The people’s favourite
Bureaucrats have been trying to make us call them “collective investment schemes” for the past decade. I prefer their standard international name, “mutual funds”. But the SA public prefers the quaint British term “unit trusts”. Whatever they are called, in good markets and bad, the public appetite for them keeps growing.
Even though the majority of funds lost money in 2018, there were net inflows of R94bn, only just below the R100bn of the year before. With softer markets, though, there was a R10bn fall in total assets to R2.24-trillion.
By now I would have hoped that unit trusts would be a popular option among the Old Mutual Mass & Foundation Cluster sales force and its competitors at Sanlam Sky and Metropolitan.
Unit trusts were, after all, designed for regular savers. But they have been ignored in the mass market in favour of more opaque life endowment-based products. Yet unit trusts were designed for prudent regular savers, now the target market of the tax-free savings accounts. These days unit trusts rely on the lump-sum market. Many of these investors would in the past have invested in direct share portfolios. And this means that financial advice is possibly the least transformed industry in SA, with little incentive to move beyond its own cosy circle of clients.
Unfortunately, the Association for Savings & Investment SA does not distinguish between single and recurring payments as it does in its life statistics. But it is no secret that recurring investment remains pitifully low.
Mutual funds are a highly convenient parking bay for retirement savings, so it is no surprise that in SA half the assets are made up of multiasset funds. Internationally, multiasset funds make up just 13% of the total, as more advisers still take responsibility for their own asset allocation. But that could change as more and more advisers, for instance in the UK, use designated investment managers to pick funds for them.
Better returns
Interest-bearing funds is a large sector, especially right now, as they have often provided better returns over the past three years than cautious funds, at lower risk. As a whole, interest-bearing funds make up 29% of the total, though this includes money market funds held by corporate treasuries, which would be unlikely to hold anything more risky.
It is interesting that global equity funds still dominate the worldwide industry, accounting for 45% of assets. The original unit trust template, designed by investment manager MFS in Boston in 1924, was of a diversified investment in the stock exchange for the average person.
Most of the media interest in the sector is focused on equity funds — how could a comparison of money market funds ever raise the heart rate?
But the biggest challenge for mutual funds over the next few years is bound to be exchange traded funds (ETFS).
ETFS may also, technically, be collective investment schemes, but they lend themselves more to an environment without intermediaries, where it is easy to buy and sell through online platforms. The layer of costs imposed by advisers and the investment managers who spoon-feed them with investment information is getting intolerable. It is easier to bypass them with an ETF investment.
Officially SA residents own R442bn in foreign portfolios, though no doubt an amnesty would uncover a great deal more. I was impressed to hear that R6.4bn was repatriated from these funds in 2018, when you might have expected a search for more safe havens.
The biggest challenge for mutual funds over the next few years is bound to be exchange traded funds