R110 billion flows into South African investment schemes – but assets under management dropped

The local Collective Investment Schemes (CIS) reported net inflows of R110 billion for the year, but assets under management dropped because of the volatile stock market.

The R110 billion total net inflows for the 12 months to the end of June 2022 included net inflows of R21 billion for the second quarter of this year.

Despite the healthy net inflows, assets under management dropped to R2.98 trillion at the end of June 2022, down from R3.09 trillion at the end of March 2022.

Sunette Mulder, senior policy advisor at the Association for Savings and Investment South Africa (ASISA), said extreme stock market volatility was to blame for the decline.

“The JSE All Share Index (ALSI) took a hammering in June, which resulted in an 8% drop for the month,” Mulder said.

“Looking at the quarter, the JSE ALSI was down by 11.69%. The FTSE 100 was down 0.46% in rand terms, and the S&P 500 dropped by 5.94%.”

Investor trends

Mulder said despite stock markets having been plagued by turbulence in 2022, South African equity portfolios, on average, kept pace with inflation for the year ended 30 June 2022.

“Over one year to the end of June 2022, the industry delivering a return – net of fees – of 6.6%, with inflation at 6.5%,” she said.

“Over the five-, ten-, and twenty-year periods, SA Equity general portfolios, on average, outperformed inflation convincingly.”

Despite the strong equity performance over the long term, investors started exiting South African general portfolios in the second quarter.

The money shifted into South African multi-asset and interest-bearing portfolios, with a preference for interest-bearing variable term portfolios. 

“In recent years, investor appetite for South African multi-asset portfolios had waned, but we started noticing over the past year that they were regaining popularity,” she said.

• SA multi-asset category attracted R66 billion in net inflows for the 12 months to the end of June 2022 – the highest in six years.

• SA interest-bearing category recorded net inflows of R24 billion and the SA equity general category R7 billion.

• SA money market funds recorded net outflows of R20 billion for the 12 months to the end of June 2022.

Mulder points out that at the end of June 2022, 19% of assets under management were held in South African Equity portfolios, while SA interest-bearing portfolios held 31% of assets.

Just under half of all assets (48%) remain in South African multi-asset portfolios, with the rest in South African real estate portfolios (2%).

Mulder says 23% of the inflows into the CIS industry in the 12 months to the end of June 2022 came directly from investors.

Intermediaries contributed 26% of new inflows. Linked investment services providers (Lisps) generated 34% of sales, and institutional investors like pension and provident funds contributed 17%.

Offshore focus

Locally registered foreign portfolios held assets under management of R638 billion.

These foreign portfolios recorded net inflows of R15.6 billion for the quarter ending June 2022, bringing total net inflows to R23.5 billion.

Foreign currency unit trust portfolios are denominated in currencies such as the dollar, pound, euro and yen and are offered by foreign unit trust companies.

These portfolios can only be actively marketed to South African investors if they are registered with the Financial Sector Conduct Authority (FSCA).

Local investors wanting to invest in these portfolios must comply with Reserve Bank regulations and will be using their foreign capital allowance.

There are currently 621 foreign currency-denominated portfolios on sale in South Africa.

Hedge fund statistics

The South African hedge fund industry ended the second quarter of 2022 with assets under management of R104.54 billion.

It represents an increase in assets of R17.61 billion over the six months from the end of December 2021, when assets stood at R86.93 billion.

The half-yearly hedge fund statistics compiled by ASISA show that the growth in assets was achieved even though further fund consolidation and closures took place.

It reduced the number of hedge funds from 216 at the end of 2021 to 212 at the end of June 2022.

Mulder reports that the hedge fund industry attracted net inflows of R1.95 billion in the first six months of 2022, compared to only R0.59 billion for the 12 months that ended December 2021.