ASISA: Investors allocate billions to painless asset allocation options

Assets managed by the local Collective Investment Schemes (CIS) industry have grown by a healthy R85 billion over the past year to R1 041 billion at the end of June this year.

Second quarter statistics for the local CIS industry released by the Association for Savings and Investment South Africa (ASISA) this week show that collective investment schemes such as unit trust funds remain popular with investors. Sales in the second quarter alone amounted to R242 billion – one of the highest ever recorded.

Unfortunately some of the strong flows were negated by the heavy outflows that continue to plague the domestic money market funds. In the second quarter alone money market funds suffered net outflows of R8.8 billion, bringing to R43.8 billion the net annual outflows for these funds.

Leon Campher, CEO of ASISA, attributes the sizeable withdrawals from domestic money market funds to continued repositioning of corporate cash holdings.

He adds, however, that softer money market rates ahead of the recent interest rate cut probably also resulted in some investors switching to unit trust funds producing higher income yields. This resulted in some of the domestic fixed interest funds attracting some of the highest net inflows for the quarter. The Domestic Fixed Interest Varied Specialist sector recorded net inflows of R3.1 billion and the Domestic Fixed Interest Income sector R2.8 billion.

Campher says following the exceptionally weak net inflows in the first quarter of this year of only R719 million, the strong net inflows of R15 billion in the second quarter were very welcome. At the end of June 2012, the industry offered investors 951 funds.

Net winners

The Domestic Asset Allocation category again attracted the bulk of the net inflows in the second quarter of this year. This category has been the industry’s largest since it toppled the Domestic Fixed Interest Money Market category from top position in the fourth quarter of last year.

At the end of June 2012, the Domestic Asset Allocation category held assets under management of R331 billion, or 31% of industry assets. Money market funds held assets of R231 billion, or 22% of industry assets.

Campher says most popular within the Domestic Asset Allocation category is the Prudential Variable Equity sector, which attracted net inflows of R8.8 billion during the second quarter of this year.

Campher says asset allocation funds continue to grow in popularity, because they enable investors to achieve diversification across the asset classes within one fund. Expert fund managers determine the appropriate mix for the fund in line with its investment mandate.

Net inflows were also recorded by the domestic equity category (R201 million) and the domestic fixed interest (excluding money market funds) category (R6.4 billion) during the second quarter of this year.

Delivering performance

Campher says the CIS performance figures for the second quarter show why the Domestic Asset Allocation Prudential Variable Equity sector is so popular with investors and their financial advisers. Average fund performance in this sector did not shoot the lights out, but also did not disappoint in delivering a solid average. This sector delivered an average performance of 9.4% for the one year to the end of June 2012, very similar to domestic general equity funds. In comparison money market funds produced 5.5% and other fixed interest income funds 7.2%. Inflation came in at 5.2%.

Over the five-year period, which bore the brunt of the global financial meltdown, funds in the Domestic Asset Allocation Prudential Variable Equity sector delivered 6.2% (13.8% over 10 years). General equity funds produced 5.2% over five year and 16.2% over 10 years. Money market funds achieved 8.2% and 8.3% over five years and 10 years and other fixed interest income funds 8.8% and 9.1% over the periods. Inflation came in at 6.3% for five years and 5.3% for 10 years.

Sources of sales

The bulk of the investments into the CIS industry in the 12 months to the end of June this year came via intermediaries (36%). Direct investments from consumers contributed 20.4% towards inflows over this period. Linked investment services providers (Lisps) generated 21.2% of sales and 22.5% of sales was received from institutional investors like pension and provident funds.

Five years ago 38.6% of investments into the CIS industry came via intermediaries, while direct investments contributed 21.4%. Lisps generated 24.7% of sales and institutional investors 15.3%.

Offshore focus

Locally registered foreign funds had assets under management of R123.8 billion at the end of June this year, compared to R137.6 billion at the end of March this year. These funds recorded net inflows of R2.6 billion during the second 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 321 foreign currency denominated funds on sale in South Africa, 21 less than at the end of December 2011.