Where South Africans are investing their money

South Africans are pumping money into interest-bearing funds, such as money market accounts, which experienced R70 billion of net inflows in 2023, continuing a decade-long trend.

This was revealed by the Association for Savings and Investment South Africa (ASISA), which said this represents an 11.34% growth in assets from the end of 2022 to a record R3.5 trillion. 

Despite the growth in some fund types in South Africa, Mulder said investor appetite ebbed towards the end of 2023, with the industry experiencing outflows for the last quarter. 

Mulder said elevated interest rates and the rising price of petrol resulted in South Africans saving less or not saving at all. 

While South Africans did not invest ‘new’ money into funds, ASISA’s calculations include reinvesting dividends and interest as inflows. 

This skews the figures for the industry, which actually experienced a net outflow of R2 billion in 2023. With dividends and interest reinvested, local portfolios had a net inflow. 

South African interest-bearing portfolios attracted the most inflows in 2023 of around R70 billion. Money market funds were attractive to local investors, with R22 billion channelled towards them in particular. 

Mulder noted that the net inflows into Money Market portfolios fluctuated wildly from quarter to quarter last year depending on investor risk appetite and opportunities available in the market.

South African multi-asset portfolios were the second most popular funds, attracting R51 billion in net inflows in 2023. 

Local multi-asset income portfolios were the most popular, attracting R26.6 billion, followed by SA multi-asset high equity portfolios, which saw R18 billion in net inflows.

Global multi-asset high equity portfolios recorded the highest net outflows in 2023, followed by worldwide multi-asset flexible portfolios and South Africa real estate portfolios.

South Africans have been pumping money into fixed-income funds over the past decade. The category grew from R167 billion in 2012 to R817 billion at the end of 2023. 

Senior Fund Analyst at Morningstar Michael Dodd said this is partly due to their predictable returns and, in South Africa’s case, the high yields from money market funds and government bonds. 

Partly driven by the consistent launch of new income funds, this category also benefits from the reduced volatility in their returns compared to traditional equity-only funds. 

Dodd said multi-asset income funds also allow for less constrained capital allocation, allowing managers to maximise income across a wider opportunity set of assets.

Fund managers overseeing multi-asset income funds can access less traditional fixed-income assets to enhance incremental returns over more conservative income categories. 

More specifically, managers can use more aggressive asset allocation, duration and credit management strategies to improve returns.

Multi-asset income funds allow for total equity allocations up to a maximum of 10% and up to 25% for total property exposure. 

Higher duration carries higher interest rate risk, potentially exposing investors to increased drawdowns and downside risk. 

The graph below shows the average performance of the multi-asset income category versus its more conservative interest-bearing peers. 

The latter is a fund category that restricts the investable universe to fixed-income securities and limits duration to a maximum of two years.