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CIS industry reports healthy net inflows of R37 billion for second quarter

16 August 2017 Sunette Mulder, ASISA
Sunette Mulder, senior policy adviser at ASISA.

Sunette Mulder, senior policy adviser at ASISA.

The local Collective Investment Schemes (CIS) industry ended the second quarter of this year with assets under management of R2.09 trillion. Investors committed R37 billion in net inflows to CIS portfolios during this quarter, which included R16 billion of distributions reinvested.

The CIS industry statistics for the quarter and year ending June 2017 show that total net inflows for the year came to R160 billion – the highest for this rolling period in four years. SA Multi Asset portfolios held 50% of these assets, SA Interest Bearing portfolios 26%, SA Equity portfolios 20% and SA Real Estate portfolios 4%.

Market volatility splits investor sentiment

Sunette Mulder, senior policy adviser at the Association for Savings and Investment South Africa (ASISA), says the trend into interest bearing portfolios continued in the second quarter of this year. As a result, SA Interest Bearing portfolios attracted annual net inflows of R70 billion, of which R41 billion went into SA Money Market portfolios and R27 billion into SA Interest Bearing Short Term portfolios.

“Also noteworthy were the unusually high net inflows into SA Equity portfolios of R20 billion for the year ended June 2017,” says Mulder.

According to Mulder these trends appear to be driven by investors either adopting a wait and see attitude in a volatile market while reaping the benefits of the high yields generated over the past year by interest bearing portfolios, or anticipating a bounce back in the equity market. She adds that SA Money Market portfolios also benefitted from net inflows from the corporate sector.

However, says Mulder, the majority of investors still preferred diversified portfolios managed by an experienced portfolio manager to smooth out the highs and lows of the markets. SA Multi Asset portfolios therefore once again attracted the bulk of the annual net inflows, recording R49 billion to the end of June 2017. By comparison SA Money Market portfolios attracted R41 billion, SA Interest Bearing Short Term and Variable Term portfolios R29 billion and SA Equities R20 billion.

Time in the markets

Mulder cautions investors to choose their portfolios for the right reasons and not for the purpose of timing the markets.

The SA Interest Bearing Short Term sector was the best performing sector for the year to the end of June 2017 with average returns of 8.5%, followed by SA Money Market funds with 7.7%. SA Equity General portfolios delivered a disappointing negative 1% over the 12 months to the end of the second quarter on the back of a flat performance by the JSE All Share Index of 1.7%.

She points out, however, that over the five, 10 and 20 year periods to the end of June 2017, SA Multi Asset High Equity portfolios and SA General Equity portfolios consistently outperformed SA Money Market portfolios and SA Interest Bearing Short Term portfolios.

Source: Profile Media

At the end of June 2017, investors had a choice of 1 556 portfolios – an increase of 34 from the previous quarter.

Who invested?

Mulder says that 30% of the inflows into the CIS industry in the 12 months to the end of June 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 24% 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 R403 billion at the end of June 2017, an increase from the R383 billion managed at the end of March 2017.

She notes that foreign portfolios recorded net inflows of R1.8 billion for the second quarter of this year, a decrease from the R5.5 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 420 foreign currency denominated portfolios on sale in South Africa.

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