Multi-asset funds are becoming the investment of choice
Adapted from the article ‘The stats don’t lie’ by Carl Roothman, Head of Retail at Sanlam Investments
Recent statistics about the most popular investments reveal interesting trends
ASISA recently released the latest statistics showing the funds, asset classes and asset managers that investors are entrusting their money to. The statistics reveal a few interesting long-term investor trends as well as some knee-jerk reactions to current markets.
Inflows into unit trusts have not been quite as high as in previous years
With their flexibility, daily liquidity, low minimum investment amounts and high levels of transparency, unit trusts became the investment of choice for both retail and institutional investors in recent years. During 2015, the local industry reported net inflows of R101 billion. In 2016, this figure ballooned to R166 billion, pushing total assets under management beyond the R2 trillion level. However, when we strip out money market funds, the total net inflows didn’t fare quite so well against former years, particularly 2013 and 2014.
Investors are gravitating towards multi asset funds
Multi asset funds, on the other hand, are becoming increasingly popular among investors. This makes sense. These funds offer a simple solution for those investors who are looking for a well-diversified portfolio but don’t want to make their own strategic and tactical asset class allocations. They also offer advisers the convenience of outsourcing asset allocation. The year 2016 was no exception, as shown in the chart below. The multi asset categories attracted more than the rest of the categories combined – R71 billion of the total net inflows over the calendar year.
Net inflows into multi-asset versus single asset funds* (2005-2016)
*Excluding money market
Within the multi-asset category, funds with high equity exposure have had the biggest inflows
Of all the ASISA SA Multi Asset categories, the SA Multi Asset High Equity category received 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.
Uncertainty and low growth have increased inflows into cash
Another trend is that investors are finding interest-bearing assets more attractive 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.
Encourage your clients to stay focused on the long term and to continue saving
Multi asset funds are the most appropriate solution for most investors wanting to fund or supplement their future retirement income. However, the statistics do not tell us why investors choose certain funds. Chasing past performance or acting out of fear, for example, are not valid reasons to choose an investment or to switch to an alternative investment. It is therefore crucial to reaffirm with your clients that their asset allocation supports their specific long-term goals and risk profile (or to review their portfolio if necessary) and to encourage them to maintain a long-term view and stay invested.