The unit trust industry has had another bumper quarter with the most inflows ever received. The industry took R19,7-billion of new investments, of which R13-billion came from retail sales, which are from individual -investors.
However, this is not an indication that South Africans are starting to save more.
According to -Efficient Group economist Dawie Roodt, South Africa’s household savings -continue to fall and -borrowing levels are continuing to climb, with South Africans borrowing a massive R24-billion in February. Although Roodt says that to a degree the increasing wealth effect in South Africa — such as the rise in property prices — may be having an impact on investment inflows, it is more likely that the inflows are a result of people moving from traditional bank accounts, such as fixed deposits, into higher yielding investments.
Di Turpin, chief executive of the Association of Collective Investments, agrees. “Previously we saw money coming from the life industry, but now I believe we are seeing people who normally invest in traditional bank accounts looking to take a little bit more risk in order to enhance their cash return.”
The fact that the majority of the flows went to conservative investments with low equity exposure as well as income funds and money market funds, supports this argument.
Turpin says that although it is impossible to analyse the demographics of the investor, it is possible that the new inflows are from older investors looking for enhanced yield rather than younger investors saving for retirement.
The fact that domestic equity funds saw a net outflow of R1-billion would suggest that investors are not being swept up in the performances of the equity market.
While mortgage advances in South Africa continued to grow at about 30% over the past year, with an average of R10-billion of new mortgages issued a month, very little is finding its way into the equity market.
Typically in such a prolonged bull market one would expect people to be taking equity out of their homes in the form of increased mortgages and investing in the market, as was the case in the late 1990s. This phenomenon drove the United States stock market during this period.
While one can argue that the continued avoidance of equities by the person on the street is a result of the market crash of 2000, it could also be a result of the fact that younger people are spending and not saving.
“Even with prudential funds that are aimed at retirement savings, the bulk of the money has gone to low-risk prudential funds with higher equity prudential funds actually experiencing outflows” says Turpin, who is concerned that either young people are not saving or that they are getting bad advice and not having enough exposure to the equity market for long-term growth.
Turpin says that advisers continue to be very cautious when advising clients in light of the Financial Advisors and Intermediary Services Bill. The Bill increases the responsibility of advisers in investment decisions.
The average fund performance was in line with the market, with sectors such as general equity returning 53%, value funds 57% and resource funds 59%. The average return on the prudential low-equity funds over one year was 22% and prudential medium equity 36%.