Local investors not deterred by turbulent investment climate
14 November 2017
Local investors not deterred by turbulent investment climate .
The local Collective Investment Schemes (CIS) industry continues to attract steady net quarterly inflows as local investors seem undeterred by the current turbulent political and economic environment.
According to the latest statistics released by Association for Savings and Investment South Africa (ASISA), the local CIS industry recorded net inflows of R38 billion in the third quarter of this year. This brings to R138 billion the total net inflows for the year ended 30 September 2017.
Sunette Mulder, senior policy adviser at ASISA, reports that local CIS portfolios ended the third quarter of this year with assets under management of R2.19 trillion. This represents a growth in assets of more than R100 billion from the second quarter.
SA Multi Asset portfolios held 50% of these assets, SA Interest Bearing portfolios 26%, SA Equity portfolios 20% and SA Real Estate portfolios 4%.
Mulder says the change in the industry’s asset composition over the past five years paints an interesting picture. At the end of September 2012, SA Multi Asset portfolios held only 33% of assets, while Interest Bearing portfolios held 41%, Equity portfolios 22%, and Real Estate 4%.
Mulder comments that while net inflows have remained consistently strong over the past five years, with SA Multi Asset portfolios having been the category of choice, there has been a distinctive shift towards interest bearing portfolios this year.
She says with SA – Interest Bearing – Short Term and Money Market portfolios topping the performance leaderboard for the 12 months to the end of September 2017, it is not surprising that investors channeled the bulk of their investments into these portfolios.
SA Interest Bearing portfolios attracted annual net inflows of R68 billion, of which R33 billion went into SA Money Market portfolios and R35 billion into SA Interest Bearing Short Term and Variable Term portfolios.
SA Multi Asset portfolios recorded R46 billion in annual net inflows and SA Equity portfolios R10 billion.
Mulder cautions investors that chasing returns, or market timing, is a gamble that rarely pays off.
“Collective investment scheme portfolios are long-term investment vehicles and a successful investment strategy requires consistent time in the market. With the help of a trusted adviser, investors should pick portfolios for five years or longer that match their risk profile and provide the required diversification.”
She points out that while on average SA Interest Bearing Short Term and SA Interest Bearing Money Market portfolios outperformed over the one year period, SA Multi Asset High Equity portfolios and SA General Equity portfolios consistently outperformed interest bearing portfolios over the five, 10 and 20 year periods to the end of September 2017.
1 year to 30 Sept 2017 5 yrs to 30 Sept 2017 10 yrs to 30 Sept 2017 20 yrs to 30 Sept 2017
SA Multi Asset High Equity 6% 10.2% 8.4% 13.6%
SA Equity General 4.1% 9.9% 7.8% 12.7%
SA Money Market 7.8% 6.3% 7.2% 9%
SA Interest Bearing Short Term 8.6% 6.8% 7.7% 9.7%
Inflation 5.1% 5.5% 5.9% 5.7%
Source: Profile Media
At the end of September 2017, investors had a choice of 1 581 portfolios – an increase of 25 portfolios from the previous quarter.
Mulder says that 29% of the inflows into the CIS industry in the 12 months to the end of September 2017 came directly from investors. This does not mean, however, that these investors acted without advice. A number of direct investors pay for advice and then make their choice of portfolio, she explains.
Intermediaries contributed 26% of new inflows. Linked investment service providers (Lisps) generated 20% of sales (mostly via intermediaries) and institutional investors like pension and provident funds contributed 25%.
According to statistics reported to ASISA, locally registered foreign portfolios held assets under management of R434 billion at the end of September 2017, an increase from the R403 billion managed at the end of June 2017.
Foreign currency unit trust portfolios are denominated in currencies such as the dollar, pound, euro and yen and are offered by foreign unit trust companies. These portfolios 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 portfolios must comply with Reserve Bank regulations and will be using their foreign capital allowance.
There are currently 422 foreign currency denominated portfolios on sale in South Africa.