The annual presentation on unit trusts by the Association for Savings & Investment South Africa (Asisa) is always a good point to take stock of the industry.
Asisa still insists on calling unit trusts collective investment schemes, even though the internationally recognised term is mutual funds. Only South Africa and a few other countries in the Commonwealth such as Fiji still colloquially prefer the term unit trusts.
One thing that keeps growing inexorably is the number of portfolios, which long ago exceeded the number of shares on the JSE.
It now stands at a truly mind-boggling 1,878 funds. At the end of 2020 it already numbered 1,686 and there are no signs of consolidation, though there are too many asset and wealth managers in South Africa.
Net flows are anaemic in a stagnant economy. In an industry with assets of R3.87-trillion the net industry flows were a modest R86bn, the lowest since 2021, when people were cashing in their savings to support them through the pandemic.
These quarterly flow figures are manipulated, as internationally the reinvestment of dividend and interest payments paid out by the funds are not considered an inflow — it takes place automatically and the client doesn’t have to consciously choose to pay money. However, Asisa does count reinvestments as inflows.
One good thing about the South African unit trust industry is that there are several one-stop funds in which people can invest without going through the trouble of finding an intermediary. Funds such as Allan Gray Balanced, Coronation Balanced Plus and Ninety One Opportunity have proved to be solid venues for long-term investors.
There is plenty of chaff, but definitely some wheat, in the South African unit trust market. Multi-asset funds make up half (49.9%, to be precise) of the industry. It makes sense to leave asset allocation in the hands of funds of fund managers, rather than unit trust distributors or consulting actuaries.
Balanced funds continue to account for half of the industry even when the quasi-banking money market funds have declined in popularity and now account for just 13.4% of assets.
Equity funds still dominate in major economies such as the US and the UK, but they now quite consistently account for about a fifth of local assets — at 18.3%.
One sector that has cratered is real estate. Its share of assets has fallen from 2.8% to 1.3% over the past five years. It was once seen as the perfect mix of income and capital growth, but for a while listed properties traded at a premium to their NAV, which made no sense.
There is plenty of chaff, but definitely some wheat, in the South African unit trust market
And the bubble certainly burst when Covid accelerated the work-from-home trend, putting pressure on the office sector in particular. There were R2bn in outflows from listed property funds in 2024 alone.
It is useful to look at the sectors which investors now favour. The most popular sector was the clunkily named South African interest-bearing short-term sector, with inflows of R25.4bn. This used to be called the income fund sector, giving a premium return to vanilla money market funds but without the volatility of bond funds.
Bond funds, with the even more confusing name of South African interest-bearing variable term, were also popular, with net flows of R10.4bn. Most of this was bought by fund aggregators, or so-called discretionary fund managers, rather than directly by clients.
It is quite surprising, given the strong desire to externalise assets, that global general equity funds did not do even better; they attracted a net R17.6bn. But these are rand-denominated assets and still fall within the province of the South African Revenue Service.
In terms of outflows, the worst performer was the South African general equity sector, with R11.9bn sucked out of it — ironically in what was a very good year for the sector with an average performance of 13.8%.
Another loser was the multi-asset low equity sector, the stable funds that can invest no more than 40% in the equity market. Here there were outflows of R6.2bn, much of which was undoubtedly switched into the even more conservative multi-asset income sector, which sucked in R14.8bn.
This category can invest only 10% of its assets in shares. And, as often happens, the timing for this switch between the two sectors was bad. Low equity achieved a 12% return for the year and income 10.5%.
Asisa is at pains to point out that over the long term the JSE has been a great place to invest in. Over 20 years, global equity funds have done best (in rands) with a 12.2% annualised return (inflation over the period was 5.4%). But South African equity funds aren’t far behind, with an 11.7% return. Traditional balanced funds have also been good for inflation-beating returns, with 10.6%.
And, unusually, internationally cash has also beaten inflation — there has been a 6.9% return from money market funds and 7.6% from short-term interest-bearing funds.
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