THE BOTTOM LINE
Active beats passive where it counts: Just follow the money
Why is so little of the country’s R2.2-trillion unit trust savings pot invested in low-cost index trackers?
For all the hype around index-tracking products in South Africa, only a handful of the country’s savings are invested in them. Figures from the industry suggest that index-tracking products command less than 5% of assets in the R2.2-trillion unit trust market. Active managers are sitting on all the rest.
Contrast this with the US, where about 23% of assets are passively managed, with expectations that this will exceed 50% in the next four to six years.Evidently South Africans remain enamoured with active managers, despite research suggesting that only a handful of them consistently manage to outperform the market after fees. Until the real money – institutional money locked up in pension funds – is directed towards index trackers they will stay small. And this means they will be small for some time.
Pension funds are not known for their alacrity in making decisions that involve change – just ask Coronation Fund Managers, which reopened its SA equity and multi-asset portfolios to new institutional investors more than a year ago and has yet to see meaningful flows.
Pension fund trustees also draw comfort in sticking with what they know, even if it does mean paying slightly higher fees. Gatekeepers – the asset consultants who advise pension fund trustees on where and how to invest the savings of ordinary South Africans – are a further handbrake.
But considering that index funds have now been around for more than 40 years (at least in the US) and are getting smarter all the time, it is high time that fund trustees seriously consider their merits.