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The most recent figures released by the South African Savings and Investments Association (ASISA) show a historic influx of investments in local unit trusts during the last quarter, notes Anet Ahern, CEO of PSG Asset Management.
According to ASISA, this is the highest quarterly net inflow on record, at R88 billion.
Of this amount, around R44 billion was invested by individual investors, and a large part of that was new money that had not been invested before.
This influx of investment may come as a surprise to many, in light of the Covid-19 pandemic, but it is important to see what type of investment has gained the most ground, Ahern said.
South Africa’s interest-bearing money market portfolios attracted by far the largest share of investment.
This reflects a highly defensive mindset, Ahern said, which is in line with what we would expect given the impact of Covid-19 on markets and the economy as a whole.
Many investment portfolios have been severely damaged in 2020, and investors are understandably looking for safe havens, such as money market investments.
However, investors should understand that while these investments may have performed better during the pandemic, they are highly unlikely to help investors rebuild their wealth in the long term, the CEO said.
Investors looking for a smoother ride by switching to cash or buying popular stocks at any price may find that this “safe” approach will actually prove riskier in the long run. Governments around the world have slashed interest rates to counter the impact of Covid-19 on their economies.
“As a result of this, ‘safe’ assets have become even less likely to outperform inflation for the foreseeable future,” Ahern said.
“Stocks are still the place to build your wealth for the long term, despite the discomfort that investing in them can cause from time to time due to increased volatility. For those who are concerned about their retirement savings and have more than 10 years to go to retirement, investing part of their overall portfolio in stocks remains crucial. “
While the overall message from ASISA’s figures is that investors are in defensive mode, there are some signs of optimism in the SA equity space, Ahern said.
In the last quarter, investors withdrew from the SA Multi Asset High Equity, Medium Equity and Low Equity portfolios, generating net outflows for these sectors and instead favored investment in the SA Equity General portfolios.
Locally registered foreign portfolios posted net outflows for the second consecutive quarter. These portfolios denominated in foreign currency are only accessible once the necessary authorization to invest has been obtained from the authorities and investors have purchased the necessary foreign currency.
“This could show that investors perceive the rand to be undervalued, having weakened considerably during the early stages of the pandemic,” Ahern said.
However, international diversification remains an important consideration for investors. Analysis shows that the rand has been undervalued relative to other currencies for some time.
“While it can reverse course, there is no sure way to predict when it is likely to happen. Therefore, investors must ensure that their portfolios are adequately diversified in line with their risk profiles.
“The market currently presents some incredible opportunities for investors who are focused on the long term and who understand that the price they pay for a share is a critical component of their bottom line.”
Read: These 3 South African Actions Will Benefit Most Post-Covid – Analysts
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