11 May 2009

South Africa: Record Collective Investments Inflow

Johannesburg — NET investment inflow in the first quarter was down on that of last year's fourth quarter as investors continued to buy into the money market and other fixed-

interest funds, according to Association for Savings and Investment SA (Asisa ) figures.

The collective investment schemes industry attracted R23bn of inflows in the first quarter, R3bn lower than the R26bn in the final quarter of last year.

Asisa CEO Leon Campher said last week that while net inflow slowed marginally, net inflow for the 12 months to March of R79bn was the highest inflow recorded for such a period.

"Seen against the backdrop of one of the toughest 12 months ever experienced by financial markets around the world, we are pleased by the resilience displayed by our own industry and its investors," Campher said.

Assets under management fell slightly from R661bn at the end of December to R658bn at the end of the first quarter. The FTSE/JSE all share index fell 4,2% in this period.

By the end of March, the industry had introduced seven additional funds, bringing to 891 the number of funds available.

Campher said South African investors remained wary of the stock market in the first quarter.

Money-market funds attracted inflow of R14,4bn, and the remaining domestic fixed-interest funds R3,4bn in this period.

These two categories held 53% of assets under management in the industry's rand-denominated funds. Asset allocation funds attracted R4,7bn in inflow and equity funds R104m.

While money-market funds provided investors with a sense of stability, they would also never surprise on the upside, Campher said.

Money-market funds had barely managed to beat after-tax inflation over the medium to longer term. Equities were the only asset class to have consistently outperformed inflation in the long term, he said.

"Unfortunately, once in a money-market fund, few investors are brave enough to venture back into the equity market in time. Most miss the market upturn, and lose out on that growth."

Investors who held R1m in money-market funds for five years to the end of March this year would have seen an annual pretax return of 8,56%, meaning their lump sums would have grown to R1,5m.

However, investors with a R1m lump sum invested in general equities over the period would have received an annual return of 15,46%, and their investments would have grown to R2,1m (including interest and dividends).

Over 10 years to end-March, a similar picture emerged.

A R1m lump sum invested in a money-market fund 10 years ago would have grown 10,02% a year before tax. This would leave the investor with R2,7m, but had the same amount been invested in general equities it would have grown 14,27% to R4m.

Campher said investors should hold a well-diversified portfolio.

"By no means am I saying that investors should move all their money into equities," he said.

A level of equity exposure with exposure to the other asset classes was required to provide a portfolio with inflation beating returns.

Once the portfolio was constructed, a long-term commitment to the strategy was required.

"Money-market funds are ideal parking bays for savings that need to be readily accessible, like money set aside to pay for school fees or the provisional tax due to the receiver of revenue. But long-term investments require equity exposure if inflation-beating returns are to be achieved," he said.

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