Forget investing in single shares, go for resilient balanced funds
• Only over 20 years does general equity beat all other sectors, recording a 12.8% annual return
In the media we don’t seem to have realised that the public rarely buy shares anymore, they buy funds. Many journalists still think platforms can be found on railway stations, not realising that they are mechanisms through which the majority of their readers buy unit trusts.
I am sure that if the coverage of a mid cap such as Astral Foods with a market cap of R5.7bn was measured in comparison with the Ninety One Opportunity Fund, almost 10 times as big, Astral would win hands down. Perhaps that is a special case, as chickens are a special interest of Anthony Clark, a leading analyst who is in demand as he also writes unusually well. But there will be scores of other examples.
With barely 300 shares left on the JSE and no fewer than 1,650 unit trusts, the day must surely come when mutual funds get media coverage more than once a quarter. It doesn’t help that the Association for Savings & Investment SA (Asisa) has a wide brief that includes life offices and fund managers in their institutional guise. It took them a full two months to release the September quarter numbers. We are all nostalgic for the days of the Association of Collective Investments under the frighteningly efficient Diana Turpin, when releasing the stats took a couple of weeks.
But the industry was somewhat smaller a decade ago. It now has assets of R2.59trillion and is set to overtake the life insurance industry in a year or two. There is still money being invested in SA and, in spite of what many of us perceive, much of it is being invested onshore.
Over the past 12 months R165bn (net) has been invested in local unit trusts, more than in any of the four preceding 12month periods. As senior Asisa policy adviser Sunette Mulder points out, despite the volatility and uncertainty caused by Covid-19 there was a recordbreaking inflow of R88bn in the second quarter, followed by R57bn in the third.
But there has been a bias to the more conservative shortterm interest-bearing funds (an alternative name for income funds, dreamt up by a committee) and money market funds (at least that name wasn’t changed). Over five years income funds have been the top performer with a solid 8% annual return, while general equity funds got the wooden spoon with a 1.8% return.
Over that time the JSE provided a 4.8% annual rand return, though at least it was ahead of the Brexit-dominated UK on 4%. And we can both look enviously at Wall Street with an 18.5% annual return.
So clients can’t really be accused of chasing short-term returns when they piled R25.2bn into income funds in the third quarter. Over the year there was an enormous R92bn flow into income and bond funds. There was a further R13.1bn into multi-asset income funds, which usually take names such as diversified income or flexible income.
In third place, in spite of the scaremongers, were global equity funds, which saw inflows of R7.4bn, below what some commentators might lead you to believe. These are the randdenominated funds, once called asset swap funds.
This figure needs to be taken together with the foreign portfolios registered in SA, which are fully externalised and usually denominated in US dollars. There were total outflows from these funds of R7.1bn. Most of the money going overseas is either going into funds or the so-called life policies issued by Old Mutual, Glacier by Sanlam, and Momentum — which are permitted to offer unregistered funds — or is moving directly into bank accounts or property overseas.
The outflow from local general equity funds remained a modest R2bn in the third quarter, though it should be combined with the R600m outflow from the large-cap category. Over 12 months the outflow from local equity funds has been R14bn. It is not clear why general and large-cap remain separate categories.
It is a concern that R1.1bn has been withdrawn from highequity funds, which focus on the retirement market. Perhaps there has been an increase in the number of people cashing in their retirement annuities.
The party line at Asisa has always been to stick to equities through thick and thin. It only reluctantly accepted the value of high-equity or balanced funds, which at least have some shock absorbers through cash and fixed-income holdings.
Asisa needs to point to 20year tables before general equity has beaten all other sectors. Over this time it has had a 12.8% annual return, well ahead of consumer inflation of 5.4%, though only a nudge ahead of balanced funds on 12.2%. Surely on any form of risk-adjusted basis, balanced funds were a better choice?
THERE IS STILL MONEY BEING INVESTED IN SA AND, IN SPITE OF WHAT MANY OF US PERCEIVE, MUCH OF IT IS BEING INVESTED ONSHORE
BUT THERE HAS BEEN A BIAS TO THE MORE CONSERVATIVE SHORT-TERM INTEREST-BEARING FUNDS AND MONEY MARKET FUNDS
IN THIRD PLACE, IN SPITE OF THE SCAREMONGERS, WERE GLOBAL EQUITY FUNDS, WHICH SAW INFLOWS OF R7.4BN