Billions more flow into the Collective Investment space

The Association of Collective Investments (ACI) hosted their latest quarterly results presentation in Johannesburg on Thursday, 19 July 2007. ACI chief executive Di Turpin reported on another solid performance from an industry which has more than doubled

To appreciate exactly what the collective industry means to the domestic economy you should consider that at the end of June 2007 a staggering R621 billion is invested in the collective investment industry, spread across 771 separate collective investment funds. This represents a more than five-fold growth since June 2002

The industry's continued popularity is best illustrated by the net inflow of funds to the industry, which totalled R14.9 billion for the quarter under review and did not disappoint. The year ending June 2007 recorded record cash flows to and from the collective investment industry in the amount of R79 billion. This total tops the previous record of R52 billion achieved in the year ending June 2005.

Unit trusts are not only about equities

It is quite clear from these numbers that the collective investment industry continues to attract a huge amount of investor's money. Turpin quickly moved to discount the belief that the massive growth in funds under management can be directly attributed to the phenomenal performance of domestic equities of late. The truth is that the proportional contribution of equities to the total collective investment universe continues to shrink.

Turpin pointed out that the majority of recent cash inflows find their way to money market and retirement products. "The money going to retirement funding of some kind or another continues to grow," said Turpin.

Turpin also noted that the prudential investment category has grown from a 5% share of total invested funds in the collective investment industry to a substantial 19% of the total in just five years. This proves that "unit trusts can play a role in retirement funding and are being used," said Turpin.

Investors remain too conservatively invested

In recent quarters the equity section of the collective investment industry has been recording net outflows. These outflows were predominantly from large-cap and general equity funds. A quick investigation confirms that the flows to the equity fund category have been negative or zero for the last six quarters in a row.

This is one of the disappointing trends revealed by the latest statistics. South African investor's appear reluctant to stay invested in equities for the longer term. Turpin believes that an analysis of fund movement between collective investment sectors reveals that new money entering the market is more likely to find its way to conservatively managed money market and prudential funds. This is confirmed by net inflows in the reporting quarter of R7.3 billion to money market funds and R4.3 billion to various prudential sectors.

The percentage invested in domestic equities continues to shrink, with a net 2.6 billion moving out of this category in the quarter under review. According to Turpin the current market rally "might be the most under-utilised bull market in the history of the industry"

Investors continue to lighten their exposure to the equity market in an attempt to correctly call the market 'top' and avoid potential losses when the market corrects. This problem would be avoided if investors took the appropriate long term view of their stock market investments.

Editor's thoughts:
The age old stock market adage reads that it is 'time in' the markets and not timing the markets that will net investors the best returns. Given the cautious investment approach mentioned in today's article, can we assume that South African investors are too focussed on short-term outcomes in their investing activities? Send your comments to gareth.stokes@fanews.co.za