RPT-Fitch: Flows in South Africa Favour Mixed Asset Funds
(Repeat for additional subscribers)
Feb 4 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says that South African multi-asset funds were one of the primary beneficiaries of last year's domestic funds flows, with estimated inflows of ZAR83bn. Mixed asset funds now account for a third of all fund assets in South Africa.
Domestic South African bond funds also recorded inflows of ZAR26bn in 2013, contrary to the global trend of outflows from bond funds in 2013. Total industry assets under management (AuM) in South Africa reached ZAR1.3trn (USD126bn) at end-2013, an increase of 25% YOY, versus a global increase in mutual fund AuM of 18%.
The AuM growth in South Africa resulted from positive net flows and market performance in roughly equal proportion, while total global mutual fund AuM growth was mainly driven by market performance. South African mutual fund flows in 2013 were driven by a combination of growing net household wealth (+6.5% YOY as of end-2Q13 according to the University of South Africa, UNISA) and new entrants to certain segments of the mutual fund industry (notably corporate investment in money market and 'income' funds).
Fitch has highlighted that, globally, asset managers have been expanding or reengineering their mixed asset capabilities in response to demand from institutional and retail investors (see: European Asset Management, dated 10 October 2013). This trend is clearly visible in South Africa given the importance of the multi-asset fund segment. Investors look to mixed asset funds for management of volatility through timely allocation between bonds and equities; however, as Fitch's research has shown, multi-asset funds have not always been able to adapt effectively to changing market conditions (see Multi-asset Fund Dashboard Dec 2013, dated 8 January 2014, and European Multi-Asset Funds: Rethinking Asset Allocation and Market Timing in Volatile Times, dated 29 October 2012).
Globally, fears over rate rises and duration-driven losses have driven net outflows from bond funds (except for US and European high-yield funds). By contrast, in South Africa, 'income' funds have seen substantial inflows. Corporate treasurers in particular, taking an increasingly strategic view on cash management, have been actively investing in money market fund-like funds that invest in longer-dated assets to capture higher yields.
Following the wider global trend, the recent growth has been concentrated on larger funds which tend to exert a 'gravitational pull', drawing in assets over smaller funds. For example, the five largest South African mixed asset funds at end-December 2012 captured 30% of the total net industry flow (and almost half of the flow into mixed asset funds) in 2013. Performance and length of track record are important determinants of investor allocations, but strong distribution capabilities of the sponsor are also a key factor, particularly in the retail segment.
Note to editors: Flow and AuM data are based on estimates from Lipper for Investment Management as of January 2014. Classification differences between Lipper and ASISA (the Association for Savings and Investment South Africa) may result in differences in AuM between categories. For example, the largest fund in South Africa is classified as an Absolute Return fund by Lipper while ASISA classifies it as an Asset Allocation (i.e. mixed asset) fund.