Global collective investment scheme assets decline to three year low

14 May 2009 Association for Savings and Investment South Africa (ASISA)
Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA)

Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA)

Collective investment schemes (CIS) worldwide shed US$7.18-trillion in assets under management last year, from $26.15-trillion at the end of 2007 to $18.97-trillion at the end of 2008.(The worldwide statistics lag the South African statistics by one quarter.)

The quarterly statistics for global CIS funds were released this week in Washington DC by the Investment Company Institute (ICI), the national association of US investment companies. The ICI compiles worldwide statistics on behalf of the International Investment Funds Association, an organization of national mutual fund associations. The 2008 fourth quarter statistics were collected from 44 countries.

Global CIS assets under management were last seen at levels below the $20-trillion mark early in 2006. The South African collective investment schemes (CIS) industry on the other hand displayed unprecedented resilience last year, with assets under management peaking at a record R661-billion by the end of December 2008. By the end of the first quarter this year, local assets under management had decreased only slightly to R658-billion.

 (Click on image to enlarge)

Source: Investment Company Institute

Looking at the individual global asset classes for 2008 on a US dollar–denominated basis, worldwide equity fund assets fell by 47.6%, balanced fund assets dropped by 32.5%, and bond fund assets by 20.5%. In contrast, money market fund assets increased by 16.7% in 2008.

Global money market funds shine

The ICI reported that net inflows into money market funds increased to a whopping $444-billion in the fourth quarter last year, from only $31-billion in the third quarter of 2008. For the year as a whole, money market funds recorded net inflows of $891-billion, while the other fund categories combined saw net outflows of $610-billion in 2008.

The number of mutual funds worldwide stood at 68 574 at the end of the fourth quarter of 2008. By type of fund, 41% were equity funds, 21% were balanced/mixed funds, 18% were bond funds, and 5% were money market funds.

Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA), says while money market funds worldwide have attracted massive inflows from investors too nervous to expose their capital to equities from the second half of last year, the bulk of assets worldwide are still held in equity funds.

At the end of the fourth quarter last years, 34% of worldwide CIS assets were held in equity funds. Money market fund assets represented 31% of the worldwide total.

But unlike their global peers, South African investors have been playing it “safe” for the past five years already, notes Campher. Domestic money market funds held 32% of assets at the end of last year and equity funds 22%.

“While it is understandable that investors would retreat to money market funds over the short-term given the turmoil in global markets last year, the tendency of South African investors to remain in cash for the longer term is concerning.”

He reiterates that money market funds have barely managed to beat inflation post tax over the medium to longer term and adds that equities are the only asset class to have consistently outperformed inflation over the long-term.

“Diversification into equities is required to provide a portfolio with inflation beating returns. The exact ratio needs to be determined with the help of a trusted financial adviser and should be based on the individual investor’s risk profile and investment needs.”

Local money in foreign funds

Campher says the foreign CIS statistics for the first quarter this year show that South Africans flush enough to diversify into foreign currency funds registered with the Financial Services Board (FSB) using their foreign exchange allowance also preferred equities – 66% of assets invested by local investors in these foreign funds were in equities as at the end of the first quarter this year. Only 16% of assets were held in foreign fixed interest funds and only 19% in foreign asset allocation funds.

“Typically these are high net-worth investors looking to diversify country and currency risk. These investors understand the long-term benefit of equity exposure and are therefore more likely to opt for equity funds with their foreign allowance.”

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