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Investors are supporting solutions – and the stats don’t lie

22 March 2017 Carl Roothman, Sanlam
Carl Roothman, head of Retail at Sanlam Investments.

Carl Roothman, head of Retail at Sanlam Investments.

ASISA recently released the latest statistics showing which funds, asset classes and managers investors are entrusting their money to. The SA unit trust industry’s 2016 statistics reveal a few interesting long-term investor trends and also knee-jerk reactions to current markets. Carl Roothman, head of Retail at Sanlam Investments, highlights some of the trends observed.

The unit trust industry has become an investor magnet

With their flexibility, daily liquidity, low minimum investment amounts and high levels of transparency it is no surprise that unit trusts have blossomed into the darling of both retail and institutional investors. During 2015 the local industry reported net inflows of R101 billion. In 2016 this figured ballooned to R166 billion, pushing total assets under management beyond the R2 trillion notch. These numbers include net flows into institutional unit trust funds, retail unit trust funds and funds of funds.

However, when we strip out money market funds, which experience very volatile net flow patterns and often contain a large and distortive corporate component, the total net flows didn’t fare quite that well against former years, particularly 2013 and 2014. The quarter-by-quarter bar chart below shows the extent to which the 2016 ex-money market net flows fell short of former highs.

Investors gravitate towards multi asset solutions

A few years ago we started noticing that the SA Multi Asset categories had become the categories of choice among investors. This makes sense. Not only do these categories offer a simple solution for those investors looking for a well diversified portfolio but who do not want to make their own strategic and tactical asset class allocations; they also offer advisers the convenience of outsourcing asset allocation for three types of investor risk profiles: SA Multi Asset Low Equity for the more cautious; SA Multi Asset Medium Equity for those who can stomach a moderate amount of risk; and SA Multi Asset High Equity for the more aggressive among their clients.

The year 2016 was no exception. Combined, the SA Multi Asset High Equity, Medium Equity, Low Equity and Flexible categories attracted more than the rest of the categories combined – R71 billion of the total net inflows over the calendar year.

Uncertainty and low growth fosters cash-hugging behaviour

Another trend we spotted from the graph above is the attractiveness of interest bearing assets when the outlook for most asset classes look uncertain. Taking money market funds out of the equation, other interest bearing funds received a meaningful R17 billion in net inflows during 2016. This is not an annual phenomenon - in 2015 this category experienced large net outflows.

The data does not show us why investors choose the funds they do. They could favour fixed interest funds because of the current sideway trend of the equity market, but another possibility could be that investors are chasing past returns. Local equity markets are not looking cheap and delivered only 2.6% in total last year. In comparision the bond market returned a stellar 15.5% for the calendar year. Whether past performance or pessimism about equity’s immediate growth potential is the main driver of asset allocation, both drivers would be worrying. We would encourage investors to rather take a long-term view of their investment goals, allocate assets accordingly, and stick to their long-term strategic allocation.

Which individual category attracts the most assets?

The chart below shows the net flows into the ASISA SA Multi Asset categories over time. It is noticeable that the SA Multi Asset High Equity category has been receiving the biggest chunk of all net inflows consistently over all four quarters of 2016. For investors within retirement fund structures, this would be the most aggressive asset allocation fund category available under Regulation 28. In this category, Sanlam Investment Management (SIM) offers the SIM Balanced Fund, which experienced R1.9 billion of net inflows in 2016. This fund has a track record of consistently beating the peer average over the long term.

The SA Multi Asset Low Equity category has also been very popular over the past four years and it’s in this category that SIM offers a star performer in terms of consistency and downside protection, the SIM Inflation Plus Fund. This fund has attracted the largest net inflows of all SIM funds, namely R4.8 billion for 2016 alone!

Investors are still making good choices

We are encouraged to see that investors continue to save in this challenging economic environment, and that the bulk of the money is going into multi asset funds – the most appropriate solution for the majority of long-term investors wanting to fund or suplement their future retirement income.

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