Statistics from the Association for Savings and Investment South Africa (Asisa) on collective investment scheme inflows and outflows highlight how short-sighted changes to your investments can backfire, leaving you poorer than those who take a more “hands-off” approach.
As I reported in July (“How your investments fared to the end of June”, Saturday, July 28), the financial markets rebounded in the second quarter after a long period of lacklustre performance.
But during this period, more money flowed out of pure equity funds and high-equity balanced funds than into them.
This means investors were nervous – understandably so, in the weeks before our general election on May 29 – and many retreated to the safety of cash, missing out on the turnaround in the local equity market. The FTSE/JSE All Share Index was up 8.2% for the quarter, which pushed up its 12-month performance to 9.1%.
Asisa reports that assets under management in local collective schemes (unit trusts and exchange traded funds) grew 2% to R3.64 trillion during the second quarter, despite net outflows of R30 billion. (This excludes R24 billion ploughed back into funds by investors who chose to reinvest dividends and interest, reducing net outflows to R6 billion.)
Sunette Mulder, senior policy advisor at Asisa, says that although portfolio restructuring by asset managers contributed to the outflows, possibly in preparation for the two-pot retirement system, the overall investment climate was not favourable for investor confidence.
“The respite in load shedding came only at the end of the first quarter, and investors would have continued to take a wait-and-see approach before trusting that the remedial action was sustainable. In addition, we had a nail-biting lead-up to the general elections on May 29. The stakes were so high that many investors would have decided to exit the stock market.”
At the end of June, South African investors had a choice of 1 852 locally managed funds in which to invest – 18% of assets under management were in equity portfolios; 31% in interest-bearing portfolios; 50% in multi-asset portfolios; and the remaining 1% in real estate portfolios. These percentages had not changed since the first quarter.
Retreat from growth funds
Mulder explains that it takes a committed investor with a well-diversified portfolio and a solid long-term plan to brave negative sentiment and volatile markets – those who do tend to be rewarded for their staying power.
For example, investors who had taken a long-term view on local equities and remained invested over 20 years participated in average annual performance of 12.8% delivered by portfolios in the SA Equity General category to the end of June. Portfolios in the SA Multi Asset High Equity category achieved annual average returns of 11.7% over the same 20-year period. Yet, says Mulder, both categories posted net outflows in the second quarter.
“Even though portfolios in these categories also delivered double-digit returns on average over the 12 months to the end of June, which is considered a short investment term, jittery investors were not prepared to risk exposing their money to potential market volatility if the elections had not turned out the way they did and if load shedding had returned shortly afterwards.”
Mulder says there will always be local and international events that will result in market volatility. “Some are more severe than others, causing greater uncertainty and panic. However, historically, stock markets have always recovered and bounced back stronger, rewarding those who stayed the course.”
She says investors with trusted, qualified financial advisers tend to cope better during stressful times because the advisers prevent their clients from making rash decisions.
“We have just entered a more positive phase in South Africa, but the upcoming US presidential election will likely inject uncertainty into global markets. In addition, the global economic outlook continues to be heavily impacted by ongoing geopolitical tensions. Since all markets are interlinked, this could spill over into our local market at any time, causing short-term volatility,” Mulder says.
She suggests that, instead of adjusting your investments from event to event, you should construct a well-diversified investment portfolio with the help of a qualified financial adviser who will deliver over the long term.
“Investors should be guided by the investment adage that solid returns are driven by time in the market, not by timing the market,” Mulder says.
ETF market
Exchange-traded funds (ETFs), which are similar to unit trust funds in that they hold a basket of underlying securities, are included in Asisa’s collective investment scheme statistics. According to the latest quarterly exchange-traded product industry report by etfSA, at the end of June there were 94 ETFs available to investors – up from 92 at the end of last year – as well as nine actively-managed ETFs (AMETFs), up from six last year. (AMETFs are new to the South African market. Until the rules of the JSE were changed last year to accommodate them, ETFs could only passively track an index.)
At the end of June, assets in South African ETFs and AMETFs totalled R167 billion, about 4.6% of the R3.64tr of assets in local collective investment schemes.
PERSONAL FINANCE