Record net inflows of R200 billion for local collective investment schemes

The local Collective Investment Schemes (CIS) industry attracted net inflows of R49 billion during the second quarter of this year, the second highest ever after the record breaking R63 billion achieved in the third quarter of last year. This brings to R200 billion the net inflows for the 12 months ended June 2013 – more than four times the net inflows recorded for the previous 12-month period.

Releasing the quarterly statistics for the local Collective Investment Schemes (CIS) industry, Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA) says never before has the CIS industry experienced net inflows of this magnitude.

“We have just seen four consecutive quarters of unprecedented net inflows,” he says.

At the end of June this year, the local CIS industry managed assets of R1.33 trillion. A year ago total assets under management stood at R1.16 trillion. Campher comments that only five years ago the industry’s assets under management were half of what they are today. At the end of June 2009 assets under management stood at R658 billion. The CIS industry now offers investors a choice of 1 021 funds.

Where did the money go?

The South African Multi Asset category claimed the bulk of net inflows over the 12 months to the end of June 2013. Investors committed R94 billion to this category, which now holds 45% of industry assets (excluding Worldwide, Global and Regional sectors).

Campher comments that the SA Multi Asset category has been a firm favourite with investors for the past three years. “In 2008 and 2009 investors sought refuge in the money market from the extreme market volatility brought about by the global financial crisis. But since the end of June 2010 we have seen a consistent trend towards the SA Multi Asset category.”

Multi Asset funds have grown in popularity because they make it possible for investors to achieve diversification across asset classes within one fund with an expert fund manager determining the appropriate mix in line with the fund’s investment mandate.

According to Campher the SA Multi Asset category has performed in line with expectations on a risk/reward basis. “Since funds in the Multi Asset category are designed to reduce volatility and therefore risk, investors cannot expect these funds to outperform pure equity funds,” explains Campher. “But you can expect a Multi Asset fund to outperform inflation and cash,” he adds.

Funds in this category delivered returns between 7% (Multi Asset Income) and 17% for the one year to the end of June 2013, compared to 5% for Money Market funds. Inflation stood at 6%.

Over three years to the end of June 2013, SA Multi Asset funds returned between 8% (Multi Asset Income) and 16%, compared to the 6% for inflation and Money Market funds.

The five-year period reflects the full impact of the global financial crisis, yet SA Multi Asset fund returns ranged between 9% (Multi Asset Income) and 10%. Inflation averaged at 6% and Money Market funds returned 7%. Over 10 years returns ranged between 9% (Multi Asset Income) and 16%. Inflation averaged at 6% and Money Market funds returned 8%.

Campher says only 24% of total assets were invested in pure equity and real estate funds at the end of June this year. Money Market funds held 21% of total assets and Interest Bearing funds 10%.

Who invested?

Campher says the bulk of the inflows in the 12 months to the end of June 2013 came either directly from investors (26.6%) or was channeled via intermediaries (30.6%).

Linked investment services providers (Lisps) generated 22.9% of sales and 19.9% of sales was received from institutional investors like pension and provident funds.

Offshore focus

Locally registered foreign funds held assets under management of R180 billion at the end of June 2013, compared to R164.2 billion at the end of March 2013. The substantial growth in assets under management was as a result of the depreciation of the Rand against the US dollar. These funds recorded net inflows of R7 billion in the second quarter of this year, reversing the net outflows of R300 million in the first quarter of this year.

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. 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 312 foreign currency denominated funds on sale in South Africa.

On whether now is the time to invest offshore since the Rand has recovered somewhat, Campher says the decision to invest offshore must be informed by much more than currency strength. “You need to make sure that it is part of your long-term diversification strategy and that you are likely to benefit from this investment even if the currency does not weaken.”

“The appropriate level of offshore exposure as well as the markets that you pick should be guided by your long-term investment objectives. And then you need to commit to the chosen strategy irrespective of short-term market and currency fluctuations.”

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