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Local investors pour money into collective investments

20 April 2007 Gareth Stokes

The Association of Collective Investments (ACI) released results for the first quarter of 2007 at a press conference in Johannesburg on Thursday, 19 April 2007. These numbers confirm that South African investors still view collective investments as one

There are two factors which contribute to the large inflows of cash to the collective investment industry. The first is that individual investors favour unit trusts as a method to bolster their retirement savings, and the second is that a large portion of the assets flowing to the pensions industry are subsequently finding their way to collective investment vehicles.

Despite the massive cash inflow, evidence suggests that investors have been slightly more cautious over the last two quarters. This claim is supported by an analysis of the winning and losing funds by fund type. Money market funds, prudential medium equity and prudential low equity were amongst the funds that attracted the highest net inflows of investors cash. Equity funds, real estate funds and bonds were listed as having small net outflows in the same period.

One fact cannot be contested. The collective investments industry continues to grow at a phenomenal rate. Twenty years ago there were only 14 unit trusts funds with a total of R3 billion under management. Today, the situation is vastly different. The industry now spans 765 funds with total assets under management topping R596 billion

The trend is your friend

The fantastic performance of the local unit trust industry illustrates how much influence the stock market has over investor behaviour. Prices of South African equities have been increasing steadily since April 2003 and capital inflows to the unit trust industry have followed suit. Year after year, the net inflows of capital have increased as investor sentiment improved.

The real test of the industry will be to see if it continues to attract investors funds during a stock market pullback.

Speaking at the ACI press release, Coronation Executive Director, Pieter Koekemoer shared some of his personal insights for the future of the industry. He believes that cash inflows will remain strong despite a market downturn if pension fund contributions become mandatory. He believes that if government's proposed social security reforms are implemented, more funds will find their way to collective investment funds. Further clarity on governments intentions will be released by Treasury soon.

Best results from being invested for the long-term

Collective investments remain one of the most rewarding categories of investment for investors who take a disciplined approach to their activities and remain invested for the long term.

Returns on local unit trusts have averaged 30% per annum compound returns since inception and that would reward the patient and consistent investor with a very good retirement nest egg indeed

Analysts often differ as to what constitutes a long-term investment outlook. Some suggest three years but in equity investments, five years might be more appropriate. We believe less than one year qualifies as a short-term investment, between one and three years as medium-term and five years or more as long-term.

Investors can probably expect more solid returns form collective investments in the coming years. ACI chief executive, Di Turpin says "There is currently a good deal of bullish news around: The economy overall is showing strong growth. Tito Mbowenis decision at the recent monetary committee meeting not to increase interest rates for the time being has been favourably received."

However, investors should be aware of some market threats. Turpin warned that "investors should be aware that stock markets move in cycles. There could be rates increases down the line if credit extension, currently running at about 27% remains too high."

Editor's thoughts:
We are aware of many investors who use unit trusts as short-term savings mechanisms. They often liquidate their unit trust holdings to pay for holidays and other luxury items. What would you suggest is the best period over which to hold a unit trust investment? Send your comments to
gareth@fanews.co.za.

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