Equity funds record R10bn inflows
July 24, 2009
Domestic equity funds saw net inflows of R10 billion for the 12 months to the end of June, representing the highest annual flow in that sector in over a decade.
Quarterly statistics released on Thursday by the Association for Savings and Investment South Africa (Asisa) for the local collective investment schemes (CIS) industry revealed that three consecutive quarters of net inflows into equity funds pushed the annual statistic into record territory.
In the second quarter alone, domestic equity funds attracted R4.8 billion of net inflows, the report found.
Asisa CEO Leon Campher said that it coincided with a steady recovery in the performance of the FTSE/JSE All Share Index (Alsi) from its lows in early March this year.
The Alsi recorded a solid 21.7% from its lowest point in early March to the end of June. In the second quarter alone the Alsi gained 8.3%.
And by the middle of this month, the Alsi was up a massive 30.1% from its March lows, Asisa said.
Campher, however, noted that few retail investors benefited from this strong recovery. Statistics show that the high inflows into domestic equity funds during the second quarter came mainly from institutional investors.
Individual investors continued to place their money mainly with money market funds. These funds attracted net inflows of R14.8 billion last quarter and R59.2 billion for the 12 months ended in June.
"Money market funds are not the place to be for investors who want to achieve inflation-beating returns," said Campher.
"Professional investment managers know this and therefore it does not come as a surprise that it's the institutional investor moving back into equities."
The time to consider equities is while investment professionals are still cautiously talking about "green shoots", he added.
Campher says by the end of the second quarter this year, the local CIS industry had assets under management of R703 billion on the back of the stock market gains of 8.3% in the second quarter and the net inflows of R34.5 billion for the quarter.
Total gross sales for the quarter amounted to R148 billion.
Campher commented that net inflow figures for the first and second quarter of this year were higher than anticipated as a result of the unbundling late last year of Remgro and Richemont's investments in British American Tobacco (BTI).
In the first quarter last year the industry attracted net inflows of only four billion rand (R23 billion this year) and in the second quarter last year R10 billion (R34.5 billion this year).
"Despite world financial markets having been thrown into turmoil in the second half of last year, net inflows kept rising," said Campher.
By the end of June the industry offered 899 funds, Asisa said.
The group said that while the majority of unit trust sectors experienced net inflows during the second quarter, the most popular funds were domestic fixed interest money market (R14.8 billion) and varied specialist (R5.6 billion) funds.
Domestic general equity funds were third in line with net inflows of R2.7 billion and then the domestic asset allocation prudential variable equity sector with net inflows of R2 billion.
The biggest net outflows were experienced by the domestic equity small cap and growth sectors, according to Asisa.
Campher said the bulk of investors' money remained exposed to fixed interest investments.
"While the Alsi delivered an annual compound return of 33% on the back of this bull market from the end of June 2003 to the end of June last year, domestic equity funds experienced net outflows of five billion rand over this five year period.
"At the same time, however, investors poured more than R103.4 billion into money market funds," he said.
Campher said a look at the five-year pre-tax performance statistics to the end of June this year showed that the domestic general equity sector returned 18% a year, double the 9% returned by money market funds.
He argued that investors could not blame intermediaries for the cash bias in their portfolios. Asisa statistics revealed that in the second quarter this year, 42.3% of inflows into money market funds were made by consumers directly, without intermediary intervention.
Intermediaries were responsible for only 15.8% of inflows into money market funds.
According to Campher, a well-diversified portfolio is the only way to achieve inflation-beating investment returns.
"Once the portfolio has been constructed, a long-term commitment is required together with an understanding that it is time in the market that makes all the difference," he concluded.
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