Their official name — collective investment schemes — has never caught on. In most of the world they are called mutual funds, but we still use the rather quaint British name of unit trusts — which is like referring to sovereign bonds as gilts.
The June quarter proved to be a record for SA mutual funds, with net inflows of R88bn. But before you assume that the public has suddenly become risk on, more than half of this (R48bn) was into money market funds. And money funds serve a different public for the rest of the industry, where the focus is on saving for retirement. Much of the inflow into money funds was from bank fixed deposits as customers looked for a higher yield.
Two of the largest money market funds do not target the public at all, namely the Nedgroup and Stanlib Corporate money market funds, each holding R44bn.
It is no accident that the 3 percentage point cumulative fall in the repo rate so far this year has made deposits much less attractive. There was a further R23bn into short-term interest-bearing funds, which used to be known less clunkily as income funds, and a further R15bn into variable term funds.
It was surprising to see that at the other end of the risk spectrum general equity funds had inflows of nearly R4bn. Sunette Mulder is the senior adviser on mutual funds at the Association for Savings and Investment SA (Asisa), which compiles the statistics.
She says the general equity funds have delivered negative returns not only over 12 months but also over five years. She argues that general equity portfolios now present an attractive buying opportunity for investors willing to stomach the volatility. They would have enjoyed a 23.2% return from the all share index in the June quarter.
There were notable outflows from the asset allocation sectors, which usually make up about half of the mutual fund industry’s assets. Both the high-equity and low-equity sectors had outflows of almost R2.5bn, and R1bn left the much smaller medium-equity sector.
Perhaps counter-intuitively, there were substantial outflows from global equity funds of nearly R5bn, and R2bn from global flexible funds. You might call this the reverse Heystek manoeuvre, ignoring wealth manager Magnus Heystek’s advice to take all your money offshore. But at least almost all investors would be selling out of these funds at a profit. And as these funds are all denominated in rand, they can be sold and the money can reflect in a bank account within 24 hours.
The figures suggest many investors are taking a “barbell” approach, splitting money between minimum-risk money market funds and higher-risk equity funds.
I suspect there has been little change in investors’ asset allocation preferences. But we are seeing a move away from one-stop asset allocation funds towards wrap funds, with a range of underlying unit trusts. The growth of designated fund managers (DFMs) will drive this. After all, how can Portfoliometrix, Analytics or Morningstar claim to be adding value if they simply plonk you into an existing balanced fund?
The number of mutual funds continues to creep up and is now no less than 1,629, more than four times the number of listings on the JSE. Most people cope with choice by opting for a reassuring brand name. Allan Gray and Coronation, both large advertisers, are by far the largest management companies. Ninety One is third, though it must owe popularity to its former cuddly mascot, the Investec zebra. None of these three managers had the benefit of tied distribution — even Investec Private Wealth gave its sister company little attention. But fourth-placed Nedgroup has used captive channels such as the bank brokers astutely.
Allan Gray Balanced Fund is by far the largest in the country with assets of more than R136bn. Just as it was said that no manager would get fired for buying Allan Gray, Coronation Balanced Plus was recently overtaken by the Absa Money Market fund, though each holds about R81bn. The Ninety One Opportunity Fund, run by Clyde Rossouw, is the other giant of the balanced sector with R51bn. Only one low-equity unit trust is left in the top 10, the R46bn Allan Gray Stable Fund, and no general equity funds make the cut.
Is there room for such a long tail of subscale funds? Some rationalisation will take place as shops get together to build scale, and frankly just to survive. The latest such move is the purchase by Counterpoint of Bridge Fund Managers. This was not long after the merger of Counterpoint and RECM.
None of these three businesses has had a good batting average in recent years, and the team will need to focus on a slimmed-down range. Morning meetings between the three strong-willed investment gurus in the team — Sam Houlie, Piet Viljoen and Ian Anderson — will be interesting. It will be up to sensible CEO Linda Eedes to reduce the smoke and heat in the place.
• Cranston is a Financial Mail associate editor.
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