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Collective Investments
Monday, September 1, 2008
Foreign nerves

South African investors are still not making full use of offshore investment opportunities in spite of the benefits of diversifying beyond a single market, says Di Turpin chief executive of the Association of Collective Investments.

“If one considers that most analysts recommend an offshore allocation of some 30 percent and there are those who see 40 percent as optimal, it is clear that local investors and their advisors need to re-look at their portfolios.”
The latest ACI figures covering foreign currency denominated funds – mainly dollar and sterling – show that offshore fund total assets are just under R112 billion as against the R656 billion invested in local funds. Turpin says that even the local rand denominated offshore funds which can be bought over the counter without any foreign investment allowance – are not attracting big money.
There was a net equity outflow of R2,9 billion by retail investors in the foreign currency denominated funds in the June quarter as against an inflow of R1,1 billion into institutional funds for a net total outflow of R1.8 billion from equity funds and assets dipped from R117,9 billion to R111,6 billion.
Local returns over the past year have been far better than offshore - the ALSI is up 10,15 percent as against the FTSE100 index’s minus 2,64 percent in Rand terms.
“It has definitely paid to be invested in the JSE, but local investors are too short term focused ignoring the benefits of diversifying offshore in the longer term.
“The June quarter figures suggest investors shied away from foreign investments in the wake of sub-prime fears and there was extreme nervousness surrounding equities. This is reflected in the inflows for the South African based local funds where inflows were dominated by low risk investments such as money market.
“This nervousness can also be seen in figures for some of the overseas based Collective Investments associations which have seen sharply lower net flows. The UK Investment Management Association net retail fund sales slumped to £653m in May compared with £1.5bn in April and £1.1bn in May last year.
Turpin says the relative strength of the Rand has played against investments in foreign denominations and influenced overall assets under management.
“The Bureau for Economic Research is forecasting that the rand is likely to weaken against the US dollar but strengthen somewhat against the softer Euro. BER expects the currency to average R8.45/$ during the fourth quarter of 2008 and R8.75/$ in the final quarter of 2009.”
Investors locally have 377 foreign currency denominated funds on offer – all of which are registered with the Financial Services Board and subject to local governance and regulations.

Copyright © Insurance Times and Investments® Vol:21.8 1st September, 2008
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