SA investors chose the safety of money market funds in the second quarter, even as the Reserve Bank cut interest rates to record lows, and potentially lost out on the rally in the JSE fuelled by monetary and fiscal stimulus.
In a record period for collective investment schemes such as unit trusts, they had R88bn of net inflows in the three months to June, according to data from the Association for Savings & Investment SA (Asisa). That brought inflows for the first six months of 2020 to R111bn. Collective investment schemes allow investors to pool money to be invested in assets such as equities and bonds.
Increased risk aversion as the Covid-19 pandemic caused havoc across economies saw SA interest-bearing money market funds attract R48bn of the second-quarter inflows. SA multi-asset income portfolios attracted net inflows of R11.8bn, while R3.6bn was poured into general equity funds by investors willing to look through the volatility, according to the data from Asisa, whose members include SA’s top fund companies such as Ninety One, Coronation Fund Managers and Allan Gray.
“A lot of people tend to put their money there [in money market portfolios] until there are clear opportunities around the equities side or on the bond side,” said Sunette Mulder, senior policy adviser at Asisa. “They tend to almost park the money there for a period, but it might be an indication of uncertainty or people having a bit of wait and see.”
The preference for money market products came at a time when the Reserve Bank was slashing interest rates, depressing returns on products benchmarked against the repo rate, which has been reduced by 300 basis points in 2020 to the lowest level in about half a century.
In the meantime, the JSE had its best quarter in more than a decade, translating to a 23% gain, including reinvested dividends. In contrast, the Alexander Forbes short-term fixed interest index, a benchmark for money market products, returned just 1.5%, equivalent to an annual gain of 6%.
Investors tend to seek safety — sacrificing potentially higher returns — during times of market volatility, worried more about getting their money back than earning returns on it. SA’s economic performance in the past decade has seen its stock market trailing behind global counterparts, increasing the appeal of safer assets.
The JSE jumped with its global peers in the second quarter as central banks and governments globally added unprecedented amounts of stimulus. It gained 0.1% on Monday, as the S&P 500, which has gained about 50% from its lows in March, headed for a new record.
Over a longer period, money market portfolios on average outperformed both inflation and equity funds, net of fees, in the one- and five-year period to June 2020, Mulder said.
“The low volatility of these portfolios, combined with their inflation-beating performance, makes them an obvious choice for risk-averse investors.”
Mulder said the inflows were still baffling in the light of the Covid-19 shock, and investors will be peeling their eyes for how the economy emerges out of the crisis, with the country having opened up most activity with a move to level 2 of the lockdown.
“It’s all going to depend on how the economy gets kick-started again and if all the plans that have been put out [can be actioned] and we can get the economy going, I think that will definitely help with uncertainty,” she said.
Mulder said she expects investors to keep favouring money market products as they navigate virus-induced volatility.
By the end of June, assets under management had recovered to R2.54-trillion from R2.26-trillion at the end of March, Asisa said.
With Karl Gernetzky
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