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SA unit trust statistics don't lie

| Market Forces

By Carl Roothman, head of Retail at Sanlam Investments
What does the SA unit trust industry’s 2016 statistics reveal?
ASISA recently released the latest statistics showing which funds, asset classes and managers investors are entrusting their money to. The SA unit trust industry’s 2016 statistics reveal a few interesting long-term investor trends and also knee-jerk reactions to current markets. Carl Roothman, head of Retail at Sanlam Investments, highlights some of the trends observed.
The unit trust industry has become an investor magnet
With their flexibility, daily liquidity, low minimum investment amounts and high levels of transparency it is no surprise that unit trusts have blossomed into the darling of both retail and institutional investors. During 2015 the local industry reported net inflows of R101 billion. In 2016 this figured ballooned to R166 billion, pushing total assets under management beyond the R2 trillion notch. These numbers include net flows into institutional unit trust funds, retail unit trust funds and funds of funds.
However, when we strip out money market funds, which experience very volatile net flow patterns and often contain a large and distortive corporate component, the total net flows didn’t fare quite that well against former years, particularly 2013 and 2014. The quarter-by-quarter bar chart below shows the extent to which the 2016 ex-money market net flows fell short of former highs.
Investors gravitate towards multi asset solutions
A few years ago we started noticing that the SA Multi Asset categories had become the categories of choice among investors. This makes sense. Not only do these categories offer a simple solution for those investors looking for a well diversified portfolio but who do not want to make their own strategic and tactical asset class allocations; they also offer advisers the convenience of outsourcing asset allocation for three types of investor risk profiles: SA Multi Asset Low Equity for the more cautious; SA Multi Asset Medium Equity for those who can stomach a moderate amount of risk; and SA Multi Asset High Equity for the more aggressive among their clients.
The year 2016 was no exception. Combined, the SA Multi Asset High Equity, Medium Equity, Low Equity and Flexible categories attracted more than the rest of the categories combined – R71 billion of the total net inflows over the calendar year.
Uncertainty and low growth fosters cash-hugging behaviour
Another trend we spotted from the graph above is the attractiveness of interest bearing assets when the outlook for most asset classes look uncertain. Taking money market funds out of the equation, other interest bearing funds received a meaningful R17 billion in net inflows during 2016. This is not an annual phenomenon – in 2015 this category experienced large net outflows.
The data does not show us why investors choose the funds they do. They could favour fixed interest funds because of the current sideway trend of the equity market, but another possibility could be that investors are chasing past returns. Local equity markets are not looking cheap and delivered only 2.6% in total last year. In comparision the bond market returned a stellar 15.5% for the calendar year. Whether past performance or pessimism about equity’s immediate growth potential is the main driver of asset allocation, both drivers would be worrying. We would encourage investors to rather take a long-term view of their investment goals, allocate assets accordingly, and stick to their long-term strategic allocation.
Which individual category attracts the most assets?
The chart below shows the net flows into the ASISA SA Multi Asset categories over time. It is noticeable that the SA Multi Asset High Equity category has been receiving the biggest chunk of all net inflows consistently over all four quarters of 2016. For investors within retirement fund structures, this would be the most aggressive asset allocation fund category available under Regulation 28. In this category, Sanlam Investment Management (SIM) offers the SIM Balanced Fund, which experienced R1.9 billion of net inflows in 2016. This fund has a track record of consistently beating the peer average over the long term.
The SA Multi Asset Low Equity category has also been very popular over the past four years and it’s in this category that SIM offers a star performer in terms of consistency and downside protection, the SIM Inflation Plus Fund. This fund has attracted the largest net inflows of all SIM funds, namely R4.8 billion for 2016 alone!
Investors are still making good choices
We are encouraged to see that investors continue to save in this challenging economic environment, and that the bulk of the money is going into multi asset funds – the most appropriate solution for the majority of long-term investors wanting to fund or suplement their future retirement income.
Mandatory disclosure
All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate advice after a thorough examination of a particular situation. We endeavor to provide accurate and timely information but make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information or opinions. Any representation or opinion is provided for information purposes only. Unit trusts are generally medium to long-term investments. Past performance of the investment in no guarantee of future returns. Unit trusts are traded at a ruling price and can engage in borrowing and scrip lending. Sanlam Investments consists of the following authorised Financial Services Providers: Sanlam Investment Management (Pty) Ltd (“SIM”), Sanlam Multi Manager International (Pty) Ltd (“SMMI”), Satrix Managers (RF) (Pty) Ltd, Graviton Wealth Management (Pty) Ltd (“GWM”), Graviton Financial Partners (Pty) Ltd (“GFP”), Radius Administrative Services (Pty) Ltd (“Radius”), Blue Ink Investments (Pty) Ltd (“Blue Ink”), Sanlam Capital Markets (Pty) Ltd (“SCM”), Sanlam Private Wealth (Pty) Ltd (“SPW”) and Sanlam Employee Benefits (Pty) Ltd (“SEB”), a division of Sanlam Life Insurance Limited; and has the following approved Management Companies under the Collective Investment Schemes Control Act: Sanlam Collective Investments (RF) (Pty) Ltd (“SCI”) and Satrix Managers (RF) (Pty) Ltd (“Satrix”). Although all reasonable steps have been taken to ensure the information in this document is accurate, Sanlam Collective Investments (RF) (Pty) Ltd (“Sanlam Collective Investments”) does not accept any responsibility for any claim, damages, loss or expense; however it arises, out of or in connection with the information. No member of Sanlam gives any representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. The information to follow does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act. Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision. Sanlam Group is a full member of the Association for Savings and Investment SA (ASISA). Collective investment schemes are generally medium- to long-term investments. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager, Sanlam Collective Investments, and a registered and approved Manager in Collective Investment Schemes in Securities. The maximum fund charges for the SIM Inflation Plus Fund include (including VAT): An initial advice fee of 1.14%; initial manager fee of 1.14%; annual advice fee of 1.14% and annual manager fee of 1.14%. The most recent total expense ratio (TER) is 1.25%. The maximum fund charges for the SIM Balanced Fund include (including VAT): An initial advice fee of 3.42%; initial manager fee of 0.00%; annual advice fee of 1.14% and annual manager fee of 1.25%. The most recent total expense ratio (TER) is 1.62%. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002. International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002. Standard Bank of South Africa Ltd is the appointed trustee of the Sanlam Collective Investments Scheme. An interest-bearing portfolio is a portfolio that derives its income primarily from interest-bearing instruments in accordance with Section 100(2) of the Act, whether the yield is historic or current as well as the date of the calculation of the yield.

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