ASISA stats – investors continue to favour asset allocation funds

By Jeremy Gardiner, director, Investec Asset Management

The final quarter of 2009 saw light flows into equity funds, with the bulk of unit trust investments going into asset allocation and fixed income funds. This highlights two trends:

· Investors remain concerned that the market recovery, which started in March last year, was overdone relative to the economic health both locally and abroad; and

· Investors realise that markets are tricky to call and are therefore choosing to allow portfolio managers to make the asset allocation decisions on their behalf. This is sensible: although professional money managers won’t always get it right, their education, experience and access to information should see them get the asset allocation decisions right more often than individual investors.

Noticeable also is the fact that investors appear to continue to steer clear of offshore investment, with only a trickle going into offshore funds. South African investors have traditionally chosen developed markets over emerging markets for their offshore investment. Given the poor returns of developed markets over the past ten years and the poor prognosis for the US, UK and Europe going forward, South African investors are justifiably jaundiced towards investing offshore. However, taking into account further recent relaxation of exchange controls and the strength of the rand, now is an ideal opportunity for investors to take funds offshore. Opportunities do exist, both in developed and emerging markets, but they are just going to be harder to find.

Although markets have seen a slight retracement, we believe the correction will be short-lived given the amount of money sitting on the sidelines waiting for an opportunity to invest. However, given the fact that global economic health remains fragile and that interest rates are likely to stay lower for longer, returns for 2010 will be harder to generate. Barring an unforeseen disaster, we don’t expect markets to collapse either. So expect a choppy year and anticipate flows into asset allocation funds to remain in vogue going forward.