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Money keeps rolling in

Oct 06 2010 14:44

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Unit trusts: where to invest

Latest unit trust inflow figures released at the time of writing show that money market funds continue to attract large inflows, nearly a third of the total inflow.

Net industry inflows for the second quarter to end-June were R24.2bn, according to the Association for Savings and Investment SA (Asisa).

Local asset allocation funds attracted the largest inflow – R8.7bn – followed by money market funds with 7.7bn.

Only R855m was invested in domestic equity funds.

This concerns Leon Campher, CEO of Asisa, who fears investors are taking the comfort of stable returns from fixed interest investments at the expense of protecting capital against inflation over the long term.

He points out that general equity unit trust funds returned 19% for the year to end-June, while money market funds came in at 8%. He adds that five-year sector performance paints a similar picture.

What he doesn’t show is three-year performance as we do on our tables, where money market unit trust funds beat everything else.

Campher is quite correct that investors need a well-balanced portfolio that includes equities for long-term growth.

Our tables show the value of asset allocation across all the major asset classes. Had investors stuck to equity investments through the market downturn, getting protection from money market funds, they would be in a good position now.

One possible concern about money market and fixed interest funds that Campher points out is that money not committed to long-term investments remains easily accessible and as a result is often used to finance consumption.

That’s a potential danger, but just underscores the need for investors to be disciplined.

Campher says consumers continue to believe that stock market volatility is the biggest enemy of their retirement capital, while it’s actually inflation they need to fear. “As a result we see investors being so defensive in their investment strategies that they sacrifice future inflation-beating growth for immediate stability and peace of mind.”

But that’s what we’ve tried to show in this investment guide. Used for the right investment reasons, money market funds can be a valuable part of a portfolio.

 - Finweek

investment  |  money market


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