The Association of Collective Investments (ACI) presented its results for the quarter ending December 2006 at the Park Hyatt in Johannesburg recently. ACI Chief Executive Di Turpin was on hand to present a set of results that made for some impressive read
The large inflow of cash to the unit trust industry is hardly surprising. Investors are in awe of fund performances which have surged on the back of a four-year-long boom in South African equity prices.
Putting the spotlight on investor activity
We'll not dwell on the statistics in this column though. We're more interested in what the ACI quarterly results reveal about the mindset of the average South African investor.
A study of the cash flows to and from the 750 funds monitored by the ACI offers an unparalleled insight into the behaviour of thousands of individual investors. We can discover which funds are in favour, and which are being dumped. And armed with this information we can speculate as to the economic forces driving investor preferences.
We'll start with a look at the fund categories which recorded the largest net cash inflows and outflows in the final quarter of 2006. Money market funds emerged as the winners, with R5.5 billion of net cash inflows, while the largest outflows were recorded in equity funds.
The most likely reason for the outflow of cash from equities is profit taking, as investors begin to wonder how much further the market can run. These investors are essentially positioning their portfolios for a possible downturn in the equity market.
Our next port of call is the domestic asset comparison. In this chart, the ACI compares the percentage of domestic assets held in each category of fund. The most interesting change is in Prudential funds, which have increased their share of the assets from 5% in 2001 to 21% at the end of 2006.
This is good news for those advocating for higher personal savings. The likely reason for this increase is more South African investors entering the retirement 'space'.
Manager Funds versus Third Party Funds
Prof Hugo Lambrechts raised an interesting point during the question period which followed the results presentation. His concern was with the huge increase in the number of Third Party Funds monitored by the ACI. He questioned the sustainability of many of these funds and made mention of some recent fund launch failures.
Third Party Funds account for 251 of the 750 funds monitored by the ACI at December 2006. In December 2001, Third Party Funds comprised a mere 48 of 460 funds. Dr Lambrechts comments are worth investigating as these Third Party Funds (a third of the total funds covered) represent only 7% of total fund assets.
Stay focussed on your long term strategies
Today's investors are often encouraged to jump from fund to fund in search of the best performance. This practice of chasing the best possible return is ill-advised. This year's best performer can often be next years worst!
Di Turpin's parting shot was to encourage investors to make a commitment to their investments, stick with their decisions and reap the rewards in the long run.
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