BUSINESS NEWS - In the low return environment of the last few years, one of the biggest casualties has been local multi-asset low-equity funds. These unit trusts, which are designed to deliver steady, inflation-beating returns, have largely struggled to deliver.
Due to the weak performance of the JSE, the returns boost that these funds generally get from their equity allocations (they can have up to 40% in stocks) hasn’t been there. As a result, very few have beaten a consumer price index (CPI) plus 3% benchmark over the last five years. This is generally accepted as the standard for this category.
This has been tough for investors to accept, since the top bond funds and multi-asset income funds have outperformed most of this category for the past three years. In other words, investors could have taken less risk and received higher returns.
A harsh judgement would be that multi-asset low-equity fund managers have let their clients down by persistently hoping for equity returns that have never materialised. Had they allocated more to fixed-income assets, their performance may have been better.
However, the mandate of these funds would generally be to maintain that exposure to the stock market so that when better returns are available, they don’t miss them. Their job is not to try to time when that might happen.
Nevertheless, investors have grown disillusioned. A recent analysis by the Association for Savings and Investment South Africa (Asisa) shows that there have been significant net outflows from most of the largest local multi-asset low-equity funds. Investors have preferred multi-asset income funds, where recent returns have been better.
Read: Which SA unit trusts are attracting the most money?
Whether this will be a long-term trend or a short-term anomaly depends very much on what happens to returns on the JSE. That is, ultimately, what fund managers in the multi-asset low-equity category depend on to be able to deliver performance meaningfully above inflation.
