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The rise and rise of balanced funds

How the local asset management industry has undergone a structural change in the last 20 years.

The growth in the South African unit trust industry over the last 20 years has been phenomenal. At the end of 1998 there were 204 registered unit trusts in the country with total assets of R71 billion.

By the end of 2018, this had grown to 1 567 funds, with assets under management of R2.2 trillion. That represents compound annual growth of 18.8%.

It’s also worth noting that this is meaningfully higher than the growth in the market capitalisation of the JSE over the same period.

At the end of 1998, the local bourse had a total market capitalisation of R1 trillion. This had grown to R12.6 trillion by December 2018, which is compound annual growth of 14.4%.

Put another way, at the end of 1998 the total amount of money invested in local collective investment schemes was 7.1% of the JSE’s total market capitalisation. Twenty years later, it is now 17.7%.

The big change

As David Bacher, chief investment officer at Corion Capital, notes, one of the main reasons behind this growth has been the rise of multi-asset funds. Twenty years ago, they held just 9.4% of the total money invested in local funds. Today, their share is over 50%.

As the video below from Corion Capital shows, the popularity of these funds began to accelerate in 2004. In the 15 years since then, multi-asset funds have grown at a compound annual rate of 27%, which is more than twice the growth rate of equity funds over the same period.

Another interesting statistic is that while the size of the overall unit trust market has grown far more quickly than the JSE’s market capitalisation over the past two decades, the assets held in pure equity funds relative to the stock market has actually declined.

In 1998, the total assets in South African equity unit trusts came to 4.5% of the JSE’s total market capitalisation. At the end of last year, they represented only 3%.

This has, however, been more than compensated for by the growth in multi-asset funds, and subsequently their share of the JSE. At the end of 2018, their total domestic equity holdings, including real estate, came to R353.7 billion, or 2.8% of the JSE’s market capitalisation.

Twenty years ago, their exposure to the local stock market was negligible.

The driving factors

Clearly, this represents a systemic shift in the way the local unit trust industry is structured. It is therefore worth understanding why this happened. Bacher identifies four key factors.

The first is better regulation of financial advisors. The Financial Advisory and Intermediary Services (FAIS) Act of 2002, which came into effect in 2004, had a significant impact on the way advisers looked after their clients’ money.

Until then, they had predominantly balanced their clients’ asset allocation themselves using separate equity and bond funds. However, the greater scrutiny they were placed under by the Act made most advisers rethink this approach – and realise that they weren’t the people in the best position to decide on asset allocation.

“The introduction of the FAIS Act led to financial advisers becoming more uncomfortable making assets class decisions,” Bacher says. “These decisions are now being driven more by the investment managers.”

A few years later, National Treasury also made the decision that retirement annuities (RAs) would have to comply with Regulation 28 of the Pension Funds Act. The regulation itself had been in effect for pension funds since 1962, but it didn’t apply to personal retirement annuities until 2011.

Since the majority of multi-asset funds are Regulation 28 compliant, this also made them the preferred vehicle for these portfolios, since they provided a neat solution to managing asset allocation. It could simply be left in the hands of the asset managers.

Thirdly, investors and financial advisors came to realise the tax benefits of using asset allocation funds.

“Allocating between asset classes within a fund does not trigger capital gains taxes,” Bacher explains. “This means that multi-asset funds are tax efficient.”

It is, however, likely that all three of the above reasons would have been moot without the last. That is that the risk-adjusted performance of multi-asset funds has been compelling over this period. Overall, investors have enjoyed equity-like performance at much lower levels of volatility.

“For example, the Multi Asset SA High Equity Category (by far the largest multi-asset sub-category) has delivered a return above inflation of over 6% net of all costs over the last two decades,” Bacher notes. “Although, as expected, it has slightly underperformed the SA General Equity Fund Category, these real returns were delivered with approximately two thirds of the volatility risk, resulting in high risk-adjusted performance.”

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My RA’s that were purchased before 2011 (they are not reg28 compliant) are the best performers.

It would be interesting to analyse the asset allocation in Living Annuity funds.

Seems that retirees have a huge bridge to cross when converting to a living annuity.

Regulation 28 is insanely prejudicial to long term retirement investing.

Over 14 years, since 31 March 2005 these are the absolute reinvested returns of

Allan Gray Money Market 175% (Reg 28 ok)
Allan Gray Balanced Fund 440% (Reg 28 ok)
Allan Gray-Orbis Global Equity Feeder Fund 512%
Allan Gray Equity Fund 560%

Being invested in a balanced fund over a 40-year work life is just crazy.

A 12 year comparison is meaningless.

Lucky for us he used 14 years then…

Most domestic cats could make better asset allocations by spinning a mouse than the combination of advisors and asset managers. Especially after fees

Your comments about asset managers are getting very boring and very childish. You and many others are so ignorant you don’t even realise that we have a very high calibre asset management industry in this country. You claim to do so much better on your own so why then consistently criticize this industry or why don’t you manage money for others? We all know the answer to that one: You will fail dismally. By the way every single profession will be below the index if they are measured on the same flawed basis as on which asset managers are measured.


You and I have described my position as a self-managed investor. Please describe your finger in this pot? Advisor, Fund Manager? Who effectively pays your salary? Other people, I will assume for now, unless you are a self managed investor crusading for the paid professionals as a matter of principle.

To the matter : when people put themselves out there on the basis of being paid a fifth or sixth of gross growth for funds under (mis) management, they have to take criticism for performance or lack thereof.

If you can’t stand the heat in the kitchen…

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