We’re becoming ‘stable’ at the right time, says STANLIB

Some South Africans are becoming prudent, balanced, stable and well-adjusted in their investment habits … just in time for a period of market volatility.

The trend to stability and caution is highlighted by STANLIB, the country’s top investment manager and recent recipient of a clutch of awards for the risk-adjusted performance of a wide range of its unit trusts.

It is close to investor sentiment in the prudential segment of the market as two of its flagship funds took category honours in this field.

These types of unit trusts utilise a broad asset spread, including property and fixed interest products, and an appropriate exposure to equities– the asset class that historically achieves the biggest long-term gains but is subject to the highest short-term volatility.

Fund managers adjust asset weightings in line with market developments. Embracing the idea of built-in professional adjustment indicates that ‘armchair investors’ increasingly see the danger of trying to time the market themselves.

Kim Zietsman, STANLIB’s head of single-manager unit trusts, notes: “The trend is good news for policymakers worried by chronically low savings rates. It suggests that when South Africans do get round to building a nest-egg, they are careful with it.

“Industry figures confirm the trend, sending a signal to all asset managers that it is now vital to have strong-performing funds in the prudential space.”

In 2002, pure income funds accounted for 4% of all collective investment assets. By last year, they accounted for just 1%. Over the same period, the amount held in pure bond funds fell from 10% to 3%. An equity bull run occurred over this period, yet pure equity funds were attracting just 27% of total assets by 2007, down from 37%.

In the same five years, prudential asset allocation funds with low or medium equity content saw their share of the unit trust pie rise from 5% to 20%.

The low-equity STANLIB Balanced Trustees’ Fund of Funds has become one of the company’s most popular products.

Last year, it was the top risk-adjusted performer in its category with a return of 12.73% versus average returns across its peer group of 10.23%.

The medium-equity STANLIB Stability Fund was another category winner with a one-year return of 28.41% (versus a category average of 13.49%).

“Upside is constrained by an equity ceiling of 40% in the case of low-equity funds and 65% for medium-equity products,” says Zietsman.

“But even a low-equity hybrid like the Balanced Trustees Fund of Funds still provided solid monthly income while maintaining some exposure to equities – the asset class positioned for long-term capital growth, giving some protection from inflation.

“Low-equity options are suitable for widows and orphans – and a popular choice for South Africans who are neither.”