Local collective investment schemes attracted net inflows of R26 billion in the first quarter, despite the extremely turbulent period that followed the sacking of former finance minister Nhlanhla Nene in December and the choppy start global markets experienced at the beginning of the year.
In the two days that followed the Nenegate saga, roughly R170 billion was wiped from the JSE’s market cap as investors ran for the exits, but unit trust investors seem to have shaken the jitters.
Asked what the healthy inflows convey about investor sentiment, Leon Campher, CEO of the Association for Savings and Investment South Africa (Asisa), said he wasn’t quite sure.
“We were actually quite surprised ourselves.”
He said a lot of positive developments followed the 9/12 situation. There have been engagements between the private sector and the new minister of finance, Pravin Gordhan, as well as meetings with ratings agencies, which have been received quite positively.
To an extent however, investors may have had limited alternatives.
“I think a lot of investors have just said, look South Africa is where I am, I’m going to carry on investing.”
Part of the inflows came from the retirement industry. Smaller pension and provident funds tend to use unit trusts as investment vehicles, Campher added.
Total net inflows for the year through March were R111 billion, the third highest in five years.
Shift to multi-asset funds continues
In the wake of the global financial crisis, the popularity of local multi-asset funds have increased and this trend has continued.
According to Asisa, SA multi-asset portfolios received net inflows of R72 billion in the year through March, with SA interest-bearing money market portfolios attracting
R35 billion. SA equity portfolios saw net inflows of R3 billion.
Campher said investors and advisors have realised that decisions around asset allocation across various asset classes could be quite difficult and have decided to outsource it to a good fund manager.
Although the expectation is that equity-only portfolios should outperform high equity multi-asset portfolios in the long-term, the historic performance differential has not been particularly significant (see table below). Diversification has the added benefit of reducing the volatility typically associated with equity-only portfolios.
But the numbers will depend on the way the period is chosen.
Campher said if the period was chosen very selectively, the SA general equity category would probably have performed at a bigger differential to the multi-asset high equity category, but the ten-year period would include the global financial market crash, where equity portfolios would have taken a bigger hit than multi-asset portfolios. The 20-year period would also include the tech bubble and the Asian crisis.
But although local general equity portfolios only managed to attract a relatively small percentage of net inflows, Campher does not believe the general equity fund’s days are marked.
“I think there will always be a place for equity funds.”
He said some investors want pure equity exposure, if not for the whole portfolio, then at least for a part of it.
Although there is a perception that offshore markets are currently more attractive than the local market, locally registered foreign portfolios experienced net outflows of R4.7 billion in the first quarter of this year.
Campher said they have debated the reason for this, and haven’t come to a reasonable conclusion. However, the outflows are not only related to currency factors, but also the prospects of foreign markets. As much as South Africa has its own problems, foreign markets also face some challenges such as the Brexit issue.
The investors
Roughly a third of the inflows in the year through March came directly from investors, up 1% from a year earlier, although this does not necessarily mean that these investors acted without advice.
Campher said they believe a number of investors pay for advice and then make their choice of portfolio.
Intermediaries contributed 21% of new inflows, linked investment services providers (Lisps) generated 22% of sales and institutional investors contributed 24%. The numbers did not change significantly from a year earlier.
