Investors who try to time the markets will defeat their long-term objectives, and this is particularly the case if you are invested in multi-asset portfolios, the Association for Savings and Investment South Africa (Asisa) warns.
Statistics released by Asisa in October show that half of all assets under management in local collective investment schemes are now invested in multi-asset portfolios.
Multi-asset portfolios invest across the equity, bond, money and listed property markets, with an asset manager deciding on the appropriate mix.
Although multi-asset portfolios were designed to offer investors a single diversified portfolio aimed at absorbing the highs and the lows of the markets, it seems that investors in these portfolios – spooked by market volatility – are trying to time the markets, Sunette Mulder, the senior policy adviser at Asisa, says.
She notes that, over the past four quarters, investors either favoured multi-asset income portfolios and fled multi-asset high-equity portfolios or the other way round, depending on what was happening in the markets.
Multi-asset income funds are restricted to investing 10 percent of their assets in equities, whereas high-equity funds can invest up to 75 percent in equities.
In the third quarter, income portfolios once again trumped funds in the other multi-asset sub-categories following the market downturn. These portfolios recorded the highest net inflows, while high-equity portfolios recorded the lowest net inflows, of all the multi-asset sub-categories.
The FTSE/JSE All Share Index reached an all-time high of 55 188 points on April 26 this year, but the index shed 2.13 percent of its gains in the third quarter.
Mulder points out that investors are defeating their long-term objectives of achieving growth by trying to time the markets.
“It is time in the market that will deliver the desired outcomes, not timing the market. Volatility is best countered with an appropriately diversified portfolio, not by switching between asset classes. Since multi-asset portfolios are already diversified across the asset classes, it is even more important that the portfolio is given a chance to achieve its goals,” she says.
Asisa statistics for the three months and 12 months to the end of September show that South African multi-asset portfolios held 50 percent of assets, equity portfolios 21 percent, interest-bearing portfolios 25 percent and real estate four percent.
Multi-asset portfolios attracted most of the net inflows into collective investment schemes for the 12 months to the end of September 2015, contributing R64 billion of the total R120 billion. In the third quarter alone, multi-asset portfolios recorded net inflows of R21.6 billion, compared with the total of R44.5 billion.
South African multi-asset portfolios have consistently attracted most of the net inflows for the past six rolling 12-month periods to the end of September.
Multi-asset low-equity portfolios, which are limited to investing 40 percent of their assets in equities, recorded the highest overall net inflows of R17.7 billion for the 12 months to the end of September. High-equity portfolios attracted net inflows of R16.8 billion. Income portfolios were the third most popular category, with net inflows of R14.3 billion.
Performance figures for the one-, five- and 10-year periods show that multi-asset portfolios have consistently out-performed inflation, Mulder says.
She says that 33 percent of the inflows into collective investment schemes in the 12 months to the end of September came directly from investors. This does not necessarily mean that these investors acted without financial advice, because many direct investors pay for advice and then implement the choice of portfolio themselves.
Intermediaries contributed 20 percent of new inflows, linked-investment services providers generated 24 percent of sales, and 23 percent of sales were received from institutional investors, such as retirement funds.
South African collective investment schemes managed assets of R1.8 trillion and offered investors 1 274 portfolios at the end of the third quarter.
Net inflows of R44.5 billion in the third quarter of this year – the highest for any quarter over the past two years – brought the total net inflows for the 12 months to September 30 to R120 billion.
Foreign portfolios registered in South Africa held assets under management of R328 billion at the end of September, compared with R315.8 billion at the end of June. These foreign portfolios recorded net outflows of R4.4 billion.
There are 360 portfolios denominated in foreign currencies on sale in South Africa.
Foreign-currency-denominated portfolios can be marketed to South African investors only if they are registered with the Financial Services Board. Local investors who want to invest in these portfolios must comply with South African Reserve Bank regulations and will have to use their foreign capital allowance.