SA equity funds move up in return rankings

South African unit trust investors continue to be heavily exposed to investments that earn interest which have delivered good average returns over the past decade.

But there is a general under-exposure to equity investments, despite strong average returns from funds exposed to offshore markets and steadily improving average returns from those exposed to the local equity market.

This is according to the latest statistics released by the Association for Savings and Investment South Africa (ASISA).

These statistics show there was a 10.8 percent growth assets in funds while the JSE All Share Index delivered a return of 13.4 percent over the 12 months to 31 December 2024.

Over the four years since 2020, investments in local unit trust funds grew by 42 percent, or R1.14 trillion.

Despite the recent good returns, Sunette Mulder, senior policy adviser for investments at ASISA, says tough economic times resulted in investors withdrawing R35.25 billion in 2024.

These withdrawals started before retirement fund members were allowed to withdraw from their savings pots.

Despite the withdrawals, dividends and interest that remaining investors reinvested into their funds resulted positive inflows overall.

Return expectations

Typically investors should expect funds invested in equities to return a lot more over time as share prices rise than fixed interest funds, such as money market funds, income funds and even multi-asset income funds can earn in interest.

Average return statistics from ASISA show that the past decade to the end of 2024 has been atypical, with local equity unit trust investors earning lower average annual returns (7.2 percent) than those from these fixed interest funds (7.5 percent for each).

Source: ASISA and Profile Media
AVERAGE RETURNS FROM UNIT TRUST SECTORS
	Average sector performance (annualised)
	1 year to the end of Dec 2024	5 years to the end of Dec 2024	10 years to the end of Dec 2024	20 years to the end of Dec 2024
SA Equity General	13.8%	10.3%	7.2%	11.7%
SA Interest Bearing Short Term	9.7%	7.1%	7.5%	7.6%
SA Interest Bearing Variable Term	15.8%	9.0%	8%	8.4%
Global Equity	16.3%	14.0%	12.2%	12.2%
CPI	3.0%	4.9%	4.9%	5.4%

However, as green shoots appear in the local economy, the typical return pattern is returning – over the past five years, local equity funds delivered on average 10.3 percent a year relative to the 7.5 percent from multi-asset income funds, 7.1 percent from income funds and 6.8 percent from money market funds.

And over the year to December 2024, equity funds were even stronger, returning 13.4 percent relative to the 10.5 percent from multi-asset income funds, 9.7 percent from income funds and 8.7 percent from money market funds.

Global equity funds remain the top performing funds over the past year, five years and 10 years. Average annual returns over the past five years from these funds were 14 percent.

The S&P500, the index for the top 500 shares on the New York Stock Exchange, grew 21.6 percent a year over the five years to the end of 2024, while the JSE All Share index grew 12.2 percent a year over the same period.

Shunning growth assets

Mulder says investors have been shunning growth assets for several years now, most likely because high interest rates put the returns delivered by fixed interest portfolios almost on par with the average performance of general equity portfolios.

The ASISA stats show that 30 percent of unit trust investments are in fixed interest funds and a further 11 percent is in multi-asset income funds, which are predominantly invested in fixed interest investments.

“However, equity portfolios tend to outperform other asset classes over the long-term, and it is time in the market, rather than timing the markets, that delivers investment growth,” she says.

“While the global political environment is deeply concerning, we have seen green shoots appearing in the South African environment for the first time in 2024. A stable inflation rate and lower interest rates meant more disposable income for South Africans. In addition, the new two-pot retirement system provided many households with a cash injection. We have also enjoyed a stable electricity supply, a peaceful transition to a Government of National Unity, and a concerted effort to reverse South Africa’s grey listing,” she says.

Confidence improves

Craig Lemboe, deputy director at the Bureau for Economic Research (BER), says while the JSE was flat in the first half of 2024 as a result of loadshedding, watershedding and problems with the rail network and ports, the election of the Government of National Unity, showed a political movement to the centre rather than any populist extremes.  

As a result in the second half of last year there was an uptick in consumer and business confidence as measured by the RMB BER Business Confidence index but this has yet to translate into economic growth. StatsSA revealed yesterday that the economy grew just 0.6 percent last year.

Lemboe said improved business sentiment improved is a leading indicator for improved investor sentiment, but it hasn’t improved fixed investment.

It could be too soon for this improved sentiment to boost growth, he said. “Maybe we're too excited and we expected too much, too soon. Or maybe this is insufficient for meaningful growth. Maybe we need confidence and good progress on structural reform. We certainly need to fix the ports before we see meaningful growth close to – and above - the two percent average that we have seen over the past couple of years.”

Lemboe added that the election of Donald Trump in the US is factor that could negatively impact local economic growth.

Hedge funds gain ground

In uncertain economic times, it is often good to hedge your bets, and an increasing number of investors who used South African hedge funds to do so were, on average, well rewarded. The 221 funds had an average 15.56 percent return in 2024, according to HedgeNews Africa.

ASISA statistics showed strong new investments into these funds mainly from retail investors, Hayden Reinders, convenor of the ASISA Hedge Funds Standing Committee, said.

Assets under management grew by 34 percent to R185.12 billion (excluding fund of funds) over the 12 months to the end of December 2024.

South African hedge funds have been regulated under the Collective Investment Schemes Control Act for the past 10 years. Retail investors may only invest in retail hedge funds which have controlled investments and risk. Hedge funds are also offered as qualified investor hedge funds to investors who understand these funds ability to take greater investment risks and who have R1 million to invest.

Reinders says most of the new investments in 2024 were into SA Long Short Equity Hedge Funds, which take both long investment positions – they buy and hold stocks they expect will go up in value - and they short others – or sell stocks they do not own - if they think the price of the stock is going to fall.