The Association for Savings and Investment South Africa (ASISA) recently released the Collective Investment Schemes (CIS) industry statistics for the quarter and year ended March 2020. The CIS industry reported net inflows of R23 billion in the first three months of this year after having experienced net outflows of R3 billion in the fourth quarter of 2019.
According to Sunette Mulder, senior policy advisor at ASISA, the Covid-19 induced market turmoil caused assets under management to decline by R0.22 billion to R2.26 trillion at the end of March 2020, despite the net inflows in the first quarter of this year. She reports that just under half of these assets were held in South African (SA) Multi Asset portfolios (49%), with the rest in SA Interest Bearing portfolios (34%), SA Equity portfolios (15%) and SA Real Estate portfolios (2%). “Over the past five years there has been a significant shift of assets from equity portfolios to interest bearing portfolios,” she remarks.
Mulder further comments that the local CIS industry has been able to withstand the shocks delivered by Covid-19 induced panic and the effects of the lockdown and remains robust.
Investor trends
Mulder says after suffering net outflows of R15.9 billion in the fourth quarter of last year, SA Interest bearing Money Market portfolios attracted R22.2 billion in net inflows in the first quarter of this year. SA Interest Bearing Variable and Short-term portfolios attracted R9.9 billion and SA Multi Asset Income portfolios R3.2 billion. Net outflows were recorded by most portfolios with equity exposure over the first quarter.
Mulder says, given the extreme market volatility experienced by global financial markets in the first quarter of this year, it is not surprising that investors were nervous of equities (shares), instead preferring the perceived safety of interest-bearing portfolios.
She points out that in reaction to the global market turmoil that followed the financial crisis late in 2008, individual investors also switched out of unit trust portfolios with high exposure to equities and parked the bulk of their money in money market portfolios.
“Historically, however, financial markets tend to not only recover their losses after a crash, but they also reach new highs.” She advises that a successful investment strategy requires a long-term commitment together with an understanding that it is time in the market that makes all the difference.
Where did the inflows come from?
Mulder says 27% of the inflows into the CIS industry in the 12 months to the end of March 2020 came directly from investors. “This does not mean that these investors acted without advice. A number of direct investors pay for advice and then implement the investment decisions themselves.”
Intermediaries contributed 35% of new inflows, a 2% increase from last year’s first quarter, but on par with the last quarter of 2019. Linked investment services providers (Lisps) generated 21% of sales and institutional investors like pension and provident funds contributed 17%.
Offshore focus
Locally registered foreign portfolios held assets under management of R483 billion at the end of March 2020. These foreign portfolios recorded net outflows of R29.6 billion for the quarter ended March 2020.
Foreign currency unit trust portfolios are denominated in currencies such as the dollar, pound, euro and yen and are offered by foreign unit trust companies. These portfolios can only be actively marketed to South African investors if they are registered with the Financial Sector Conduct Authority (FSCA). Local investors wanting to invest in these portfolios must comply with Reserve Bank regulations and will be using their foreign capital allowance.
There are currently 504 foreign currency denominated portfolios on sale in South Africa.
Click here to download the detailed media release that includes percentage of portfolio allocation as well as sector performance comparison over a 1-year, 5-year, 10-year and 20-year period.
It will be interesting to see developments following the recent unprecedented interest rate cuts, particularly on Money Market investments.
