Newsletter 26 July 2012: Improving our savings and unit trust stats and performance

The Olympics have arrived! Are you an Olympic fan – or will you be a Stormer or a Shark on Saturday?

 In today’s newsletter we share some final thoughts on Savings Month – why to save and how to save and what to watch out for; and we take a look at the latest unit trust industry stats where money continues to flow into asset allocation funds.

Savings Sentiments

Savings Month officially ends next week – but as emphasized yesterday by Johan Gouws of Absa Investments – savings has to be a habit. It is not sufficient to look at how much is left at the end of the month and then save just that – it is more important to look at how much you need to save first. Gouws was speaking at the quarterly Absa Investments media briefing in Johannesburg.

Don’t confuse ability and willingness

On Monday Old Mutual released their bi-annual Savings Monitor. Presenting at the results was OMIGSA (Old Mutual Investment Group SA) economist Rian le Roux. One of the problems Le Roux highlighted was that we confuse willingness (income for saving is available) with ability (insufficient income). There are many (too many) in SA who cannot afford to save. There are many who can afford to save but are not saving. For example – buying luxury items and entertainment and then having nothing left to save.

Sanlam released the results of their annual Benchmark survey this week. Those surveyed who were happy in retirement had made a definite decision to save and it had involved giving up some of the material things that want to seduce us when we are earning.

Four things to remember

If you are not on the right retirement savings track there are only four things you can do. This was pointed out by 2010 Financial Planner of the Year Natasja Norval Hart – who was part of a panel discussion at the FPI Convention held recently in Sandton.

1. Work more – earn more

2. Spend less

3. Save more

4. Earn a higher return

An investor is responsible for three of these – the major savings decisions lie in our own hands.

Investing longer is a good idea

Absa Investment’s Johan Gouws showed the following figures that demonstrate how time really does make a difference:


These figures assume a starting contribution of R500 a month, escalating by 6% each year and 10% investment growth per annum. Please note that the aim is to show how saving longer makes a huge difference.

How much must you save?

Gouws looked at how much you need to have for a comfortable retirement. Assuming you retire at age 65, and expect to live another 25 years – if you want to live on 75% of your final salary of R500 000 a year you need to have saved R7.5million. (Please note that this figure is a guideline and makes certain assumptions for inflation and returns)

OMIGSA’s Le Roux presented the following table on Monday that shows the difference saving more can make:


This assumes a 9% pa salary gain and 6% pa inflation

Le Roux’s message is that you have to save more as you cannot rely on high investment returns going forward (8 – 10%pa). Today Citadel’s chief investment strategist Dave Mohr shared the same views – for retirement – you have to save more.


Investors allocate billions to painless asset allocation options

Assets managed by the local Collective Investment Schemes (CIS) industry have grown by a healthy R85 billion over the past year to R1 041 billion at the end of June this year.

Second quarter statistics for the local CIS industry released by the Association for Savings and Investment South Africa (ASISA) this week show that collective investment schemes such as unit trust funds remain popular with investors. Sales in the second quarter alone amounted to R242 billion – one of the highest ever recorded.

Unfortunately some of the strong flows were negated by the heavy outflows that continue to plague the domestic money market funds. In the second quarter alone money market funds suffered net outflows of R8.8 billion, bringing to R43.8 billion the net annual outflows for these funds.

Leon Campher, CEO of ASISA, attributes the sizeable withdrawals from domestic money market funds to continued repositioning of corporate cash holdings.

He adds, however, that softer money market rates ahead of the recent interest rate cut probably also resulted in some investors switching to unit trust funds producing higher income yields. This resulted in some of the domestic fixed interest funds attracting some of the highest net inflows for the quarter. The Domestic Fixed Interest Varied Specialist sector recorded net inflows of R3.1 billion and the Domestic Fixed Interest Income sector R2.8 billion.

Campher says following the exceptionally weak net inflows in the first quarter of this year of only R719 million, the strong net inflows of R15 billion in the second quarter were very welcome. At the end of June 2012, the industry offered investors 951 funds.

Net winners

The Domestic Asset Allocation category again attracted the bulk of the net inflows in the second quarter of this year. This category has been the industry’s largest since it toppled the Domestic Fixed Interest Money Market category from top position in the fourth quarter of last year.

At the end of June 2012, the Domestic Asset Allocation category held assets under management of R331 billion, or 31% of industry assets. Money market funds held assets of R231 billion, or 22% of industry assets.

Campher says most popular within the Domestic Asset Allocation category is the Prudential Variable Equity sector, which attracted net inflows of R8.8 billion during the second quarter of this year.

Campher says asset allocation funds continue to grow in popularity, because they enable investors to achieve diversification across the asset classes within one fund. Expert fund managers determine the appropriate mix for the fund in line with its investment mandate.

Net inflows were also recorded by the domestic equity category (R201 million) and the domestic fixed interest (excluding money market funds) category (R6.4 billion) during the second quarter of this year.

Delivering performance

Campher says the CIS performance figures for the second quarter show why the Domestic Asset Allocation Prudential Variable Equity sector is so popular with investors and their financial advisers. Average fund performance in this sector did not shoot the lights out, but also did not disappoint in delivering a solid average.

This sector delivered an average performance of 9.4% for the one year to the end of June 2012, very similar to domestic general equity funds. In comparison money market funds produced 5.5% and other fixed interest income funds 7.2%. Inflation came in at 5.2%.

Over the five-year period, which bore the brunt of the global financial meltdown, funds in the Domestic Asset Allocation Prudential Variable Equity sector delivered 6.2% (13.8% over 10 years). General equity funds produced 5.2% over five year and 16.2% over 10 years. Money market funds achieved 8.2% and 8.3% over five years and 10 years and other fixed interest income funds 8.8% and 9.1% over the periods. Inflation came in at 6.3% for five years and 5.3% for 10 years.

Sources of sales

The bulk of the investments into the CIS industry in the 12 months to the end of June this year came via intermediaries (36%). Direct investments from consumers contributed 20.4% towards inflows over this period. Linked investment services providers (Lisps) generated 21.2% of sales and 22.5% of sales was received from institutional investors like pension and provident funds.

Five years ago 38.6% of investments into the CIS industry came via intermediaries, while direct investments contributed 21.4%. Lisps generated 24.7% of sales and institutional investors 15.3%.

Offshore focus

Locally registered foreign funds had assets under management of R123.8 billion at the end of June this year, compared to R137.6 billion at the end of March this year. These funds recorded net inflows of R2.6 billion during the second quarter of this year.

There are currently 321 foreign currency denominated funds on sale in South Africa, 21 less than at the end of December 2011.

The opinion and comment in this newsletter is opinion and comment only and does not – in any way – constitute financial advice. Please consult a professional financial planner for all investment, retirement savings and financial decisions.

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