Unit trust figures are encouraging
LOCAL INVESTORS are keeping cool heads. That’s the clear indication from the latest unit trust stats and seems in sharp contrast to the panic being shown by investors in many developed countries. A net inflow of R19,9bn in the third quarter is quite remarkable given the current market turbulence. That’s reflected in the R9bn drop in total unit trust industry assets. Though some of that would be from money that’s been withdrawn from unit trust funds most of the decline is from falling share prices.
But in the face of that, South African investors are still putting money in. And it’s coming mainly from individual retail investors. The split of the quarter inflow shows that retail investors committed R13bn while institutions spent R6,8bn. It seems people are sticking to their investment plans and taking a long-term view.
The bulk of the money (R15bn), as expected, went into money market funds. It probably is the best bet for investors nervous of equities and unsure where to put their money. And while banks in SA seem to be in good shape and it’s unlikely any are going to do a BoE on us, a money market fund remains a safer and more rewarding option.
But only as a short-term measure. According to ProfileData, the money market category of unit trusts is near the top (third) of all the unit trust categories in terms of performance, with a return for the year to end-September of 10,45%. But to get some perspective on that, you have to look at the three-year performance rankings. There money market funds are sixth from the bottom, with a return of 8,9%/year.
Even money market funds aren’t entirely foolproof. Though financial conditions are obviously very different in the United States, according to an Associated Press report, the Federal Reserve said last Tuesday it would provide up to US$540bn to US money market funds. That’s due to huge withdrawals from such funds – about $500bn since August – that have a knock-on effect on business in the US.
Companies, typically smaller companies, issue commercial paper to the banks, essentially a shortterm financing mechanism to meet monthly operational costs. Money market funds are large buyers of such commercial paper from the banks, so if the funds run out of money, they will stop buying, companies won’t be able to get cash for essential items – such as their monthly payrolls – and there will be more panic feeding into an already critical financial system.
The flow patterns into unit trusts in SA are also revealing. General equity funds had an outflow of nearly R900m – the only good thing about that is it was significantly less than outflows from those funds over the previous two quarters. The big inflows were into the absolute return fund category (R927m), real estate (R737m) and prudential variable equity (R375m).
Those are sensible choices with limited exposure to equities. My only little concern would be with property. I don’t know those funds well, but Piet Viljoen, fund manager and executive chairman at RE:CM, says property is currently probably one of the most overvalued asset classes.
There were inflows – small, but very much against the tide of market performance – into large cap equity funds, growth funds and financials funds.
Those are the brave and far-sighted investors who deserve to get rich. The people buying financials funds are taking a refreshing view in the midst of what’s going on worldwide and the recent poor performance of financials in SA. Over the year to September financials funds lost 17,67%.
But there’s no doubt those shares are now very cheap and one day will come back strongly. Those investors might have to wait a while but deserve to be richly rewarded.