Multi-asset portfolios the investment vehicle of choice
We look back at these vehicles’ performance and remember a pioneer of the local investment industry.
South Africa faces several enormous economic challenges at present, noteworthy is that the local collective investment schemes industry (unit trusts) has had more to crow about on a trend basis than its usually more robust US counterpart.
The local industry attracted net flows of R26bn in the first quarter of this year, bringing total inflows in the 12 months to March to R111bn, the third highest in five years. Total assets under management are currently around R1.92tr.
The bulk of the latest inflows (R72bn) found its way into SA multi-asset portfolios, according to Association for Savings and Investment South Africa (Asisa) CEO Leon Campher. Interest-bearing moneymarket portfolios attracted R35bn (mainly institutional and corporate money), while domestic equity portfolios attracted R3bn.
Five years ago multi-asset portfolios constituted only 25% of total assets under management; today the figure is slightly more than half at 51%. Interest-bearing assets meanwhile dropped from 50% in 2011 to 24% in March.
Multi-asset portfolios achieved an average return of 5.8% net of fees in the year to March, considerably better than equities’ 0.7%.
Their average annual return during the past five years was 11.6% for high-equity portfolios, and 9.9% for low-equity portfolios. The corresponding return for equities was 11.8%. Inflation (CPI) has averaged 5.8% during this period.
There is no doubt that multi-asset funds play an equally important role for investors seeking offshore exposure, but it hasn’t been easy for many of them this year.
Concerns have been rife in regard to both bond and equity markets with the ongoing impact of ultra-loose monetary policies in the form of very low interest rates and quantitative easing.
This indeed is one reason why US investors recently pulled money from global equity funds at their fastest pace since 2011.
Redemptions from unit trusts hit nearly $90bn in the first quarter as portfolio managers struggled to navigate the market. Some $7.4bn was withdrawn in one week alone during May.
These withdrawals, according to the Financial Times, have underlined fears over growth in Japan and the eurozone, as well as questions over US companies’ abilities to weather a fragile economic backdrop. The market has also been plagued this year by the volatility in the oil market, fears of a hard Chinese landing, and talk of recession in the US.
Of course, bonds are the main area of worry as many believe that with an imminent rise in interest rates in the US and yields at historically low levels, we’ll see the end of a multi-decade rally in this asset class.
John Stopford, co-head of Investec multi-asset in London, has targeted more growthorientated assets within his portfolios such as equities, highyield corporate bonds, emerging-market debt and property over defensive securities like government bonds and cash.
The Dow Jones Industrial Average delivered a total return of 2.2% in the first quarter, while the broader S&P 500 Index rose 1.35%. The technology-laden Nasdaq Composite Index fell by 2.75%. The MSCI World Index, a proxy for global equities, lost 0.35%. Emerging markets were notable outperformers for the period, with the MSCI Emerging Market Index advancing 5.71%.
Says has been no exception. It all revolves around the consumer who makes up 69% of GDP. If you want to know where the US economy is going, look to consumer spending and investment in housing.”
Remembering an industry trailblazer
Last month we saw the passing, sadly, of Louis Shill, co-founder with Donald Gordon of the Liberty Group (1964-65), founder and chief executive of the former Sage Group (1969-2003), and a prominent pioneer of the South African unit trust industry. He was born in Witbank in 1930. According to former prominent financial writer, Ken Romain, Gordon and Shill visited the US in the 1960s, and, upon seeing the potential to link life insurance policies to unit trusts, were inspired to create equity-linked policies that provided a hedge against inflation. They introduced this into SA and it proved a groundbreaking development.
Says Shill’s long-term colleague, Bernie Nackan: “This revolutionised life insurance worldwide as insurers were drawn to the benefits of lower capital requirements, transparent performance to linked markets, and the ability to counter rising inflation.”
Shill introduced SA’s first unit trust, Sage Fund, in 1965, and as recently as the early 2000s it consistently produced compound returns well in excess of 15%.
Shill was also a past chairman of the Life Offices Association (LOA); a member of the government’s Standing Advisory Committee on the Long Term Insurance Industry; served in President FW de Klerk’s Cabinet as minister of national housing and public works; and was a founder director of the Absa Group. Not least, he was a great supporter of
and was particularly generous in
Rian le Roux Chief economist at Old Mutual Investment Group