Unit trust inflows at record highs due to strong investor confidence

The local Collective Investment Schemes (CIS) industry continued to benefit from strong investor confidence in the first quarter of this year, attracting net inflows of R47 billion – the second highest quarterly net inflows ever. The highest ever net quarterly inflows of R63 billion were recorded in the third quarter of last year and the third highest of R41 billion were achieved in the fourth quarter of 2012.

The three consecutive quarters of record breaking net inflows for unit trusts and other local collective investment schemes resulted in the highest ever net inflows for any rolling 12 month period. A total of R166 billion in net inflows was recorded for the year ended March 2013.

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 that at the end of the first quarter this year, the local CIS industry managed assets of R1.28 trillion and offered investors 988 funds. In comparison total assets under management at the end of December 2012 stood at R1.20 trillion.

He points out that the industry’s assets under management almost doubled over the past five years. At the end of March 2009 assets under management were R611 billion.

Campher describes this as a significant achievement, in particular because these statistics exclude all double counting.

“ASISA introduced a new and sophisticated statistics system five years ago with the aim of removing all incidents of double counting when measuring assets under management in the CIS industry. We now have our first five year set of figures clean of all double counting.”

In January this year ASISA also delivered on a second important commitment when the new Fund Classification Standard for South African Collective Investment Portfolios came into effect.

“It took us three long years to revise the old fund classification standard inherited from the Association of Collective Investments (ACI) in 2008, but the new standard has made it easier for consumers to select collective investment schemes such as unit trusts and comparing their performances.”

Who invested?

Campher says the bulk of the inflows in the 12 months to the end of March 2013 came either directly from investors (27%) or were channeled via intermediaries (35%). This means that more than 60% of inflows consisted of retail money.

Linked investment services providers (Lisps) generated 21% of sales and 17% of sales was received from institutional investors like pension and provident funds.

Five years ago there was an equal balance between investments channeled via intermediaries and investments made directly by the public. Both contributed 32% to flows. Lisps generated 21% of sales and institutional investors 15%.

Where did the money go?

Investors continued to favour funds in the South African Multi Asset category (previously Domestic Asset Allocation). At the end of March 2013, this category held 44% of industry assets (excluding Worldwide, Global and Regional sectors). In the first quarter of this year SA Multi Asset funds attracted R26.2 billion in net inflows.

In terms of ASISA’s new Fund Classification Standard for South African Collective Investment Portfolios, the SA Multi Asset category is made up of the following sub-categories: the new Income sub-category, Low Equity, Medium Equity, High Equity (previously Prudential Variable Equity), and Flexible.

Funds in the SA Multi Asset – Low Equity category proved most popular with investors in the first quarter of this year attracting net inflows of R12 billion. Funds in the SA Interest Bearing – Short Term category (previously Domestic – Fixed Interest – Income) were favoured by investors looking for higher yields than offered by cash investments in the current low interest rate environment. These funds attracted the second highest net inflows in the first three months of this year of R9 billion.

Campher says only 25% of assets were invested in pure equity and real estate funds at the end of March this year.

“Investors prefer Multi Asset funds, because they make it possible to achieve diversification across asset classes within one fund. Expert fund managers determine the appropriate mix for these funds in line with their investment mandates.”

According to Campher the performance of the Multi Asset category has not disappointed investors. For example, over the one year ended March 2013, the SA Multi Asset – Low Equity category, which was most popular with investors in the first quarter, delivered a return of 14%, only 3% less than the SA Equity – General category.

Over three years the SA Multi Asset – Low Equity category delivered 10% compared to the 13% achieved by the SA Equity – General category. Over five years both categories returned 9%. For the 10-year period the SA Multi Asset – Low Equity category returned 12%, while SA Equity – General delivered 21%. For all of these periods inflation ranged between 5% and 6%.

Offshore focus

Locally registered foreign funds held assets under management of R164.2 billion at the end of March 2013, compared to R143 billion at the end of December 2012. The substantial growth in assets under management was as a result of the depreciation of the Rand against the US dollar in the first three months of the year from R8.48 to R9.22. These funds recorded 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 309 foreign currency denominated funds on sale in South Africa.

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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.