Unit trusts struggling

LOW RETURNS: THESE HAVE BEEN PERSISTING FOR THE LAST THREE YEARS

Despite this, investors should not make any rash or emotive investment decisions.

At the start of 2013, over 70% of unit trusts in the South Africa equity general, multi-asset high equity, multi-asset medium equity and multi-asset low equity categories had outperformed a benchmark of consumer price inflation (CPI) plus 3% over the previous three years.

At the end of June 2019, that number had fallen to below 5%.

This highlights just how difficult it has been to find returns in the local market over the last few years.

Three-year rolling returns for investors had been strong across all of these unit trust categories through 2013, 2014 and most of 2015. However, they started to decline, and by 2017 had fallen dramatically.

These low returns have now persisted for three years, to the extent that many local unit trusts have struggled to even beat inflation.

For the five years to the end of August, the average five-year annualised return from funds in the South Africa general equity category was just 1.7%. According to David Bacher, chief investment officer at Corion Capital, this is the lowest nominal five-year annualised return on record, based on data going back to the 1970s.

“On a real return basis, the past five years provided an average return of 3.2% below inflation,” says Bacher.

“This is the lowest five-year annualised real return since May 2003.”

On an average basis, multi-asset funds in the high equity, medium equity and low equity categories have also delivered their lowest five-year annualised returns on record.

“Approximately 94% of the South African funds that contain some equity content have now not delivered an annualised real return of greater than 3% for over six years – since September 2013,” Bacher notes.

It is understandable for investors to feel uneasy in this environment. When a lack of growth has persisted for this long, it starts to feel like it may never return.

Longer-term picture

It is, however, important to maintain some perspective. An investor saving for retirement should be more concerned about returns over 30 or 40 years than

Picture: Shutterstock BE CAUTIOUS. Investing in ‘safer’ assets like bonds and cash may be tempting right now, but the comfort comes at the risk of missing out on the long-term benefits of equities.