25 February 2025
Sameer Singh, Research and Investment Analyst at Glacier Research, takes a look at trends in ASISA category allocation from 2020 to 2024, the shifts in fund allocation and what drives these changes.
A high-level overview
The prior five years have been marked by significant events and trends that have shaped the investment landscape. From the global pandemic and high inflation to the AI revolution and geopolitical shifts, these years have brought about notable changes in market dynamics. Against this backdrop, Glacier Research provides a high-level overview of ASISA category allocation trends during the period, highlighting key shifts in fund allocations and the factors driving these changes.
Table 1 - Asset Class Returns
Multiple decades of market activity in just five years
The past five years have been a remarkable period for both markets and investors. A global pandemic, decades-high inflation, reversal of monetary policy cycles, the AI revolution, and multiple geopolitical events are just a few of the occurrences worth noting.
With this landscape, we experienced the return of the 60/40 portfolio as bond yields rose thereby finally offering investors both local and global, a real alternative to equities, the rise of U.S. exceptionalism at the expense of other developed markets as well as emerging markets, and notable US dollar strength. This sample of underlying dynamics represent meaningful considerations for fund advisors, allocators, and investors broadly. But did this impact how funds were allocated?
The data would suggest, yes! Using Morningstar data, we collated two sets of fund data and summarised these at a category level. The table below shows the top and bottom five ASISA categories (removing those with “unclassified” funds), ranked on growth in market value over the period 2020-2024. Market value growth equates to the sum of underlying fund growth together with net flows. Looking at the bottom five, three of the five are South African equity sector funds – for some time now there has been a trend away from sector specific funds. There are a handful of reasons for this, but two major ones are the lack of liquidity and lack of depth in the market. The latter point speaking to the dearth of new listings on the JSE over the past 20 years. The other two are global categories, but one with an Africa focus (an investment region that has been a trap for many allocators, largely since the Global Financial Crisis), and the other a short-term global fixed interest category. The latter is an interesting finding but becomes more intuitive when compared to the 5 fastest-growing categories.
Three of the five funds are pure global funds, while the other two maintain high-global and high-equity allocations. The fastest growing ASISA category over the period was the Global Interest-Bearing Variable Term category. This category’s market value grew by 253%, more than double the growth rate of the second fastest-growing category, South African Multi-Asset Flexible. Contrasted to the 22% decline in market value for the Global Interest-Bearing Short-Term category, the data suggests that investors moved away from the short end of the curve in favour of greater fixed income diversification.
What we have learnt from investor behaviour
Was the move described above, the right one? Perhaps not when considering that the iShares Short Treasury Bond ETF outperformed the Bloomberg Aggregate Bond Index by 5% per year. With hindsight, investing in short-term instruments proved superior owing to the lower overall duration, and sensitivity to intrest rates inherent in that part of the market. On the other hand, the Bloomberg Aggregate Bond Index typically holds corporate and mortgage-backed securities which carry higher credit risk and therefore volatility. The general shift towards global however had already been established. Changes to local pension fund regulations (Regulation 28 expanding the offshore allocation to 45%), the marked strength of the US dollar (2.2% appreciation per year), together with US exceptionalism and AI-driven market returns added greater impetus and scale to this shift.
As at end 2024, the Global Equity General unit trust category was the third-largest by across the ASISA universe (excluding South African Money Market). While rand weakness and market returns have played a part here, we also note the category was ranked fourth for greatest net flows over the five-year period.
Table 2 - ASISA Category Market Value and Net Flows (Ranked on growth in Market Value)
Switching lenses from market value to net flows, four of the top five categories are fixed income in nature. Allocating to fixed income is typically not associated with returns-chasing but rather risk aversion and the undertaking of a more conservative investment stance in the face of uncertainty and volatility. Additionally, the shifts in interest rate policy also contributed to the relative attractiveness of fixed interest and their associated income profiles. At the bottom end of the net flows ranking, we find a collection of sector-specific South African equity categories, and the South African Multi-Asset Low Equity category, which has seen net outflows of over R31 bn over five years.
Table 3 - ASISA Category Market Value and Net Flows (Ranked on sum of Net Flows)
“When the facts change, I change my mind”[1]
Are these trends likely to continue? Yes and no. Investors will at some point tilt their allocations in favour of other asset classes and geographies but the status-quo of elevated yields, globally, may yet continue beyond what has been factored into expectations. Locally, sector-specific funds are highly unlikely to return to vogue when considering the waning attractiveness of the Johannesburg Stock Exchange as a source of capital. At the same time, the globalisation of local investors is a trend with substantial impetus, and may only potentially slow-down, not reverse, should South African growth prospects improve. These dynamics highlight the fluid, non-static nature of markets. As we navigate an ever-evolving global investment landscape, the emphasis on a diversified but still focused and flexible approach remains paramount.
Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.
Sanlam Life Insurance Ltd is a licensed life insurer, financial services and registered credit provider (NCRCP43).
[1] Often attributed to John Maynard Keynes
