Advisers steer clients to asset allocation funds
At 31 March 2011 the South African Collective Investment Schemes (CIS) industry boasted R961 billion assets under management, split across 934 funds. For the uninitiated the variety of available unit trust funds can be quite daunting… But things get easier when we break these funds into their various investment categories. At the highest level the Association of Savings and Investments South Africa (ASISA) breaks the CIS universe into four ‘pillars’ – namely domestic funds, worldwide funds, foreign funds and fund of funds… The bulk of South Africa’s unit trust savings (some 95% or R912 billion) is split among 734 unit trust funds accounted for under the domestic funds heading. We’ll look at this category in more detail before getting to the ‘meat’ of today’s newsletter – the Morningstar © Estimated Fund Flows update for May 2011.
ASISA provides a detailed breakdown of the types of domestic funds to which financial intermediaries and institutional fund managers are steering their clients’ funds. By the end of Q1 2011 the largest slice of investors’ capital, some R286.945 billion was conservatively invested in the Money Market funds category. This category is followed closely by Asset Allocation funds (R229.389 billion), Equity funds (R203.613 billion), Fixed Interest funds (R163.480 billion) and Real Estate funds (R28.814 billion). This snapshot of the CIS industry confirms, without a doubt, that South African investors rely heavily on unit trusts as an additional ‘tool’ to save toward savings. The reason for this conclusion is the conservative nature of the favoured unit trusts, particularly money market and fixed income funds.
The trend toward Asset Allocation funds continues
And the heavy reliance on Asset Allocation funds suggest the average investor, your client, is more than happy to allow a professional fund manager to decide on the appropriate mix of cash, bonds, equity and listed property! Will the trend toward lower risk investments continue through the second quarter of 2011?
The ASISA CIS industry statistics to 30 June 2011 are still some way off, so we took a look at the latest Morningstar press release to answer this question. Based on their assessment of net cash flows through May 2011 the answer to the question is a definite yes. Tal Nieburg, Head Morningstar South Africa, writes that the Domestic AA Prudential Variable Equity (a sub-category of Asset Allocation) has attracted the most inflows year to date, May. This category has attracted R8.163 billion over the first five months of 2011. (ASISA accounts for flows to the Domestic Asset Allocation funds under prudential low equity, prudential medium equity, prudential high equity, prudential variable equity, flexible, and targeted absolute & real return sub-categories).
And the most popular unit trust fund in the Domestic AA Prudential Variable Equity category is the Coronation Balanced Plus Fund, which has attracted R2.86 billion year-to-date, with an impressive R850 million of this tally flowing into the fund in May alone! “The fund has been a consistent performer and Morningstar has ranked it as 1st over five years, 3rd over three years and 4th over one year relative to its sector,” says Nieburg. Further evidence of the country’s risk-averse investment ideology comes courtesy of fund movement statistics for the Domestic Fixed Income Money Market sector. These funds attracted R3.941 billion in May 2011 after suffering a R2.477 billion outflow in April. The Absa Money Market Fund scooped an impressive R3.094bn of the May 2011 inflows, or 78.5% of the total!
Big managers reap billions over the past year
Some of the industry statistics make for compelling reading. We enjoyed the data Morningstar provide for CIS Inflows (by company) for the year to 31 May 2011. This table shows the total net cash inflows, regardless of unit trust fund, into the country’s most popular fund managers. Coronation Management Co topped the charts with an impressive R17.672 billion. Second place goes to Absa Fund Managers (R14.359 billion) and third to Investec Fund Managers (R7.306 billion). Sanlam, Nedgroup, Foord Unit Trusts and Discovery Life Collective Investments all topped R2 billion!
Although stock markets haven’t shot the lights out it seems certain the CIS industry will top R1 trillion assets under management this year. And that’s a good thing given the rather disappointing state of South Africa’s retirement funding and household savings environment.
Editor’s thoughts: Recent financial innovations mean investors can access relatively cheap equity-based products (such as exchange traded funds) at a fraction of the ‘cost’ of traditional unit trusts. Do you still consider the unit trust as an indispensable tool for discretionary savings? Please add your comment below, or send it to [email protected]
