By Jeremy Gardiner, director, Investec Asset Management 

The fourth quarter collective investment scheme statistics released by ASISA today see a clear continuation of the trend characterising investment flows throughout last year, with the majority of flows (R12.2 billion) finding their way into asset allocation funds. As is the case globally, investors – confused by current market conditions – have long since given up trying to second guess where equity markets are going and are far more comfortable leaving asset allocation decision-making to professional fund managers with a proven track record. 

Another interesting feature is the significant outflow to the tune of R10bn out of money market funds, most likely into more flexible fixed income funds and asset allocation funds. With cash not even forecast to beat inflation this year, investors are probably realising that they’re ‘going backwards’ by having too much of their investments parked in cash. 

Given the fourth quarter rand weakness combined with developed equity market turmoil, the small net foreign inflows of only R329m suggest that South African investors once again chose to keep their money invested locally. However, given the recent rand strength and the fact that a lot of the bad news, including potential Eurozone defaults and the debt crisis in the US, is already in the price, we expect investment flows offshore to start picking up again.

What should investors be doing?

The mood so far this year seems better, as investors adjust to a world that is more likely to stumble along aimlessly rather than collapse. As a result, markets have also enjoyed somewhat of a relief rally, but at some stage they will be reminded that there are still dark clouds on the horizon. In this environment, keep some powder dry, but don’t sit on cash forever. Now, however, is probably the wrong time to get back into equities. There could be better buying opportunities ahead.

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