Non-super master trusts keep rolling on

If there is one thing that can be said about the flow of money into master trusts, it is that it keeps coming.

Less than 10 years ago, the master trust was still an infant of the investment process in Australia, both as a channel through which individual investors could access the funds management community and as a platform for advisers looking to streamline the distribution of their client’s funds into investment markets.

Today, master trusts are not only entrenched as a legitimate investment vehicle, but also appear destined to quickly develop into the dominant way in which Australians invest their disposable income outside of superannuation savings.

Over the last year, growth in the non-superannuation investment master trust market has continued to outpace that of the rest of the retail managed fund market.

According to figures supplied by leading financial services research group Plan-For-Life, the total assets managed by the non-super investment master trust market grew 21 per cent in the 12 months to the end of December 2001.

The figure was roughly twice the pace of growth in the rest of the retail managed funds market, which grew by just under 10 per cent over the year.

The formidable growth rate meant that just over $9 billion worth of new money flowed into retail non-super investment master trusts throughout 2001, turning it into a $24.7 billion industry, according to Plan-For-Life.

A good proportion of that new money flowed into the country’s largest master trusts.

The five biggest master trusts took in some 65 per cent, or $5.9 billion, of all new non-super master trust inflows over the 12 months to the end of December last year.

As a result, the five largest non-super master trusts now account for almost 67 per cent of all non-super master trust funds under management.

The composition of the top five — with the National Australia Bank’s MasterKey on top with $5.9 billion under management, followed by Norwich’s Navigator with $3.7 billion, Sealcorp’s Asgard with $2.9 billion, Westpac’s Personal Portfolio Investment with $2.6 billion and Deutsche’s Investment Trust with $1.4 billion — has remained largely unchanged over the last year.

MasterKey’s position as the largest non-super master trust was augmented over the last year by a steady flow of funds from other National master trust platforms. Both FlexiPlan and MLC — the master trusts National acquired with its purchase of MLC — recorded largely negative net inflow figures throughout 2001, as the NAB rolled parts of its business into the MasterKey platform.

The overall impressive flow of funds into the non-super master trust sector does not, however, imply that investment master trusts were spared from the market uncertainty that pervaded most corners of the funds management world throughout 2001.

Like the remainder of the retail managed funds market, non-super master trusts took a hit from the shockwaves that reverberated through the minds of investors and, consequently, through investment markets after September 11.

Net cash flows into non-super master trusts fell from around $1 billion in the three months to the end of September, to around $880 million for the three months to the end of December, as some investors steered clear of investment markets altogether.

The drop in net inflows over the second half of 2001 meant that the overall growth rate for non-super master trusts, impressive as they were, did not match the growth rates of previous years.

The sector had in fact grown by 31 per cent in 2000 and by an even more phenomenal 38 per cent in 1999.

But the relative downturn in the overall growth rate of non-super master funds cannot be attributed entirely to the state of the world’s investment markets.

It is also, to some degree, the result of the burgeoning popularity of wrap accounts, or investor directed portfolio services (IDPS).

Some of the funds that might one day have been destined for non-super investment master trusts are without a doubt now flowing into wrap accounts.

The eight separate products that are classified as strictly non-super wrap accounts by Plan-For-Life already administer some $7.7 billion and there is every indication that the figure will rise, in some cases at the expense of master trusts.

Of those eight products, four are part of the Perpetual stable. They range from the flagship Perpetual IDPS, which is available to individual investors, to others that have been established specifically for a range of dealer groups.

For Perpetual’s group head of personal financial services Rohan Mead, there is no doubt the popularity of the wrap account rests with its ability to offer individuals and advisers greater discretion with their investment decisions.

“I think, to the extent that wrap accounts offer greater choice and flexibility to investors, it is true that wraps will continue to wrest some inflows away from master trusts,” Mead says.

This appears to be particularly the case in the non-super side of the retail managed fund market.

The greater investment flexibility offered through wrap accounts can often result in unwanted tax issues when combined with the complexities of a superannuation environment. That is less likely to be the case in a non-super situation.

This is not to say that the days of the non-super master trust are numbered. If anything, the master trust and wrap account are likely to continue to sit alongside each other and, between them, capture an even greater proportion of funds moving into the retail non-super arena.

“The evolution of the wrap account has in fact given rise to the development of greater adaptation and flexibility in the master trust,” Mead says.

“I think they will both survive and continue to be supported by flows of funds.”