JSE. Picture: SUNDAY TIMES
JSE. Picture: SUNDAY TIMES

SA investors offloaded money invested in equities in 2018 and sought short-term funds to safely park their investments as they weathered the JSE storm, according to investment inflow statistics released on Thursday .

The Association for Savings and Investment SA (Asisa) have released the collective investment schemes’ (CIS) statistics for 2018, which shows that assets under management in the industry decreased for the first time in five years.

CIS consists of unit trusts and exchange-traded funds (ETFs). They allow many different investors to pool their money into a portfolio that will be invested in equities and other asset classes by investment managers.

At the end of December 2018, there were 1,567 of these portfolios in SA. According to Asisa, in 2018 the industry attracted R93.5bn in net inflows. But assets under management decreased to R2.24-trillion from R2.25-trillion in 2017. Net inflows were also R41bn lower than in 2017.

“These were the lowest net flows in a while,” says Sunette Mulder, senior policy adviser at Asisa, adding that a negative return of 8.5% by the JSE in 2018 influenced the decrease in the total asset level.

Investec Asset Management MD Thabo Khojane says a higher amount of inflows went to short-term funds and money market accounts, whereas multi-asset classes were most preferred by investors in the past. Khojane is also a member of the Asisa board.

For three years in a row, income funds posted higher real returns than low-equity cautious funds, the Asisa data shows

Multi-asset, high-equity portfolios attracted net inflows of R19.5bn and SA equity general portfolios attracted R12.1bn in 2018. At fund level, the Allan Gray balanced fund was the biggest gainer, recording net inflows of R9bn followed by Absa money market, which had net inflows of R8.2bn.

However, looking over a longer five-year period, annualised allocation to balanced funds, which include up to 70% equity in the portfolios, has decreased significantly to R16.9bn in the two years to 2018, from R45.9bn in the two-year period between 2013 and 2015.

Cautious portfolios, which include up to 40% equity, came dramatically under pressure, decreasing from R25bn annualised net inflows in the two years to 2017 to a net outflow of R1.5bn in the two years to 2018. Net outflows occur when money investors took out of the asset class exceed what they put in.

“While, sometimes, investors in high equity funds have to live with downward volatility, they know that the majority of the time they will get high results. The problem with the cautious low equity is that even when they do hit it up the park, it’s not much. And post-2013, it’s not clear why one would go with a cautious fund versus an income fund. It doesn’t look like you are being rewarded for the risk,” says Khojane.

For three years in a row, income funds posted higher real returns than low-equity cautious funds, the Asisa data shows. In 2018,  income funds had real returns of 4% while the high-equity and low-equity funds had negative returns of 8% and 3%, respectively.

“The cautious funds need to work out if they have a competitive proposition relative to income funds. The second thing for cautious funds is, apart from carefully choosing equities, should we be more active in managing the downside? A hedge is one example,” says Khojane.

Asisa figures, however, show that the hedging industry in SA is only about R50bn. However, Hayden Reinders, head of alternative administration unit of Prescient Fund Services, thinks the demand for hedge funds is going to increase amid the volatility on the JSE as hedge funds are not correlated to the stock market.

Asisa CEO Leon Campher says the association expects to finalise the performance fee standard regulations for hedge funds in the second quarter of 2019. This will enable investors to better compare performance of these funds against their costs. Once finalised, SA will be the first jurisdiction in the world where the hedge fund industry is regulated.

Khojane says he believes the equity funds will still be relevant for investors because he does not foresee income funds sustaining real returns of 4% to 5% in the long term.

buthelezil@businesslive.co.za