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[TOP INTERVIEW] ‘Investors increased CIS deposits even as markets collapsed’

Sunette Mulder, senior policy advisor at Asisa, on seeing record inflows into collective investment schemes during the pandemic.

SIMON BROWN: I’m chatting now with Sunette Mulder, a senior policy advisor at Asisa, the Association for Saving and Investment South Africa. Sunette, good morning – I appreciate the time. We are chatting around record inflows into collective investment schemes during the pandemic. Before we dive into that, collective investment schemes – [if] I’d be correct – would include exchange-traded funds, unit trusts, and hedge funds?

SUNETTE MULDER: Good morning, Simon. Thanks for having me. Yes, correct. The unit trusts would include all of those. Although this media release specifically is for unit trusts in securities, so that would exclude the hedge funds.

SIMON BROWN: Got you on that. And what we see – and truthfully it’s a number which surprised me but actually gladdens my heart – [was] R23 billion net inflows in Q1, R88 billion in Q2, and then R57 billion in the third quarter, setting records. But what it tells us is that, in the second quarter [during] the pandemic, a crazy time for planet earth, investors didn’t panic. They held on, they did what a proper investor should do, which is say ‘I’m [for the] long term, and I’m going to focus on that’. And kudos to investors.

SUNETTE MULDER: Absolutely. Like you rightly point out, I think all of us were quite surprised by the flows. We are glad to see that investors are in it for the long run.

We are hoping that the financial advisors are also playing their role in advising their clients in that fashion, to ride the storm, have your goals in mind and invest for the long term.

SIMON BROWN: That’s a good point. A lot of this will obviously be pension money that just comes off your paycheque every month – assuming that you’re employed – but a bunch of this is going to be that discretionary, where you sit with a financial advisor, or maybe you make that the decision on your own and are advised in that sense. Do you have a sense of how much is sort of discretionary, whether through an advisor or an individual, but in other words, money which you could have sent somewhere else if you’d wanted to?

SUNETTE MULDER: About 26% of the inflows over the past 12 months came directly from investors. But it’s important to understand that advice that people are using to make that investment might still be there. They are just not paying a financial advisor for that advice out of their funds. So the person who does the investment is the investor themselves; they might get advice from their financial advisor in the background, and then go and make the investment. Through intermediaries, so that could be your financial advisors, we’ve got about 46% of flows. And then through our linked investment service providers, that’s the platforms, we had about 21% of flows. And our institutional investors, like our pension and provident funds, was about 17%.

SIMON BROWN: It’s actually a lower number than I would have thought. What also struck me is where that money is going. Multi-asset portfolios around 47% really stayed down at 1%. Equity only – SA equities at 16%. Interest-bearing portfolios 36% – they attracted 36% of the inflows. Is that sort of 36% a normal number, or has it peaked due to concerns around the pandemic and perhaps people [are] looking for a little lower risk and a little more certainty?

SUNETTE MULDER: Absolutely. We have actually seen this trend – the move from the multi- asset portfolios more into the interest-bearing – over the last four years.

So that total percentage hold in interest-bearing has picked up in the last five years. Five years ago it was about 25%, now it’s sitting at 36%.

So you can see that has definitely been quite a bit shift. The multi-asset portfolios have moved slightly down from about 50% five years ago, to 47%. But the multi-asset portfolios in the longer term still on the consumer perspective gave a little more value to investors. That being said, we do think the interest-bearing trend is due to risk aversion and possibly diversification of portfolios.

SIMON BROWN: It’s a good point, also some diversification. But also it’s been a bit of risk in a search for that yield, which is hard to find out there. And the last point, and I’m not sure if I read this correctly, were we seeing outflows from locally-registered foreign portfolios, in other words, people sort of taking less into US markets and the like via the sort of locally registered?

SUNETTE MULDER: Yes, the foreign collectors investors investment scheme portfolios (and it’s important for your listeners to understand that these are portfolios when you actually use your foreign currency allowance to invest. So this is not an investment in rands. This is actually investment in dollars and pounds and the like), they have seen outflows. If you look in the UK market, they have had quite a tough year – in rand terms down 5.4%. The US markets are still quite strong in rand terms. But even that marketing stream [has had] quite a downturn since
about mid-August to the end of September.

SIMON BROWN: Sunette Mulder is a senior policy advisor at Asisa. The data is absolutely heartwarming. It shows that investors are smarter than I think we’re often given credit for. When markets were crashing in Q2, there we were, pouring in R88 billion, and that R88 billion is now worth a whole lot more than it was when we put it in.

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