
Although inflows tapered from the record breaking highs achieved between the third quarters of 2012 and 2013, the local CIS industry continued to benefit from strong investor confidence in the first quarter of this year.
Dempsey says the net inflows of R27 billion in the first quarter of this year brought to R158 billion the total net inflows for the 12 months ended March 2014 – the second highest net inflows for any rolling 12 month period to the end of March. A total of R166 billion in net inflows was recorded for the year ended March 2013.
At the end of the first quarter this year, the local CIS industry managed assets of R1.54 trillion and offered investors 1 053 portfolios.
Dempsey says more than half of the inflows in the 12 months to the end of March 2014 came either directly from investors (28%) or were channelled via intermediaries (28%).
Linked investment services providers (Lisps) generated 24% of sales and 20% of sales was received from institutional investors like pension and provident funds.
Locally registered foreign funds held assets under management of R212.8 billion at the end of March 2014, compared to R216 billion at the end of December 2013.
These foreign funds recorded net outflows of R7.3 billion for the first quarter of this year, mainly due to repurchases from institutional portfolios. Dempsey comments that while retail investors were taking money offshore, institutional investors were bringing money back. He says there could be two reasons for the outflows from institutional funds, either rebalancing of portfolios or profit taking.
Foreign currency unit trust funds are denominated in currencies such as the dollar, pound, euro and yen and are offered by foreign unit trust companies. These funds can only be actively marketed to South African investors if they are registered with the Financial Services Board (FSB). Local investors wanting to invest in these funds must comply with Reserve Bank regulations and will be using their foreign capital allowance.
There are currently 308 foreign currency denominated funds on sale in South Africa.