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Cape Town – Investors have been cautioned against timing the market, after results showed that quarterly net inflows into SA Equity portfolios exceeded net inflows into South African Multi Asset portfolios by more than double.
The Collective Investment Schemes (CIS) industry statistics for the quarter and year ending March 2015 were released last Thursday by the Association for Savings and Investment South Africa (Asisa).
SA Equity portfolios attracted R8.8bn in net inflows for the first quarter of this year, with the bulk of the money flowing into SA General Equity portfolios, while SA Multi Asset portfolios recorded R4.3bn.
Asisa CEO Leon Campher warned that if these results were as a result of investors timing the market to get high returns, then it would be concerning.
“While having sufficient general equity exposure in a portfolio is a good thing, we sincerely hope that the sudden surge in interest in general equity portfolios is not a case of investors trying to time the market, but rather investors taking a long-term view on equities aimed at helping them achieve their financial goals.
“Certain investors were looking to get higher returns out of the equity market and channeled a lot of money into general equity funds,” he told Fin24 on Friday.
“I sincerely hope they’re not trying to time the market because investors historically have not been very successful at that."
Campher says unfortunately many investors still believe they can time the market and end up making emotional investment decisions based on either fear or greed.
Listen to the full interview:
Interview by Matthew le Cordeur
“Some investors get greedy and get seduced by high returns and then venture into that part of the markets, which is very high, and then get scared when it corrects. If you’re going to go in, you have to take a long view, and you have to stay there.
“Investors still believe that they can time the market by switching between asset classes. This is simply not true. It is time in the market that will deliver the desired outcomes, not timing the market.
“If you’re putting money into unit trusts, that’s money you don’t need and you have to take – at the very least – a five year view, which should transcend all cycles."
Proper diversification is critical
He also reminded investors that proper diversification is critical since different asset classes will perform differently when market conditions change.
“We are therefore surprised that investors ventured away from the diversification offered by Multi Asset portfolios and directly into General Equity portfolios. Multi Asset portfolios were designed for investors who cannot stomach the volatility of a general equity portfolio, but who want capital growth.”
Multi Asset portfolios invest across the equity, bond, money and property markets, with the asset manager deciding how much money to invest in each asset class. These portfolios have become popular with investors and advisers alike since they provide diversification across asset classes within one portfolio, with an expert asset manager deciding on the appropriate mix. Portfolios ranging from low equity to high equity exposure are available within the Multi Asset category.
“Concerning, is this is happening at a time where a lot of commentators are saying that the market is probably expensive and at a bit of a high. I sincerely hope the people who’ve done that are saying: Ok, I don’t really mind about volatility of the market; I’ve got an eight to 10 year view and I can look through it.
“What’s historically happened, people go in when the market is high, it crashes, they panic, they bail out and they lose money.”
See the full Asisa presentation:
First quarter of exceeded inflows
Campher pointed out that while SA Equity portfolios have been attracting unusually high net inflows over the year ended March 2015, this was the first quarter where net inflows actually exceeded those into SA Multi Asset portfolios.
As a result net inflows for the 12 months to the end of March 2015 amounted to R83bn for SA Multi Asset portfolios and R27bn for SA Equity portfolios. In the 12 month period to the end of March 2014, SA Equity portfolios suffered net outflows of R2bn while SA Multi Asset portfolios attracted net inflows of R115bn.
Campher noted that the net inflows attracted by SA Equity portfolios in the 12 months ending March 2015 are higher than that total net inflows recorded by these portfolios in the previous five years.
Campher said it will be interesting to see whether SA General Equity portfolios will continue drawing the bulk of net inflows during the current quarter with world markets having lost some of their momentum at the beginning of May. The JSE All Share Index reached an all-time high of 55 188 points on April 26, but has weakened since then on the back of realigned investor sentiment.
The industry in summary
At the end of the first quarter this year, the local CIS industry managed assets of R1.8trn compared to R1.7trn at the end of December 2014 and offered investors 1 211 portfolios.
Net inflows of R16.4bn in the first quarter of this year brought to R98bn the total net inflows for the 12 months ended March 2015.
SA Multi Asset portfolios hold 49% of assets, Equity portfolios 23%, Interest Bearing portfolios 24% and Real Estate 4%.
Who invested?
Campher said 32% of the inflows into the CIS industry in the 12 months to the end of March 2015 came directly from investors. He pointed out, however, that this does not mean that these investors acted without advice since a number of direct investors pay for advice and then directly implement the choice of portfolio.
Intermediaries contributed 21% of new inflows, while linked investment services providers (Lisps) generated 24% of sales and 23% of sales was received from institutional investors like pension and provident funds.
Offshore focus
Locally registered foreign portfolios held assets under management of R318bn at the end of March 2015, compared to R283bn at the end of December 2014.
These foreign portfolios recorded net inflows of R3.0bn for the first quarter of this year, a drop from the R5.8bn in net inflows at the end of December 2014.
Foreign currency unit trust portfolios are denominated in currencies such as the dollar, pound, euro and yen and are offered by foreign unit trust companies. These portfolios can only be actively marketed to South African investors if they are registered with the Financial Services Board. 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 363 foreign currency denominated portfolios on sale in South Africa.
