Latest CIS stats affirm ‘time in the market’ paradigm

The South African collective investments schemes (CIS) industry continues to grow from strength-to-strength, reaching R3.498 trillion in assets at end-December 2024, and benefiting from around R110 billion in net fund flows over the 12-months. In its latest CIS Overview, the Association for Savings and Investment South Africa (ASISA) confirmed there are now over 1832 portfolios that financial and investment advisers can choose from for their clients. The stats also affirmed the value of ‘time in the market’ over five-, 10-, and 20-years.

The income reinvested ‘skew’

A snapshot of the CIS industry, presented by Sunette Mulder, ASISA senior policy advisor, showed key metrics total assets and number of portfolios trending in the right direction over the past five years, though net flows for 2023 were similar to those recorded in the prior year. Her overview slide revealed a big spike in net flows in 2020 as investors responded to financial market uncertainty brought on by the COVID pandemic. “Quarterly flows have been quite consistent quarter-on-quarter since about September 2021; but if we strip out income reinvested, the picture looks slightly different,” Mulder said. 

The next slide revealed what this writer has occasionally griped about, namely that top-line industry statistics are not always that good at illustrating actual investor behaviour. By stripping out income reinvested, which is the dividend and interest that CIS investors leave in their funds rather than withdrawing it, ASISA showed a net outflow of funds in the second and fourth quarters of 2024. And on this measure, there was a R1 billion net outflow for the year. Put another way, your clients’ new investments were smaller than their withdrawals. PS, the positive spin on this is that most investors are still reinvesting the ‘spoils’ from their unit trust investments. 

Those among you who spend hours deliberating over your clients’ asset allocations will learn very little from a high level overview of quarterly CIS fund flows. The reason is that almost R51 billion went to multi-asset funds, each of which have their own bond, cash and equity exposures. “These are funds that have a mixture of assets including bonds, cash and equities, local and offshore,” Mulder said. Comparing full-year 2022 to 2023, there was a notable shift out of multi asset portfolios (from around 68% to 42% of annual flows) towards equity portfolios, which rose from 18% to 39%. 

Some risk-aversion returning

According to Mulder, the fourth quarter 2023 analysis suggests that local investors “are being a little bit more risk averse in the last quarter of 2023” as they reposition towards fixed income funds. This writer enjoyed the comparison of portfolio allocations for SA funds in December 2023 versus December 2018. Interest bearing funds were up from 29% to 31%; real estate portfolios declined from 3% to 1%; and equity and multi asset portfolios were unchanged at 19% and 49% respectively. Given that the bulk of capital is in the last two categories, the overall allocations are practically unchanged. 

The 12-month aggregate returns, in rand, across the various ASISA CIS portfolios were shared courtesy Profile Media, with all categories clearing the 5.5% Consumer Price Index (CPI) hurdle. Financial and investment planners will be quite familiar with the return ‘scatter’ that illustrated the age-old ‘higher return for higher risk’ adage, with one exception. Global Equity General returned 26.9%; SA Multi Asset High Equity (12.5%); SA Multi Asset Low Equity (11%); SA Multi-Asset Income (9.5%); and the various SA Interest Bearing portfolios delivering between 8.1% and 9.2%. The lagger, SA Equity General, produced a disappointing 7.9%. 

You might be wondering why CIS investors are not taking more money offshore given the significant return skew towards global equities. “It is difficult for ASISA to unpack these patterns; it might be that people are seeing more value in certain areas of the market, or that they are running up against their maximum offshore limits and have to bring some money back,” Mulder said. Remember, regulation 28 of South Africa’s Pension Funds Act (PFA) limits how much cash local retirement savers can invest offshore. 

The value in ‘time in the market’

CIS investors are generally in it for the long haul, so it makes more sense to consider the portfolio return profile over five-, 10- or even 20-years. ASISA provided a snapshot for each period, but this writer figured to share the longest-term view only. Over two decades SA Equity General delivered the best annualised return of 12.6% followed by SA Multi Asset High Equity (11,6%); Global Equity General (11.2%); and SA Multi Asset Low Equity (8.6%). The SA interest bearing portfolios delivered between 6.8% and 8.3% over the period, with SA Multi Asset Income at 7.6%. And CPI averaged 5.5%. So, equities for the long-term win! 

ASISA offered an interesting analysis of how South Africa’s CIS industry fits into the global CIS market, courtesy figures from the International Investment Funds Association (IIFA). “We are a member of the IIFA which is a global body that represents providers of CIS products across the world,” Mulder said. There are some differences in how the international body categories funds, but overall, its statistics show a greater preference in international CIS markets for equities. 

Per IIFA stats, the South African CIS industry has 25% of assets invested in equity funds versus 45% globally; and 47% of assets in balanced funds versus 11% globally. International CIS markets also hold more of their assets in bond funds (19% versus 5%) and money market funds, 16% versus 12%. The distribution to ‘other funds’ is similar with SA at 11% and the rest of the world at 9%. 

SA investors ‘go large’ on balanced funds

“The South African market makes use of balanced funds whereas internationally, investors tend to use equity funds or funds-of-funds to build up their portfolios; local investors prefer the ease of using a balanced fund where asset allocation decisions are done on their behalf,” said Mulder. Her comment was backed up by Anton Pillay, Chair of the ASISA Board, who said: “International investors prefer to do the asset allocation themselves whereas in South Africa there is a higher level of use of a balanced portfolio, where asset managers actually make the allocation decisions”. 

Writer’s thoughts:

CIS funds are an invaluable tools in both discretionary and retirement-funding portfolios, and you can use these funds to expose your clients to a wide range of risk-appropriate return outcomes. Are you still comfortable with the long-term returns delivered by domestic and offshore equity CIS funds? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.