The year to March 2003 brought 40% growth in the unit trust industry from R174bn to R243bn. From December 2001 until the turn in the equity market in April 2003, the industry had appeared to be stuck at around R175bn.
At the beginning of last year, there was deep scepticism both of the ability of the equity market to produce real returns and of the ability of asset managers to outperform their benchmarks.
But the past year has been a good one for active managers. General equity funds have outperformed the all share index, with a 45,6% return, and some sectors have produced strong results, notably the industrial sector with 63% returns and smaller companies with 60%.
Not all the growth has been on the back of the equity market. There was a net inflow of R43bn. More than half the net inflows, or R23bn, went into money market funds. In the process, the shape of the industry has changed.
Equity products account for just 27% of domestic unit trust assets; money market assets have grown from R60,5bn to R85,2bn.
But Pieter Koekemoer, head of retail marketing at Coronation, says flows that went into money market funds should not be seen as flows that would have gone into the rest of the unit trust industry; they are an alternative to bank deposits.
When short-term interest rates are unexciting, particularly after tax, there is scope for unit trust management companies to persuade their clients to move to other funds (which happen to attract higher fees). These may be income funds, which are allowed to invest in a mixture of cash and bonds with an average duration of two years; protected equity funds such as Old Mutual's Dynamic Floor; or other forms of one-stop single solution funds.
Investec Asset Management MD John Green says he is concerned that there is not enough of a savings culture in SA. Now that most pension funds no longer offer a guaranteed pension based on the length of service (a defined benefit arrangement), it is even more essential that people save more, says Green, and the most convenient savings vehicle is the unit trust.
Old Mutual Unit Trusts MD John Bryant says that there is limited demand to invest in specialist funds that drove industry growth in the past, such as technology, small companies and financial services funds. And the new Financial Advisory & Intermediary Services legislation has persuaded a large number of intermediaries to give the asset allocation decision back to the asset manager.
A new category of unit trusts, the targeted real and absolute return category, was created in November 2003. Koekemoer's view is that the category is too diverse to be meaningful, but it is certainly popular, attracting R2,8bn over the past six months compared with the R2,1bn received by general equity funds.
The new funds use all asset classes to achieve a return equal to the inflation rate plus anything from three to eight percentage points.
