Collective investment schemes industry worth R1 trillion by Christmas
It’s official! The latest collective investment schemes (CIS) statistics suggest total assets under management in domestic funds will top R1 trillion before the year is out. A record R109 billion capital inflow in the 12 months to 31 December 2010 sent the tally – the bulk of which resides in the domestic equity category – to R927 billion. But the statistics for the 2010 Domestic and Foreign CIS industry, released in Johannesburg yesterday, painted a familiar picture.
Leon Campher, CEO of the Association of Savings and Investments South Africa (ASISA), once again lamented the conservative nature of local investors. In a year when the JSE All Share index produced a total return (capital appreciation plus dividends) of almost 19% – and equity-based domestic unit trusts topped the 12-month performance tables – a mere 4.4% of “new” capital found its way to domestic equity funds. Domestic fixed interest funds attracted an unbelievable 55% of 2010 net inflows with the remaining 34.2% going to domestic asset allocation funds. “Looking at these figures, it pains me the majority of our investors did not share in the market growth,” said Campher.
Last year’s top performers
The 12-month performance to 31 December 2010 reflects the economic recovery. And there weren’t too many surprises. Top performing domestic fund categories included Domestic Equities Industrial (+26%), Domestic Equities Small Cap (+25%) and Domestic Equities Real Estate (+24%)… In fact we had to wait until the 9th best performance for the first non-equity star – a rather less impressive 15% from the Domestic Fixed Interest Bonds category. The worst performers included Foreign Equity General Fund (-2%), Foreign Asset Allocation Funds (-5%) and Foreign Fixed Interest Bonds (-7%).
Investors have suffered offshore through 2010. In Rand terms the US-based S&P 500 index managed a pathetic 3% total return, while the UK FTSE 100 provided a less impressive -2%. One of the major ironies is while South Africans have clamoured to diversify offshore at the first sign of rand weakness or political instability, the local market continues to outperform… On a five year view a rand investment in the JSE has delivered a 103% return – with the FTSE (+20%) and S&P (+17%) left in the dust.
The equity bias plays out over five years too. CIS statistics for fund category performances over five years show Domestic Equities Industrial (17% annual compound return), followed by Domestic Equities Value (+15%) and Domestic Equities Real Estate (+15%)… These statistics confirm the long-run risk return relationship across the most common asset classes, with Equities, Listed Properties, Bonds and Cash finishing in that order.
The offshore debate continues
Local investors have used the “rand is strong” argument to justify their decision to go offshore. But instead of weakening through 2010 currencies in emerging economies such as Brazil and SA have strengthened even further. This demonstrates the risk in basing an offshore investment on local factors… In hindsight – why invest your cash in the “bombed out” US and UK markets when the best returns are on offer on home soil?
“Taking bets against the future performance of the currency carries the same risk as gambling,” said Campher. He may be exaggerating, but he makes a very clear point: you should invest in an asset class on its merits… Last year investors were taking money offshore despite the dismal returns prospect across the offshore asset allocation space.
Repeating the mistakes of the past
Last year the biggest capital inflow went to Domestic Fixed Interest – Money Market (which gained R38.0 billion) while R2.3 billion flowed out of Domestic Equity General…Will investors repeat their 2010 mistakes this year? I’m guessing they will, as they’ve shown over the past five years. And Campher agrees: “South African investors continued the trend of sacrificing long-term capital growth for the perceived safety of fixed interest funds last year. Yes, equity investments carry a higher risk and are more volatile – but over the longer-term they consistently outperform fixed interest and inflation!”
Editor’s thoughts: I’ve always been impressed with the detailed quarterly statistics provided by the Collective Investments Schemes (CIS) industry. These reports break down the total assets under management and cash flows on a quarterly and annual basis for every imaginable category and sub-category. And they’re available to Joe Public on the web! Do you think the flood of funds to Money Market unit trusts is cause for concern – or is any saving better than none? Add your comment below, or send it to [email protected]
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