Solid first quarter for local collective investment schemes

The local collective investment schemes (CIS) industry reported strong net inflows of R52,8 billion in the first quarter of this year – the third highest quarterly net inflows recorded in five years.

According to CIS industry statistics for the quarter and year ended March 2019, recently released by the Association for Savings and Investment South Africa (ASISA), this brings the total net inflows for the 12 months to R143,3 billion.

Sunette Mulder, Senior Policy Adviser at ASISA, says year-on-year, the local CIS industry also delivered a steady growth in assets under management (AUM). At end-March 2019 total assets stood at R2,38 trillion, compared to R2,18 trillion at end-March last year and R2,24 trillion at end-2018.

Half of these assets are held in SA multi-asset portfolios (50%), followed by SA interest-bearing portfolios (28%), SA equity portfolios (19%) and SA real estate portfolios (3%).

At end-March 2019, South African investors had a choice of 1 599 portfolios.

Investor trends

South African interest-bearing short-term portfolios attracted the bulk of net inflows (R39,7 billion) in the 12 months to end-March 2019, while SA interest-bearing money market portfolios received R32,8 billion and SA multi-asset income portfolios R26,6 billion.

While most investors continued to favour the perceived safety of interest-bearing portfolios, Sunette notes that a number of investors were prepared to brave market volatility for the potential of higher returns offered by equity portfolios over the long term. SA multi-asset high equity portfolios attracted net inflows of R24,3 billion and SA equity general portfolios R13 billion.

Net outflows recorded by the SA multi-asset low and medium equity portfolios were also interesting, Sunette says. ‘We can deduce that investors were taking an either/or approach by opting for fixed-interest or high-equity exposure, with no room for medium- or low-equity exposure.’

Sunette points out that local portfolios with high equity exposure have on average outperformed (net of fees) interest-bearing portfolios over the long term. Over the one- and five-year periods to end-March 2019, however, interest-bearing portfolios outperformed equities.

Where did the inflows come from?

Sunette says 28% of the inflows into the CIS industry in the 12 months to end-March 2019 came directly from investors. However, this doesn’t mean these investors acted without advice. ‘We believe a number of direct investors pay for advice and then directly implement the choice of portfolio.’

Intermediaries contributed 33% of new inflows. Linked investment services providers (LISPs) generated 21% of sales, and institutional investors, such as pension and provident funds, contributed 18%.

Offshore focus

Locally registered foreign portfolios held AUM of R477 billion at end-March 2019. These foreign portfolios recorded net inflows of R0,98 billion over the quarter to end-March 2019.

Foreign currency unit trust portfolios, offered by foreign unit trust companies, are denominated in currencies such as the dollar, pound, euro and yen. These portfolios can only be actively marketed to South African investors if they’re 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 455 foreign currency-denominated portfolios on sale in South Africa.