THE low interest rate environment in South Africa has led to a rush out of cash investments to areas of the market that have the potential for higher returns but are riskier, new collective investment scheme statistics show.
Record net inflows into collective investments in the second half of last year occurred after the central bank cut interest rates and said rates were to remain low for some time, prompting investors to seek out higher returns.
After narrowly missing the R1-trillion assets under management mark in 2011, the local industry achieved R1.2-trillion at the end of 2012 after R104bn flowed in during the second half of the year.
Until then, inflows were at just R16bn, which CEO of the Association of Savings and Investment South Africa (Asisa), Leon Campher referred to during a briefing on Wednesday as "extremely weak".
These slow inflows occurred as investors continued their cautious "wait and see" approach due to the unpredictable market conditions. The lowest inflows in seven years — of R48bn — were recorded in 2011.
A major theme last year, however, was a further move away from money market funds as investors abandoned the perceived safety of their cash investments and sought out inflation beating alternatives.
"The big industry trend now is that more money is going into asset allocation funds and so the money market is a net loser. But it was pretty volatile over the full year," said Mr Campher, who a year ago had likened equity market conditions to a "theme park".
Asset allocation funds invest across the equity, bond, money and property markets and allow asset managers to decide how much to invest in each class. They remained more popular than domestic fixed interest money market funds for the second year in a row.
The industry enjoyed a net inflow of R120bn last year, but money market funds saw an outflow of R9.3bn.
Asset allocation attracted net inflows of R76bn and now has a 34% share of industry assets from 28% in 2011.
Mr Campher warned investors against totally ignoring less risky areas of the market, but conceded that South African investors had tended to be far more risk averse than global counterparts, who consistently preferred maximum exposure to equities.
Peter Dempsey, deputy CEO of Asisa, said South African investors had paid a high price for their caution over the past ten years. He said a R100,000 lump sum in the average domestic equity fund ten years ago would have grown by R435,483 over this period, while growth of only R116,894 would have been achieved if left in the average money market fund.
The equity index in South Africa has continued to make new highs in 2013 — above the 40,500 index mark — but these have largely been driven by a weak rand, with investors seeking rand hedge stocks and buying undervalued resources counters.