Money and Markets

South Africans invested a record R88bn in unit trusts during lockdown – here’s what they bought

Business Insider SA
The JSE in Sandton. Photo: Elvira Wood
  • In a surprising development, there was a surge in new investments in SA unit trusts during the height of the lockdown. 
  • In the second quarter this year, a net R88 billion was invested in local funds - with R48 million going to traditionally super-safe money market funds.
  • But investors also bought unit trusts that invest in shares only - as the JSE's all share index rocketed 23% during the quarter (following large losses).
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During the second quarter of 2020, at the height of South Africa’s lockdown during the coronavirus crisis, South Africans invested a net R88 billion into local unit trusts – the biggest net quarterly inflow on record.

There was a massive rush into money market funds, which attracted R48 billion in just three months. Money market funds are among the most conservative investments around, and seek to give a better return than a one- to three-year fixed deposit bank accounts. 

Unit trusts that invest in South African government bonds and other interest-rate paying assets also attracted billions in new investments.

Traditionally, unit trusts that invest in shares outperform these funds. But this has not been the case in recent years.

SA Interest Bearing Short-term funds (unit trusts that invest in bonds and other interest-bearing assets) and Money Market funds on average outperformed inflation as well as unit trusts that invest in shares (net of fees) over the one year and five year periods to the end of June 2020, says Sunette Mulder, senior policy advisor at the Association for Savings and Investment South Africa (ASISA).

“The low volatility of these portfolios combined with their inflation-beating performance makes them an obvious choice for risk averse investors.”

Mulder says the record investments in unit trusts in the past quarter came as a surprise considering the volatile investment environment and uncertainty created by the Covid-19 pandemic. In February this year, stock markets across the world suffered their largest losses in decades.

Since then, however, markets have started to recover, with the JSE now higher than it was at the start of the year.

“The R88 billion in net inflows includes reinvested distributions of R20 billion, which means R68 billion was brand new money that had not been invested in Collective Investment Scheme (CIS) portfolios before. Also, the split between institutional and retail investments is about 50/50, which means that around R44 billion was invested by individual investors,” Mulder says. Institutional investors include pension funds.

She noted that investors ditched SA Multi Asset High Equity, Medium Equity and Low Equity portfolios, which saw outflows, and instead invested directly into SA Equity General unit trusts - which have a higher exposure to shares. 

“Despite delivering negative returns over one and five years to the end of June, general equity portfolios may have presented an attractive buying opportunity for investors willing to stomach the volatility that comes with investing in general equities. Given the quarterly return of 23.18% delivered by the FTSE/JSE ALSI [the JSE's all-share index], there may have been merit in that decision,” Mulder says.

More than a third of the assets under management in SA unit trusts are now held in SA interest-bearing portfolios (including money market funds), with multi-asset funds (shares and interest bearing assets) holding 47%, followed by SA Equity (shares-only) portfolios with 16% and SA real estate portfolios with 2%.

Some 26% of the inflows into the CIS industry in the 12 months to the end of June 2020 came directly from investors. Intermediaries contributed 36% of new inflows. Linked investment services providers (Lisps) generated 21% of sales and institutional investors like pension and provident funds contributed 17%.

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