Jittery investors get burnt

2010-05-05 14:13

Johannesburg – Many unit trust investors who have tried to time the market by moving in and out of funds are nursing burnt fingers.

New figures from the Association for Savings and Investment South Africa (Asisa) show that many investors in collective investment schemes have switched out of funds invested in shares at exactly the wrong times.

In the year to end-March, the JSE’s All-share index jumped 44%. In rand terms, local shares beat many other markets, including those in the UK and the US.

"Unfortunately, most investors wiped out their share of these gains by hopping in and out of equity exposure every time the market sighed," said Asisa CEO Leon Campher.

A report by his organisation which looks back over the past two years shows that money market funds were the preferred investment for the first three quarters of 2008, with the equity sector having experienced consistent outflows.

"Ironically, investors suddenly started acquiring equity exposure towards the end of 2008, just as the JSE All-share index had reached a spectacular all time high. But when they realised that they were now part of one of the most horrific market meltdowns in history, they sold out of equities and moved back into money market funds."

Only when the All-share index reached its low on March 3 2009 did investors start acquiring equity exposure again, just to get spooked by the brief dip in the markets in February this year.

Many investors then dumped their funds with exposure to shares, and switched to money market funds. But just as they did that, the All-Share index started to move higher, resuming its slow yet steady climb towards regaining previous losses. In the first quarter alone the index gained 4.5%, despite the brief dip.

Campher said this means the majority of investors bought consistently when units were expensive and sold when their units had shed most of their worth. Over the long term, he adds, this will result in their portfolios being eroded by badly-timed choices and inflation.

In the year to end-March, the domestic equity general unit trust sector returned 41.1%, against the 8.3% achieved by money market funds. Inflation stood at 4.3%.

The domestic equity general unit trust sector delivered a return of 16.9% per year over the five years to the end of March 2010, while money markets funds returned 8.8% over this period.

"The only way to maximise returns is by constructing a solid, well diversified portfolio with a trusted financial adviser and then sitting out the bad times. Investors who want to achieve inflation-beating returns over the long term must learn to maintain a steady equity exposure as part of a well diversified portfolio."


  • Bruce D - 2010-05-05 16:22

    No surprises here, I note that many professionals did the same, and they get paid to know better....bottom line is its your money and you do what you want with it. There is only one place to be: Equity, preferably some foreign, just buy the dips like now ...

  • Blacklogic - 2010-05-07 07:28

    Always buy when everyone else is selling and sell when everyone is buying then, you will never lose. That what i tell my clients, don't be emotional about it, even though your inclination is to sell when the market is going down, you should be buying at this point for good value.

  • Martin - 2010-05-07 07:41

    Their are two sides to each trade (just ask Goldman Sachs). I think it is very important that the market has emotional and fragile participants, it gives the cool hands the opportunity to profit at their expense.

  • Eon - 2010-05-10 09:04

    Keep in mind that investors have to optimize growth minus fund management fees, not just pure growth. Money market funds typically have very low overhead costs. Equity funds have high overhead. I can't afford to have my money sit in an equity when management fees overwhelm growth (not to mention real term growth). Having said that, my personal investments have been well timed and I'm not unhappy about the moves I've made in the last 2 years.

  • Looser - 2010-05-10 12:16

    My pension money is being handled by "professional" investors. For the past 5 years or so it stayed at R1.2 million. So...the "professionals" really get it wrong or they take too much for themselves?

  • Fred - 2010-05-11 12:41

    I might be mistaken but the All Share is not a tradable index. 44% is cute, but meaningless. The Top 40 has had a return of just under 2% for the last six months and just under 4% for the last 3 months. Also if you'd bought in March 2009, you'd be smiling.

  • Goldcoin - 2010-09-09 06:16

    Try rare gold coins. The worst it gets, the better the coins will perform.

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