MULTI-ASSET IN THE LEAD Campher says the South African multiasset category remains the darling of investors. Asisa reported that R113bn of net inflows were directed into the multi-asset category in 2013 and of that R46.2bn (41%) into the multiasset, high-equity portfolios.
Offshore investors tend to be prepared to stomach a little more volatility, opting predominantly for equity funds, followed by bond funds and then balanced funds.
Tony Cadle, head of portfolio construction at Ashburton Investments, says that South African investors are possibly more risk averse.
However, mitigating risk within a fund does not always have to mean sacrificing returns. A strategically balanced investment approach should enable a fund manager to diversify away risk while still allowing for potential upside participation in the riskier invested with the local collective investment schemes (CIS) industry at the end of December 2013 – more than double the R661bn invested only five years ago.
The 2013 CIS industry statistics released by the Association for Savings and Investment South Africa (Asisa) also show that over the past 10 years the industry has seen assets under management increase fivefold.
Leon Campher, CEO of Asisa, says that while the strong run of the equity market has certainly played a role in the growth of CIS assets, unprecedented net quarterly inflows in recent years strongly bolstered assets under management.
asset classes. FINDING BALANCE According to Herman van Velze, head of balanced funds at Stanlib, balanced funds are well-suited to reduce volatility through diversification across the various asset classes. “In addition to getting exposure to various asset classes, the fund manager decides on asset allocation, thus alleviating responsibility on the investor.”
Cadle says that balanced funds are appealing from both an investor and an adviser perspective as they discharge the responsibility of assetclass diversification to a professional fund manager and provide – over a three- to five-year period – a real return to investors.
These returns have been achieved through allocations to local and global investments in asset classes such as equity, bonds, property and cash. The investor thus achieves an actively managed asset-class and geographic diversification with relatively low volatility.
Here’s an example: assuming in 2008, during the sub-prime financial crisis, a balanced fund was constructed with 80% South African assets and 20% offshore assets in the ratio 60% equity, 25% bonds and 15% cash (using index returns), the fund would have declined around 15%. Within a year the investor would have recouped the 15% loss. Compare this to many global equity markets that have taken about five years to regain their 2008 highs. CONSIDER WHEN IT COMES TO INVESTING IN BALANCED FUNDS Says Van Velze: “As the fund manager makes the asset allocation calls within the fund, an investor should consider the manager’s experience and track record when picking a fund. Also, having a solid research team to support the fund manager’s and guide them in their asset allocation decisions is important.”
As with most i nvestments the magic really happens when harmony exists between the stated fund objective (when achieved) and the needs of the investors.