CIS investors feel the pinch as SA economy falters
Economic growth and business and household confidence are closely correlated with investment flows to and from South Africa’s collective investment schemes (CIS) industry. All else being equal periods of lacklustre economic growth and negative investor sentiment coincide with fund outflows whereas buoyant growth and rising confidence leads to funds pouring in
The Jekyll and Hyde of macroeconomics
The R32.25 billion in CIS fund outflows recorded in South Africa in 2024 prompted the Association for Savings and Investment South Africa (ASISA) to second a macroeconomic commentator to its most recent media briefing. Craig Lemboe, Deputy Director of the Bureau of Economic Research (BER) was in attendance to give the assembled journalists a quick overview of the economic and investment landscape. “The macroeconomic environment can be a friend or foe; and last year, from a South African investor perspective, we saw a little bit of both,” he said, in a brief introduction.
2024 was one of the biggest global election years in history. As billions of global citizens went to the polls, the year was blighted by polarisations between the left- and right-leaning voting blocs within individual countries. Geopolitical risks came to the fore too, as the Russia-Ukraine conflict powered ahead, and new challenges emerged in the Middle East. “Domestically, we entered 2024 with the huge hangover of loadshedding, which reached stage eight in December 2023 and remained an issue for much of the first quarter of 2024,” Lemboe said.
The Eskom crisis has since been superseded by ailing rail, road, and port infrastructure and concerns over water security, to name a few. South Africa’s May 2024 National Elections and the resultant Government of National Unity (GNU) were highlights of the most recent calendar year. Unfortunately, the country has been unable to leverage the goodwill flowing from its ‘functioning democracy’ status into economic growth. The presenter’s hopes that 2024 GDP growth would come in above consensus have since been dashed, with Stats SA confirming a mere 0.6% for the year, down from 0.7% in 2023.
Business, household confidence nears a turning point
The GDP number was disappointing in light of the domestic economic boost from GNU reforms, reduced loadshedding, lower inflation and interest rates, and the consumption expenditure windfall from the two pots retirement savings ‘unlock’. In other bad news, fixed investment into the physical economy has lagged over a number of periods, continuing its trend through 2024. Are we at a turning point? Lemboe welcomed the recent uptick in the RMB BER Business Confidence Index, albeit the indicator remains below the 50 point inflection point (50 is neutral, above 50, positive).
“Business confidence is a very good leading indicator of the private sector fixed investment element; it is a good proxy for retail investor sentiment too,” he said. Confident businesses employ and invest. The economist noted that the political underpinnings of an economy were an important input to the confidence metric, with one of its focuses being whether respondents felt the prevailing political environment was a constraint or accelerant for their business. Political uncertainty remains a major concern, with recent BER polling echoing the sentiment seen in 1993 and 1994 at the height of the country’s transition to democracy.
“Positive developments during 2024 seemed insufficient to encourage investment inflows for the full year, and CIS stats revealed a record outflow of R35.25 billion over the period,” Lemboe concluded, before handing the microphone to ASISA senior policy advisor, Sunette Mulder, to examine the latest CIS industry stats. Her first slide provided an overview of the rand denominated CIS industry, now totalling R3.874 trillion in net assets under management invested across 1878 CIS portfolios (also called funds or unit trusts).
Dividend, income reinvestments save the day
“The 1878 portfolios illustrate the choices that investors have to make and highlight how important it is for investors to get the correct advice when they decide to invest,” Mulder said. Financial advisers play a vital role in ensuring clients choose portfolios that align with their financial needs. The latest stats suggest it has been a tough year for consumers. Mulder noted that the bulk of CIS investment flows for 2024 came from reinvested income and dividends, when these reinvestments were stripped out, the total net inflow of R85.82 billion went into the red to the tune of R35.25 billion.
A slide of net annual flows by sector shows that interest bearing funds remain in favour. “We have seen an ebb and flow between the Multi-Asset and Interest Bearing funds over the years; we saw a comeback in the Multi-Asset funds over 2022-2023, but in the latest year, Interest Bearing funds attracted the bulk of flows,” Mulder said. Overall, R16 billion flowed out of Equity portfolios versus R36 billion going into Interest Bearing, R34 billion into Multi-Asset, and R6 billion into Money Market portfolios. It seemed as if investors were chasing return; but ASISA reminded the room that diversification was important for investors to achieve their aims.
Giving a snapshot of overall assets in South African funds, ASISA reported 30.5% in the Interest Bearing category made up of 13.4% in SA Money Market, 6.1% in Variable Term, 0.1% in Variable Term Inflation Linked Bonds (ILBs), and 10.9% in Short Term; 18.3% in Equity; 1.3% in Real Estate; and an impressive 49.9% in Multi-Asset portfolios. The final category spanned Flexible (3.2%), Income (11%), Low Equity (7.9%), Medium Equity (2.7%), High Equity (24.5%), and SA High Equity (0.2%) funds. For those with their calculators out, there was another 0.3% in unclassified funds under this category.
Global equity funds top the charts over 5, 10, 20 years
The slide your clients will be hounding you about was shared nearer the end of this presentation. The sector performance table for the 12-months to end-December 2024 was topped by Global Equity – General (+16.3%) with SA Interest Bearing – Variable Term (+15.8%) and SA Equity General (+13.8%) filling the top three. SA Interest Bearing – Money Market ended bottom of the log with an annual return of 8.7%. The good news for CIS investors is that all the categories, with the exception of the last-mentioned, beat inflation by more than three times net of fees. The one-year returns are not surprising given the total rand returns generated by various indices. The JSE was up 13.4% over 2024, with the UK FTSE 100 up 11.2%, and the United States S&P500 up 29%.
Global Equity – General ended up on top of both the five and 10-year return charts with annualised returns of 14% and 12.2% respectively. Over five years, SA Equity – General (+10.3%) came in second with SA Multi-Asset High Equity (+10.1%) in third. The best of the 10-year returns suggested a divergence from a typical risk-return dispersion, with the second to fourth best categories being interest bearing and fixed income type portfolios. SA Interest Bearing – Variable Term (+8%), was followed by SA Multi-Asset – Income (+7.5%), and SA Interest Bearing – Short Term (+7.5%).
Mulder also shared a snapshot of the International Investment Funds Association (IIFA) September 2024 update, which showed a total US$75 trillion in assets under management. This investment pot was distributed across equity funds, $36 trillion; bond funds, $14.1 trillion; balanced funds, $7.7 trillion; money market funds, $11.2 trillion, and other, $5.8 trillion. “The international market is very much focused on specific funds dealing with equities and bonds whereas our market has always been focused on balanced funds,” she said.
Tweaks to ASISA fund classification standard
The presentation concluded with an announcement of some tweaks to the AISSA fund classification standard, effective 1 October 2024. In the equity portfolio universe, you now find new categories for SA Equity – SA General (with 100% SA equity) and Global Equity – Africa. In the Multi-Asset category investors can now find SA Multi Asset – SA High Equity (with 100% SA equity in the equity component) funds. And finally, in the interest bearing category, you can choose from SA Interest Bearing Variable Term ILBs, and Global Interest Bearing Unclassified.
Writer’s thoughts:
The latest ASISA data shows investors retreating into Interest Bearing funds, shunning equities despite long-term outperformance. Are your clients making decisions based on strategy, or fear? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.
