ASISA: Strong flows into local CIS portfolios demonstrate investor resilience

18 May 2017 Sunette Mulder, ASISA
Sunette Mulder, senior policy adviser at ASISA.

Sunette Mulder, senior policy adviser at ASISA.

The local Collective Investment Scheme (CIS) industry attracted healthy net inflows of R30.4 billion in the first quarter of 2017, pushing net inflows for the year to the end of March to R157.1 billion – the highest for this period in three years.

Sunette Mulder, senior policy adviser at the Association for Savings and Investment South Africa (ASISA), comments that these net inflows were achieved despite prevailing economic and political uncertainty, demonstrating investor resilience.

According to the CIS industry statistics for the quarter and year ended March 2017 released today by ASISA, investors continued to favour South African Multi Asset portfolios, which attracted R56 billion of the annual net inflows.

Multi Asset portfolios are popular with investors and financial advisers, because they offer investors diversification within one portfolio managed by an experienced portfolio manager with the aim of smoothing out the highs and lows of the markets.

Mulder says a surprisingly high proportion of the annual net inflows to the end of the first quarter 2017 went into SA Money Market portfolios (R45 billion) and SA Interest Bearing portfolios (R23 billion).

“The high net inflows attracted by the SA Interest Bearing sector were somewhat unusual as this is the first time in three years that these portfolios have seen positive inflows. However, the fact that R19.5 billion of the R23 billion of net inflows into the SA Interest Bearing sector went into Short Term portfolios leads us to believe that these are investors pursuing short-term returns.”

The SA Interest Bearing Short Term sector was the best performing sector in the year to the end of March 2017, delivering average returns of 8.4%, followed by SA Money Market funds with 7.5%.

Rewards for investors with a long-term view

Mulder points out that while the SA Interest Bearing Short Term sector led the performance charts for the 12 months ended March 2017, the SA Multi Asset High Equity sector rewarded investors with a long-term view by consistently outperforming other major sectors over five, 10 as well as 20 years.

The table shows that SA Multi Asset High Equity portfolios on average outperformed SA General Equity portfolios or delivered the same returns, while offering investors the added benefit of a more diversified risk profile.

Source: Profile Media

Mulder comments that the 10-year period, for example, included events such as the 2008 global financial crisis, the Eurozone debt crisis, the removal of Nhlanhla Nene as Finance Minister and the shock Brexit announcement, all of which triggered severe market volatility.

“Despite this, SA Multi Asset High Equity portfolios managed to keep pace with SA General Equity portfolios while at the same time mitigating excessive volatility for their investors. It is important to remember, though, that since these are average performance figures some portfolios would have delivered even higher returns while others may have disappointed.”

In the 20 years to the end of March 2017, SA Multi Asset High Equity portfolios delivered an average return of 13.2%, outperforming the 12.7% average performance of SA General Equity portfolios.

“Those who remained invested in these portfolios could have benefitted from returns of more than double the rate of inflation, which was measured at 5.8% over the same period,” says Mulder.

The industry in summary

The CIS industry managed assets of R2.07 trillion at the end of the first quarter of 2017. SA Multi Asset portfolios held 51% of these assets, SA Interest Bearing portfolios 25%, SA Equity portfolios 20% and SA Real Estate 4%.

At the end of March 2017, investors had a choice of 1522 portfolios – an increase of 162 from the previous year.

Who invested?

Mulder says that 31% of the inflows into the CIS industry in the 12 months to the end of March 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 23% of new inflows. Linked investment service providers (Lisps) generated 19% of sales and institutional investors like pension and provident funds contributed 27%.

Offshore focus

According to statistics reported to ASISA, locally registered foreign portfolios held assets under management of R383 billion at the end of March 2017, an increase from the R363 billion managed at the end of December 2016.

She notes that foreign portfolios recorded net inflows of R5.5 billion for the first quarter of this year, a decrease from the R7.7 billion inflows reported in the previous quarter.

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 407 foreign currency denominated portfolios on sale in South Africa.

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