Unit trust inflows had a record year last year, with net inflows reaching R58,2-billion.
But this doesn’t mean that people are saving.
According to Anil Thakersee of Old Mutual, the bulk of their inflows were lump sums as a result of retirement. Debit orders, which provide a better measure of consistent savings, account for only 3% of total inflows. ”The company as a whole is a dominant player in the savings market. Yet we have seen business coming from single premiums, not debit orders,” he said.
Thakersee believes that long-term savings through debit orders suffer from the same, or worse, problems.
Two factors contribute to the success of the collective investment industry despite the lack of a savings culture in South Africa. Firstly, there has been a strong bull market across all asset classes over the past three years. As Thakersee points out, even a conservative pension fund would have doubled during this time. So retirees have more money to invest.
Secondly, the industry’s developed product solutions for retirement funds that provide income and capital preservation funds for retirement money.
The number of prudential funds that follow pension investment guidelines has increased to 134, compared to 65 in 2002. The number of targeted return funds that offer capital preservation, while nonexistent in 2002, now totals 79.
Di Turpin, CEO of the Association of Collective Investments, said that in spite of the strong market, investors and their advisers continue to be conservative when investing, preferring managed funds to pure equities. Turpin says this is reflected in the domestic equity fund outflows of more than R2-billion as against the strong inflows of R7,7-billion in asset allocation funds.
This was the theme of collective investments for the whole of last year. Despite phenomenal returns from the equity market, with the top-performing general equity fund returning 34% a year over the past five years, retail investors have shied away from pure equity funds.
Thakersee’s views suggest that it is the risk profile of the investor that is driving the trend, with the average profile being retirement money rather than long-term growth savings.
He also disagrees with the idea that there should be a greater bias towards equity funds.
”We use 1998 as our benchmark when equity investments made up about 60% to 70% of the unit trust industry,” he says.
The industry has now matured and is able to offer more diversified solutions for investors, like absolute funds and asset allocation funds, he says.
”If you are waiting for equity weightings to increase, don’t hold your breath,” says Thakersee.
But retail investors who are invested in pure equity funds appear to be acting counter-intuitively. Last quarter, ending September, saw retail clients fleeing the listed property sector, panicking on the back of a listed property correction driven by interest rate increases. But the sector recovered, reaching an all time high on Tuesday. Now it seems that investors are dumping financial and industrial shares at just the wrong time.
While the conservative asset allocation funds took the lion’s share, there were large net outflows from financial services funds, industrial funds and large caps funds.
This despite the fact that fund managers believe non-resource domestic shares are offering investors excellent value as the interest rate cycle peaks.
Paul Hansen of Stanlib says the company is expecting a 17% return from equities this year. They are particularly bullish on financials and retailers, which, apart from benefiting from an end to the interest rate hikes, should also benefit from the increase in jobs.
”The economy created 500 000 new jobs last year and we expect a further 400 000 this year,” Hansen said. More jobs mean more consumers.
On industrials, Hansen says that if the dual-listed shares like Richemont and SABMiller are stripped out, the local shares are looking very cheap.