Local CIS industry doubles in size in just five years

11 February 2014 Leon Campher, ASISA
Leon Campher, CEO of ASISA.

Leon Campher, CEO of ASISA.

Investors had almost R1.5 trillion invested with the local Collective Investment Schemes (CIS) industry at the end of December 2013 – more than double the R661 billion invested only five years ago.

The 2013 local Collective Investment Schemes (CIS) industry statistics released today by the Association for Savings and Investment South Africa (ASISA) also show that over the past 10 years the industry has seen assets under management increase fivefold.

Leon Campher, CEO of ASISA, says while the strong run of the equity market has certainly played a role in the growth of CIS assets, unprecedented net quarterly inflows in recent years strongly bolstered assets under management.
In 2013 the industry attracted net inflows of R177 billion, far exceeding the previous record net inflows of R120 billion achieved in 2012.
At the end of December 2013, the CIS industry offered investors a choice of 1 062 portfolios.

Worldwide, there are 75 274 collective investment scheme portfolios with total assets under management of $28.8 trillion as at the end of September 2013. (Figures provided by the International Investment Funds Association (IIFA), of which ASISA is a member, lag by one quarter due to the magnitude of statistics that have to be collated.)

Multi Asset in the lead

Campher says the South African Multi Asset category remains the absolute darling of investors. In 2013 this category attracted R113 billion in net inflows, followed by the SA Interest Bearing category, which saw net inflows of R27 billion. SA Money Market funds attracted net inflows of R15 billion.

"Multi asset portfolios present investors and their advisers with an investment option that takes the pain out of achieving diversification across asset classes. Investors are increasingly recognising the benefits of leaving diversification up to an expert fund manager and we are therefore not surprised that the multi asset category has become the biggest in the history of the CIS industry.”

The SA Multi Asset category consists of 522 portfolios and holds almost half of total industry assets.

Campher comments that investor preference for multi asset portfolios appears to be unique to South Africa. Internationally, investors tend to opt predominantly for equity funds (42.7% of all international CIS assets), followed by bond funds (27.4%) and then balanced funds (multi asset portfolios – 12.2%). In South Africa the local multi asset portfolios, excluding multi asset income, hold 38% of assets, equity funds 25% and bond funds 18%.

"This indicates that international investors have a very different risk appetite to their South African counterparts. Local investors tend to be more risk averse and are more easily spooked by market volatility.”

Nevertheless, the strong preference of local investors for multi asset portfolios has paid off. Most popular with investors in 2013 were the SA Multi Asset High Equity portfolios, attracting net inflows of R46.2 billion. These portfolios also delivered consistent double-digit returns over the long-term. Campher points out that not even the SA Multi Asset Low Equity category disappointed.

Annualised Sector Performances

Campher points out that multi asset portfolios are not designed to outperform pure equity portfolios, but rather to smooth out market volatility through diversification. "Therefore, while you cannot expect these portfolios to shoot the lights out when markets run hard, you can expect a more stable performance from them in times of market volatility. And you can, and should, also expect a multi asset portfolio to outperform inflation and cash over the long term.”

Who invested?

Campher says the bulk of the inflows into the CIS industry in the 12 months to the end of December 2013 came directly from investors (29%). Intermediaries contributed 25% of new inflows.

Linked investment services providers (Lisps) generated 25% of sales and 21% of sales was received from institutional investors like pension and provident funds.

Offshore focus

Locally registered foreign funds held assets under management of R216 billion at the end of December 2013, compared to R143 billion at the end of December 2012.

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 306 foreign currency denominated funds on sale in South Africa.

Over the past 12 months to the end of December 2013, in Rand terms, the JSE All Share Index (ALSI) was the worst performing index when compared against the S&P500 and FTSE100. The ALSI (Total Return) returned 21.4%, the FTSE100 (TR) 49.3%, and the SP500 (TR) 63.4%.

Over the past five years ended December 2013, however, the ALSI’s (TR) 19.9% return was only narrowly beaten by the S&P500 (TR), which delivered a return of 21.3%. The FTSE100 (TR) came in at 19%.

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