ASISA: Unit trust industry celebrates R1-trillion in assets under management

Assets managed by the local Collective Investment Schemes (CIS) industry exceeded the R1-trillion mark for the first time during the first quarter of this year. Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASI

Local collective investment schemes attracted net inflows of only R719-million in the first three months of this year following significant outflows of R13.5-billion from Domestic Money Market funds and R12.8-billion from Domestic Varied Specialist funds, both in the Domestic Fixed Interest sector.

Dempsey explains that outflows became the norm for both money market funds as well as varied specialist funds a year ago.

The anticipated change in the tax treatment of Dividend Income Funds had resulted in investors withdrawing from these funds, housed in the Varied Specialist sector, over the past 12 months.

“At the beginning of the year the Taxation Laws Amendment Act came into effect, declaring the returns achieved by Dividend Income Funds interest payments and therefore subject to income tax. This change in the tax laws rendered these funds less attractive, resulting in the closure of some of these funds in the first quarter of 2012.”

In addition corporate investors have for the past 12 months been repositioning their cash holdings, leading to large withdrawals from money market unit trust funds.

“Considering that the sizeable outflows are attributable to external developments impacting on the CIS industry, such as changes to tax legislation and the rearranging of corporate treasury structures, we are not overly concerned,” says Dempsey.

He points out that individual investors and small retirement funds continue to use collective investment schemes for what they were intended, namely to achieve capital growth through collective exposure to the stock market. In the first quarter alone the Domestic Asset Allocation sector attracted net inflows of R21-billion.

As a result the Domestic Asset Allocation category held on to its newly gained position as the industry’s biggest category in the first quarter of this year. The Domestic Asset Allocation category toppled the Domestic Fixed Interest Money Market category from top position in the fourth quarter of last year.

At the end of March 2012, the Domestic Asset Allocation category held assets under management of R307-billion, or 30% of industry assets. Money market funds held assets of R239-billion, or 23% of industry assets.

Domestic Asset Allocation funds have grown in popularity in recent years, 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.

Dempsey notes that healthy net inflows were also experienced by Domestic Real Estate General funds, recording R2-billion for the first three months of this year.

At the end of March 2012, the industry offered investors 945 funds, two less than at the end of 2011.

Sources of sales

The bulk of the investments into the CIS industry in the 12 months to the end of March this year came via intermediaries (35.5%). Direct investments from consumers contributed 18.9% towards inflows over this period. Linked investment services providers (Lisps) generated 20.4% of sales and 25.2% of sales was received from institutional investors like pension and provident funds.

Five years ago 42.5% of investments into the CIS industry came via intermediaries, while direct investments contributed 16.1%. Lisps generated 26.2% of sales and institutional investors 15.2%.

Offshore focus

Locally registered foreign funds had assets under management of R137.6-billion at the end of March this year, compared to R134.6-billion at the end of December last year. These funds recorded net inflows of R4.4-billion during 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.