South African collective investment schemes (CIS) reported net outflows of R6 billion in the second quarter of this year, statistics for the quarter and the year to the end of June show.
The net outflow would have been higher were it not for the reinvestment of income declarations (dividends and interest) of R24bn, the Association for Savings and Investment South Africa (ASISA) said this week.
Despite the net outflows, collective investment schemes’ total assets under management grew by 2% between the end of the first and the second quarters, from R3.57 trillion to R3.64 trillion. This was mainly the result of stock market performance.
In the first quarter of this year, CIS management companies reported net inflows of R29bn. But without reinvestments, Mancos would have experienced net outflows of R5bn in the first quarter.
Locally registered foreign portfolios saw net outflows of R2.4bn in the second quarter, bringing total net outflows for the year to R13.8bn. Foreign portfolios had assets under management of R899bn at the end of June, compared to R928bn at the end of March.
There are 698 foreign-currency-denominated portfolios on sale in South Africa.
Sunette Mulder, senior policy adviser at ASISA, said although portfolio restructuring by asset managers contributed to the outflows in the second quarter, possibly in preparation for implementing the two-pot retirement system, the overall investment climate was not favourable for investor confidence.
“The respite in loadshedding only came at the end of the first quarter of 2024, and investors would have continued to take a wait-and-see approach before trusting that the remedial action was sustainable. In addition, we had a nail-biting lead-up to the general elections on 29 May 2024. The stakes were so high that many investors would have decided to exit the stock market,” she said.
The peaceful transition to a Government of National Unity at the end of the second quarter, combined with a quarter of no loadshedding, has already resulted in cautious optimism, Mulder said. The RMB/BER Business Confidence Index showed a reading of 38 points out of 100 at the beginning of September, the highest business confidence reading since the end of 2022.
“The third-quarter CIS industry statistics, expected in early November, will show whether investor confidence buoyed as well,” Mulder said.
At the end of June, 18% of assets under management were held in South African equity portfolios, while South African interest-bearing portfolios held 31% of assets. Half of all assets (50%) remain in South African multi-asset portfolios, with the rest in South African real estate portfolios (1%).
South African investors had a choice of 1 852 local CIS portfolios at the end of June.
Rewards to sticking it out
It takes a committed investor with a well-diversified investment portfolio and a solid long-term plan to brave negative market sentiment and volatile investment markets – those who do tend to be rewarded for their staying power, Mulder said.
For example, investors who took a long-term view on local equities participated in a 20-year average annual performance of 12.8% delivered by portfolios in the South African equity general category to the end of June 2024. Portfolios in the South African multi-asset high-equity category achieved annual average returns of 11.7% over the same 20-year period.
Yet, according to Mulder, both categories posted net outflows in the second quarter of this year.
“Even though portfolios in these categories also delivered double-digit returns on average over the 12 months to the end of June 2024, which is considered a short investment term, jittery investors were not prepared to risk exposing their money to potential market volatility if the elections had not turned out the way they did and if loadshedding had returned shortly afterwards.”
According to Mulder, there will always be local and international events that will result in market volatility. “Some are more severe than others, causing greater uncertainty and panic. However, historically, stock markets have always recovered and bounced back stronger, rewarding those who stayed the course.”
Investors with trusted and qualified financial advisers tend to cope better during stressful times because good financial advisers remove emotions from investing and look only at cold, hard facts, she said.
“We have just entered a more positive phase in South Africa, but the upcoming United States presidential election will likely inject uncertainty into global markets. In addition, the global economic outlook continues to be heavily impacted by ongoing geopolitical tensions. Since all markets are interlinked, this could spill over into our local market at any time, causing short-term volatility. Instead of adjusting their investment portfolios from event to event, investors should construct a well-diversified investment portfolio with the help of a qualified financial adviser that will deliver over the long term,” Mulder said.
Investors should be guided by the investment adage that solid returns are driven by time in the market, not by timing the market.
Hedge fund statistics
The South African hedge fund industry ended the second quarter of 2024 with assets under management of R187bn. This represents a healthy 11.3% growth in assets over the six months from the end of December 2023, when assets stood at R168bn.
Mulder said the hedge fund industry attracted net inflows of R2.4bn in the first six months of 2024.
The number of hedge funds remained at 212 at the end of June 2024.
