Unit trust investors too conservative: Di Turpin

While money market funds are a key part of the industry Di Turpin, ACI chief executive says that investors still tend to invest too little in equity funds.

"Money market funds are an excellent alternative to traditional banking products, but long term wealth creation can only happen when other asset classes are used as well. Investors have been overly conservative over the past five years investing heavily in cash and fixed interest shorter term investments and are not investing sufficiently for the long term. This is particularly relevant to the younger investors,' she said

"The same implies with local versus offshore investing: We are still not seeing heavy flows offshore. I expect investors will regret that in time. The rand will soften and investors will find they have not looked at their portfolio construction."

South Africa's Collective Investments industry is poised to double in size over the next 10 years says ACI chief executive Di Turpin.

The R450 billion industry is showing one of the fastest growth rates and is developing into the major savings vehicle for millions for South Africans. Average annual growth rates have been some 20 percent over the past five years.

"While we are still smaller than the other investment businesses, collective investments are growing rapidly due to their good performance and full cost disclosure. Already some 2 million investors are using unit trusts and we believe that once the reform of the retirement fund industry is in place we will be able to offer even more investors credible and relevant retirement solutions as well.

She said that mounting interest both from the institutions and retail investors in unit trusts was due to the trustworthiness and transparency of unit trusts. 

The number of funds available to investors will breach the 600 mark by the end of this year with a wide range of new portfolios being offered by 3rd party funds. There is also stepped up interest in boutique asset managers with smaller funds.

The ACI says there is ongoing demand for balanced as well as targeted absolute return funds. A primary factor behind the growth of the absolute return funds has been the FAIS legislation which places a heavy responsibility for advice and hence fund selection on advisors. Advice has tended to be more conservative than prior to the introduction of FAIS.

"Globally there has been a marked shift towards absolute return funds, but South Africa is ahead of the curve. We have been focusing on these funds for the last 3 years. The groundswells of interest have only happened in Europe over the past eighteen months or so. World-wide there is also a move towards multi-manager business. Here again we are ahead of the global trend.

"Internationally there is sharp focus on fees, disclosure and transparency. In South Africa we have had focus here on this largely due to what is happening in the retirement market. But the same issues are on the table world-wide with collective investments seen as the most transparent suitable vehicle for the average investor."

On challenges facing the industry, Turpin says investor education is paramount. Institutional investors understand the transparency and disclosure benefits of collective investments which is why there has been a sharp increase in institutional interest over the last few years.

"They know what they are buying in their management of funds and the benefits are passed onto their overall portfolio. Our goal is to create that same level of understanding and education in the ordinary investor - that collective investments offer better value for money."