The local Collective Investment Schemes (CIS) industry attracted strong net inflows of R166 billion in 2016, pushing assets under management over the R2 trillion mark. In 2015 the local CIS industry recorded net inflows of R101 billion compared to R109 billion in 2014.
The annual CIS industry statistics for 2016, released today by the Association for Savings and Investment South Africa (ASISA), show that South African Multi Asset portfolios remain the investment vehicle of choice, attracting R71 billion of the total net inflows in the 12 months to the end of December 2016.
SA Interest Bearing Money Market portfolios received net inflows of R50 billion in 2016, while other SA Interest Bearing portfolios recorded net inflows of R17 billion and SA Equity portfolios R10 billion.
Sunette Mulder, senior policy adviser at ASISA, notes that the higher net inflows into money market portfolios were not surprising given the local and international equity market volatility that prevailed in 2016. Money market portfolios outperformed general equity portfolios by 3.5% over the 12 months to the end of December 2016.
She adds, however, that a large chunk of 2016 net inflows went into corporate money market portfolios, which is not necessarily a true reflection of retail investor sentiment.
Nevertheless, says Mulder, South African investors remain far more risk averse than their international counterparts.
Internationally, investors tend to opt predominantly for Equity portfolios (42% of all international CIS assets), followed by Bond portfolios (23%), Balanced portfolios – known as Multi Asset portfolios in SA - (13%) and then Money Market portfolios (12%).
In South Africa Multi Asset portfolios hold 51% of assets, Equity portfolios (including Real Estate) 24%, Money Market portfolios 16%, and other Interest Bearing portfolios 9%.
Worldwide, there are 109 316 collective investment scheme portfolios with total assets under management of $40.9 trillion as at the end of September 2016. (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.)
At the end of December 2016, South African investors had a choice of 1 520 portfolios – an increase of 193 portfolios from the previous year.
Time in the market
Mulder notes that investors who switch between interest bearing and equity portfolios every time they are spooked by short-term market volatility, pay a hefty price by sacrificing the solid long-term returns achieved by portfolios with equity exposure.
SA General Equity portfolios have on average delivered annual returns of 9% or more per year (net of fees) over five years, 10 years and 20 years to the end of December 2016. By comparison, SA Multi Asset High Equity portfolios returned in excess of 8.7% over the same investment periods, while SA Multi Asset Low Equity portfolios delivered more than 8% on average.
“Time in the market delivers solid returns over the long-term and not timing the market. The only way to beat volatility is with an appropriately diversified portfolio, provided you give it a chance over the longer term to help you achieve your investment goals.”
Mulder says 31% of the inflows into the CIS industry in the 12 months to the end of December 2016 came directly from investors – down by 1% from 2015. She points out, however, that this does not mean that these investors acted without advice. “We believe that a number of direct investors pay for advice and then make their choice of portfolio,” comments Mulder.
Intermediaries contributed 22% of new inflows, compared to 20% in 2015. Linked investment services providers (Lisps) generated 20% of sales (24% in 2015) and institutional investors like pension and provident funds contributed 27% (24% in 2015).
Locally registered foreign portfolios held assets under management of R363 billion at the end of December 2016, a slight decrease from the R364 billion at the end of December 2015. These foreign portfolios recorded net inflows of R22.8 billion over the 12 months to the end of 2016.
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 410 foreign currency denominated portfolios on sale in South Africa.