Local collective investment schemes continue to draw record net inflows

The local Collective Investment Schemes (CIS) industry reported assets under management of R1.43 trillion at the end of September this year, following another quarter of exceptional net inflows.

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 the industry attracted net inflows of R57 billion during the third quarter of this year.

“These are the second highest net inflows ever after the record breaking R63 billion achieved in the third quarter of last year. This brings to R194 billion the net inflows for the 12 months ended September 2013.”

The CIS industry now offers investors a choice of 1 025 funds.

Where are investors placing their money?

Campher says the South African Multi Asset category remains the most popular with investors. This category attracted net inflows of R35 billion during the third quarter this year. Over the 12 months to the end of September 2013, investors committed a total of R110 billion to SA Multi Asset funds.

“Never before has a single fund category claimed net inflows of this magnitude,” comments Campher.

Second on the popularity ranking was the SA Interest Bearing category, which saw net inflows of R41 billion over the same 12 month period (R9.6 billion for the third quarter), followed by SA Money Market funds with R27 billion (R6 billion for the third quarter).

The SA Multi Asset category now holds 44% of industry assets (excluding Worldwide, Global and Regional sectors).

Campher explains that funds in the SA Multi Asset category have become a firm favourite with investors because they make it easy for investors to achieve diversification across asset classes within one fund.

Timing the markets

Campher says while investors are increasingly opting for multi asset funds, because they recognise the benefits of diversification, human nature dictates that investors will still chase returns.

As a result the SA Multi Asset High Equity funds were in vogue with investors during the third quarter, attracting net inflows of R16 billion.

The JSE has been reaching new record highs during the third quarter and the SA Multi Asset High Equity sector has been one of the top performing local sectors over the past year, achieving a return of 19% for the 12 months ended September 2013.

Ironically, says Campher, the SA Multi Asset Low Equity funds were most popular with investors until the third quarter.

“For me the good news is that investors are no longer chasing returns by investing all their money in specialist funds as they did a few years ago. If they have to opt for the flavour of the day, at least they are now doing it within a fund range that is diversified and where the asset mix is managed by expert fund managers.”

Campher says it is important for investors to understand that funds in the Multi Asset category are designed to reduce volatility through diversification. For this reason these funds cannot be expected to outperform pure equity funds or specialist equity funds when markets are strong.

He adds, however, that you can and should expect a Multi Asset fund to outperform inflation and cash over the long term. These funds should also outperform equity funds during bear markets, explains Campher.

Who invested?

Campher says the bulk of the inflows in the 12 months to the end of September 2013 came directly from investors (28%). Intermediaries contributed 27% of new inflows.

Linked investment services providers (Lisps) generated 24% of sales and 21% of sales was received from institutional investors like pension and provident funds.

Offshore focus

Locally registered foreign funds held assets under management of R196 billion at the end of September 2013, compared to R180 billion at the end of June 2013.

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 303 foreign currency denominated funds on sale in South Africa.

Over the past 12 months, in Rand terms, the JSE All Share Index (ALSI) was the worst performing index when compared against the S&P500 and FTSE100. The ALSI (Total Return) returned 21%, the FTSE100 (TR) 39.5%, and the SP500 (TR) 46.4%.

Over the past five years, however, the ALSI (TR) returned 114% in Rand terms, the S&P500 (TR) 96% and the FTSE100 (TR) 76%.

Campher says a decision to invest offshore must be informed by much more than currency strength and short-term performance of overseas markets.

“Your long-term investment objectives and diversification strategy should determine your exposure to offshore investments. Once you have committed to foreign investments you need to remain faithful to your chosen strategy irrespective of short-term market and currency fluctuations.”

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The Allan Gray-Orbis Global Equity Feeder Fund remains fully invested in global equities. The objective of the Fund is to outperform the FTSE World Index at no greater-than average risk of loss in its sector.