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Large outflows from SA equity funds in 2016

The big names saw some big withdrawals.

Over the course of 2016, there was a net outflow of R3.25 billion from retail South African general equity funds. That shows that, generally, the appetite for pure equity funds was weak.

This is probably not surprising in a year when the FTSE/JSE All Share Index returned just 2.6% including dividends. Much of the local market is also looking very expensive and investors are being told that they shouldn’t expect high returns from current valuations.

What’s also noteworthy is that an analysis of the outflows indicates that investors pulled a lot of money out of some of the biggest and most established funds in this sector. The table below shows how a number of well known funds saw significant outflows:

Net outflows from retail equity funds in 2016

Fund

Net outflow

Allan Gray Equity Fund

R3.84 billion

Nedgroup Investments Rainmaker Fund

R1.97 billion

Coronation Top 20 Fund

R1.21 billion

Foord Equity Fund

R1.08 billion

Investec Equity Fund

R836 million

Prudential Dividend Maximiser Fund

R652 million

SIM Value Fund

R374 million

Prudential Equity Fund

R321 million

Nedgroup Investments Value Fund

R279 million

Stanlib SA Equity Fund

R279 million

Coronation Equity Fund

R277 million

Stanlib Equity Fund

R218 million

Source: Asisa

These funds are among the 25 that saw the largest net outflows during 2016.

The Allan Gray Equity Fund is the largest fund in this category, and so when there are broad outflows it’s not unusual that it would see the bulk of them. Nevertheless, R3.84 billion is a lot of money. It’s more than 10% of the fund’s total assets.

It’s also noteworthy that this was during a year in which the fund outperformed. The Allan Gray Equity Fund returned 9.91%, putting it in the top 15% of equity funds last year.

The fund also beat the market the year before, although more marginally, so it’s difficult to make an argument that investors were moving out for performance-related reasons. This rather appears to be a case of investors and their advisers looking to take some risk off the table and move their money into other asset classes.

The story with the Coronation Top 20 fund is, however, slightly different. It too outperformed last year, returning 18.27%. And yet investors withdrew more than 7% of the money in the fund.

This however does appear to be a performance-related hangover. The Coronation Top 20 Fund was down 9.84% over 2015 in a market that was up around 5%.

The biggest outflows from this fund were in the first two quarters of 2016, which clearly indicates that investors were reacting to these past returns. But once its performance rebounded, it actually received positive net flows in the last quarter of the year.

This is a classic example of investors doing exactly the wrong thing – selling out when a fund does badly, only to miss the good returns that follow when it recovers, and then reinvesting when the outperformance has already happened.

What is interesting, however, is that this behaviour wasn’t repeated in some of the funds that really outperformed in 2016. The Investec Value Fund shot the lights out last year, growing by 62.37%. And yet investors took R121 million out of the fund over this period.

There was also no consistency to these flows. As the table below shows, it had two positive quarters, interspersed with two negative ones:

Investec Value Fund net retail flows for 2016

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

+R9 million

-R100 million

+R53 million

-R82 million

Source: Asisa

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hmm – isn’t there a saying “follow the money”? in the last 8 weeks us fund managers had net inflow of US$84 billion. would suggest there has been a net outflow from sa in last 8 weeks

What are your sources Rob?

There has been a massive shift away from active investing in the US over the past couple of years to the point that in 2018 they are looking at more than 50% being passive/non-managed investments like index ETFs.

News in Australia today: Someone gets murdered with a pair of scissors, Australia bombing civilians in Iraq and Syria (and hiding it). Major drugs bust, police doing illegal stuff and a prisoner dies due to bad care. Sounds like a nice country.

This is just half the story. ‘Investors pulled a lot of money out of some of the biggest and most established funds …’ You don’t just ‘pull’ money out of a fund. Who sat on the other side of these transactions? This would complete the picture.

I would think a lot of these funds went out the country into other currencies. Just looking over the past couple of years a lot of US based funds out performed our local funds and in my opinion the risk is lower for US based funds than SA based funds considering our economic, political and societal situation. So not only would moving a more substantial portion of your portfolio outside the country mean a better diversification, in the short term it could also mean that for less risk you could achieve roughly the same return or maybe even slightly better outside SA than in SA.

May be the % move out of each fund would have been of more value than the actual Rand value or both. In the case of Investec Value the R121 mil represents only 2% of the fund value and thus very low.
With the Rand being 19% stronger since Jan 2016 it would have been a good idea to move some money into global assets.

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