ASISA statistics – appetite for risk assets picks up

There are three notable trends highlighted by the third quarter collective investment scheme statistics released by ASISA today. Firstly, net inflows have increased significantly (from R3.8bn in the second quarter to R14.5bn), which suggests that despite the volatility in the third quarter, investors are starting to believe that markets are starting to show value. This, combined with more concrete attention across the Eurozone to find solutions to the region’s problems is clearly starting to remove some of the panic and fear that saw investors retreating in the second quarter.

Secondly, the overall spike in inflows to R14.5bn masks widely divergent underlying flows in the various categories of collective investment schemes, with R10.5bn leaving money market funds in the third quarter, similar to the outflows from money market funds seen in the second quarter. It suggests that investors are cognisant of the fact that their cash investments are barely beating inflation and are choosing to direct their investments in equities, fixed income funds and multi-asset funds.

Finally, with flows of R11.5bn into multi-asset funds, it is clear that the trend of investment into asset allocation funds is continuing, as investors remain uncertain as to the future direction of the various asset classes and prefer to leave asset allocation decision-making to investment professionals. While the professionals will not always get it right, a good portfolio manager, given their training, experience and access to information, should get it right more often than the individual investor.

Although South African stocks are certainly not exciting at the moment, investors do need to be careful of allowing volatility-induced fear to leave them in cash for too long. In a world where interest rates are going to remain lower for longer and bond yields are under pressure, equities are probably the place to be over the medium to longer term. They should – once the volatility passes – provide inflation-beating returns, returns which investors will have to be thankful for as the stock market is unlikely to provide returns far in excess of inflation for at least the next five years.