Record-breaking gains on the JSE are passing unit trust investors by as they shun equities in favour of less risky asset classes, newly released figures show.
South Africans are investing heavily in unit trusts — the industry netted R58-billion of inflows last year, a 40% increase on 2004. But investors have continued to choose low risk funds and avoid the more volatile, but potentially lucrative, funds that concentrate on listed shares.
Of the R415-billion held in unit trusts, 48% is invested in fixed interest and money market funds and 17% in asset allocation funds.
While asset allocation funds can have high exposure to equities, investors are selecting those that limit their equity holdings.
Last quarter, “absolute target” and “real return” funds, which target inflation-linked returns, attracted the largest inflows of all the sectors at R2,3-billion.
Di Turpin, chief executive of the Association of Collective Investments, says this is the first time she has seen such a negative view on equities in light of a strong two-year bull run.
“At least we know that investors are not overexposed to the market should there be a correction,” says Turpin.
But it is disconcerting that investors have lost out on spectacular returns with the All Share Index up 47% last year and returning 28% on average over the past three years.
Turpin believes this is representative of advisers’ fears rather than investors’.
“In South Africa, people prefer to hand over investment choices to their advisers, the market is driven by the brokers,” says Turpin.
Brokers are proving very equity shy.
In addition to being badly burnt by offshore, IT and small caps at the beginning of the decade, advisers also have to contend with new regulations in the form of the Financial Advisers and Intermediary Services Act, which leaves them open to prosecution should they give bad advice.
So, rather than risking their clients’ money, brokers are taking the safer route.
But at a recent presentation to trustees, the pension fund adjudi-cator warned that trustees of pension funds need to be aware that part of their role is to ensure that their members’ assets grow sufficiently to outperform inflation and meet their retirement needs.
The same applies to brokers and puts a new spin on risk. Not having enough in the kitty for retirement owing to underperformance is as great a risk.
Turpin believes the best investments for anyone under 50 years of age are the prudential high-equity funds.
These funds are limited to a maximum of 75% in equities so the investor is never fully exposed to the market, but the higher equity weighting will provide better returns over the longer term.
“If you are 50 years old or younger, you have at least a 10-year investment horizon and can afford the risk,” says Turpin.
Despite this, prudential high-equity funds only make up a paltry 0,1% of total unit trust assets and have experienced net outflows over the past two quarters as people gravitate to lower risk funds.