Investors remain wary

Probably the most significant feature of the second quarter unit trust flows, is the fact that while total assets for the industry are marginally up (R969 billion from last quarter’s R962 billion) the trend of declining net inflows continued at a staggering rate. Net inflows into the industry declined from R35.8 billion for the final quarter of 2010, to R17.8 billion for the first quarter of this year, right down to only R3.8 billion for this quarter.

What is interesting is that these funds are not being reinvested elsewhere, indicating that they have left the industry. This decline is driven primarily by massive outflows (R10 billion), from money market funds.

It is tempting to surmise that investors’ fears of European debt crises and a US default are seeing them rather pay off debt or invest elsewhere, but a closer analysis reveals that retail flows were up slightly for the quarter, while institutional flows saw a R3.7 billion net outflow. Therefore, it is likely that these institutional investors are either withdrawing from dividend income funds as the tax breaks evaporate, or shifting funds onto their balance sheets for year-end purposes as 30 June is year-end for many corporates.

Equity funds, with a net inflow of R2.2 billion, significantly up on last quarter’s outflow of R203 million, were marginally popular again. The lion’s share of this quarter’s flows, however, continued into asset allocation funds, at R8.5 billion versus the R8.1 billion of last quarter, indicating yet again the difficulty investors are experiencing in finding opportunities, preferring to leave investment decision-making in the hands of professionals.

Investor appetite for offshore funds was still low but more encouraging, with flows rising from R441 million last quarter to R1.7 billion in the second quarter spurred on by a strong rand, forex relief and better opportunities in developed markets.