The pi-trillion déjà vu

06 March 2023 Gareth Stokes

The assets under management (AUM) in South Africa’s Collective Investment Schemes (CIS) universe ended 2022 at a rather substantial ZAR3.14 trillion, reminding this writer of that time he used a tongue-in-cheek pi-trillion reference in another newsletter headline. Yes, dear reader, pi, that mathematical constant that is the ratio of a circle’s circumference to its diameter, also starting with the digits 3, 1 and four. Enough silliness; the next observation from attending the latest CIS industry update was that AUM could have been much larger. 

So, this R108 billion went where exactly?

“This number is flat compared to where we ended in December 2021, but we must remember it was a very turbulent year, with the JSE All Share total delivering just 3.6%,” said Sunette Mulder, Senior Policy Advisor for Investments at the Association for Savings and Investment South Africa (ASISA). In the 12-months to 31 December 2022, you clients managed to squirrel away a net ZAR108 billion into the growing universe of 1 769 CIS funds. Those paying close attention will probably be muttering something along the lines of “how did industry AUM end ‘flat’ given that listed equities were higher over the period and the ZAR108 billion in additional cash invested?” The answer lies in the diverse returns achieved across asset classes and fund types. But first, a look at how the new cash was divvied up. 

According to ASISA, the bulk of the R108 billion went to conservatively managed opportunities. SA Multi Asset Income funds snagged the lion’s share of net incomes, totalling ZAR24.5 billion, while SA Interest-Bearing Variable Term funds came in a close second, with ZAR24.1 billion. There were still a number of investors prepared to take a gamble on equity, with net flows to SA Multi Asset High Equity attracting the third highest sum, or ZAR21 billion. Global equities also ended the year on a high note, gaining another ZAR9.2 billion. The association offered an interesting snapshot asset allocations across SA CIS funds for 2017 compared to 2022. Investors’ exposure to so-called interest-bearing funds increased from 26% to 31% while the portion in multi asset funds remained unchanged at 49%. Equities’ share of the pie (different than pi) contracted slightly, from 21% to 19% and real estate, not surprisingly, slipped from 4% to 1%. 

We want the return rundown!

The 12-month average performance across CIS funds, broken down by sector, turned out to be a real disappointment, or at the very least a ‘real return’ disappointment. There was not one sector that managed to beat consumer price inflation which was recorded as 7.2% for 2022. Conservative investors fared best thanks to the 6% return delivered by SA Interest Bearing Short-term funds, followed by 5.6% from SA Multi Asset Income funds and 5.1% from SA Interest Bearing Money Market funds. Those who stuck with the higher risk in equities were no doubt disillusioned by the 3.1% from SA Equity General funds; the dire 1.4% from SA Multi Asset Low Equity funds; and the miserable 0% from SA Multi Asset High Equity funds. But the real losers were the ‘everything offshore’ acolytes who saw negative 13.9% from Global Equity General funds. PS, the writer uses ‘losers’ loosely here, because he doubts those with global exposure will remain losers over the longer term. 

ASISA warned against taking short-term views on market returns, zooming out five, 10 and even 20-years to illustrate the value of time in the markets. Annualised performances over five years showed Global Equity General funds in first place, with 10%; SA Interest Bearing Variable-term funds in second, with 7,1% and SA Multi Asset Income funds in third, at 6,8%. The return from SA Equity General funds was subdued over that period, delivering just 5.9%, but beating CPI of 4,9%. “These charts demonstrate that staying invested in the market is important,” said Mulder. Although this writer agrees, he had a wry chuckle over how asset managers and other industry stakeholders are having to go further back in time to find statistics that support the ‘invest in equities’ mantra. 

Equity investor time horizons are expanding

For example, over 20-years, SA Equity General funds top the charts, at 13.3% annually, with Global Equity General funds in third at 9.9%. “Looking at a 20-year period, our SA Equity General outperformed at 13.3% versus CPI of 5.2%,” Mulder said. This stretching investment horizon was confirmed by Momentum Invest during a recent discussion on financial behaviour tax, where it emerged that investors had to stay invested for 14- rather than eight years to guarantee real returns. You can read more about that phenomenon in ‘Three rules to stop the behaviour tax bleed’. The historic data shared by ASISA was slightly more upbeat, reporting the average annual return from the US S&P 500 index over the five years ending 31 December 2022 at 16.6%; from the UK FTSE 100 at 7.5%; and from the South African FTSE/JSE ALSI at 8%. And that, dear reader, is why offshore has been popular of late. 

It is also worth noting that the ZAR3.14 trillion in our local CIS funds is a drop in the ocean compared to global markets. Mulder shared a snapshot of data from the International Investment Funds Association (IIFA) up to date to the end of September of last year. The total AUM reported by the IIFA stood at a staggering USD56.2 trillion! There are a lot of zeros involved here, but the writer reckons that the global pool of funds is about 320x what we have locally, at the current ZAR18,20 per USD1,00. The bulk of offshore capitals sits in Equity Funds (44%) with around 20% in Bond Funds and 12% in Balanced Funds (similar to SA Multi Asset). South Africa, meanwhile, has 24% in Equity Funds, around 6% in Bond Funds and a hefty 47% in Multi Asset Funds. 

Writer’s thoughts:
It is encouraging to see so much money flowing into professionally managed and regulated Collective Investment Schemes (CIS) funds, but discouraging to see the total assets under management (AUM) float despite another ZAR108 billion flowing in. Do you still favour Collective Investment Scheme (CIS) funds for your client’s discretionary savings? And how do you keep them invested when 12-month returns drop below inflation? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts

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