SIMON BROWN: I’m chatting now with Sygnia CEO David Hufton. Sygnia results out for six months ending March. Assets under management and administration up 27.8%, partly boosted by markets but also boosted by inflows. Diluted headline earnings per share at 72.8 cents. An interim dividend 55 cents versus 40 cents a year ago.
David, I appreciate the early morning time. We saw strong flows into retail deposits. You signed up [a] significant [number of] new retail customers. Where were those flows going? Were they going into the safer money markets? Were they going into equities or into your sort of FAANG and 4th Industrial Revolution products?
DAVID HUFTON: Morning Simon. Yes, we experienced some really great flows overall in the business, just shy of R4 billion, but retail, in particular, was flourishing over the last six months. Where the flows went? We attracted a lot of businesses into our Skeleton Balanced range of unit trusts – those are the passively managed funds; certainly into our 4th Industrial Revolution Unit Trust as well as its ETF counterpart; some money into our Money Market Fund. If you recall, we did offer a free management-fee option into our Money Market Fund, as well as an All Bond Fund. So we have seen good flows into those funds.
But I think our tech funds and our passively-managed Skeleton range of unit trusts have predominantly attracted those really good flows. Over R5 billion has gone into retail in the last six months.
SIMON BROWN: It’s a giant number. Not to tell the retailers where to put their money, but it’s great to see it going into equity. Often we see fear driving it into other places. One of the key points you mentioned there – this is passive money. If we had chatted a decade ago we would have mentioned passive, but it would have been tiny. Your flows in these six months are probably about as big as the passive market was a decade ago. It has been a fundamental shift over the last 10 years.
DAVID HUFTON: Quite right. Although that said, passive remains small in South Africa. It’s in its infancy, it probably makes a path for the US industry at the moment, a rising force in other developed markets. But I think retail investors, as well as institutional investors, are turning towards passive, they’re turning to lower-cost index-tracking options. They’re choosing to marry the best aspects of passive and active strategies. We’re seeing the market turn. Investors are becoming far more fee-sensitive, particularly in a low-return environment. So passive is on the up.
SIMON BROWN: I love that point. If your returns are lower and our inflation is lower and returns are lower, fees need to be lower. You did comment that you’d seen a fair amount of employers suspending or reducing retirement contributions in the period. We were out of hard lockdown, but people were losing income. People were losing jobs. Has that started to reverse since year-end? Are the monthly contributions into retirement funds back to normal levels?
DAVID HUFTON: It has started to abate. As you point out, particularly in our institutional business, in our Umbrella Fund space, we did notice two particular Covid-related matters.
Firstly, you’ve got your financially-distressed employers who were either suspending or reducing their contributions to the funds they sponsor. And then secondly we’d seen a marked increase in retrenchments year on year. In our Umbrella Fund, where we have a line of sight, which is the nature of the exits or benefit payments, because we are the liability administrators in the Umbrella Fund for the 12 months to the end of March we’d seen that 44% of all withdrawing members were owing to retrenchment. Over the last six months, that’s reduced to 26%. I think that trend has continued towards pre-pandemic levels.
On employers having reduced contributions, we saw 36% of our employees in our Umbrella Fund during the course of the last 12 months having reduced or suspended contributions. That was down to 2% at the end of March.
SIMON BROWN: That’s, I suppose, back to normal. A quick last point. You mentioned again that a couple of years ago Sygnia tried to get a crypto ETF. You tried again, being declined by the JSE. The JSE is basically saying there aren’t the structures in place for it. Are there other options here, an OTC? I know you’re putting together a new platform, or is it a case that you’re going to wait for the JSE to be able to facilitate it?
DAVID HUFTON: Simon, we applied back in 2017. We were eventually declined, literally at the 11th hour, for an ETF listing on the JSE. And somewhere in 2018. We attempted it again two weeks ago. We submitted an application and were turned down again on the basis of there being no national framework to support the regulation of digital assets. We will keep trying. Quite right, we do have some other thoughts in mind that we are exploring that are separate from an ETF. There are feeder funds one can consider. There are funds of funds that one could consider. So we’re looking at various options.
SIMON BROWN: We’ll leave that there. Some options coming through. David Hufton, CEO of Sygnia Asset Management, was talking the results to end-March. They tried again to list a crypto ETF.
Our question to you on our social media – LinkedIn, Facebook, and Twitter: Do we need a list of crypto ETFs? Yes, you want it; maybe you’re buying direct, or perhaps no interest in cryptos.
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