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Managed Fund Returns Strong in May

Managed Fund Returns Strong in May

Figures released today by investment research company FundSource show that NZ managed fund investors were delivered strong returns across the board in May. Both NZ and international sharemarkets performed well over May, and this carried through to fund returns both in those funds that focus on these sectors and the Diversified funds with exposures to equities markets.

The positive returns from NZ and international sharemarkets in May have shown that the poor performance seen in March and April was simply a temporary dip in investor sentiment. While the short-term negative performance is not unusual or unexpected given the extended period of growth of equities, the turnaround in May demonstrates that investment fundamentals remain strong, particularly in international markets, and investors’ confidence has rebounded on this realisation.

The decline in the NZ dollar over the month of May also enhanced the returns of many funds with an exposure to foreign currencies, which have been impeded while the currency has been appreciating.

The strongest performances for May were recorded in the International Equity (Global) sector, with the funds delivering an average performance of 4.61% for the month. Regional International Equities were the next best sector with 4.29%.

Following is a summary of the main investment sector performances:

New Zealand Equity (Active) Unit Trusts

Average performances for NZ Equity active funds in May were 1.63%, while posting a 9.96% return for the year. The poor performance of the NZ sharemarket in March and April mean that returns for the three months to the end of May were negative across the board, but such a correction came as little surprise given the long run of good performance the sharemarket had experienced. Funds also outperformed the market over May, with the NZX50 Gross (33%) returning 1.16% against the average fund return of 1.64%. The top performing fund in this sector in May was the Fisher Funds NZ Growth fund with 3.33% and 18.49% for the year, while ING’s Equity Selection Fund was in second place for the month with a return of 3.12%, and was also the top performing fund over the quarter to the end of May.

"There is renewed strength in the NZ sharemarket despite the less-than-favourable economic conditions we expect in the near future” said Binu Paul, Research Manager at FundSource. “The correction seen over March and April appears to have been enough to counter any feeling that the market had overheated, and has lifted investor confidence back up.”

Poorer performers in May included the BNZ NZ Equities Discovery Trust 0.73% and the Asteron NZ Share Growth Trust with 0.90%.

International Equity (Global) Unit Trust

Excellent global sharemarket performance during May resulted in average performance for the sector of 4.61%.

The top performing fund for May was the AXA Global Equities Trust, which returned 7.27%. The strong return across May was assisted by a 3.7% depreciation in the NZ dollar against the US. Variation in performance amongst Global Equity funds can often be explained by the different currency policies of the managers, with hedged funds outperforming unhedged while the NZ dollar has been appreciating and vice versa. Like NZ Equity funds, the Global Equity fund returns on average exceeded the relevant benchmark, the MSCI World Free Gross (33%), which climbed 3.83% in May.

"After an extended period where fund returns were hampered by the strength in the NZ dollar, we are now seeing what happens when our dollar depreciates” says Binu Paul, Research Manager at FundSource. “As the New Zealand dollar declines from the record highs we have seen this year, the performance of unhedged funds will continue to be enhanced.”

Joining the AXA fund as a top performer was the Affinity Healthcare Worldwide Growth fund with 7.22%, while poor performers included the volatile TOWER GAM Global Gateway Fund and the TOWER Global Responsibility Fund, which is closed to new investment due to its small fund size.

Diversified Funds

The largest managed fund sector with over $7 billion of New Zealanders’ money invested, Diversified funds also enjoyed good growth in the year to May 2005.

On the back of positive NZ and international equity market performance, Diversified Balanced funds returned 1.88% in May, while Defensive funds returned 1.16% and Growth funds, with their higher allocation to equities, returned 2.64%. Over the last 12 months results are consistent with the returns for this month, again reflecting their respective asset allocations.

"Overall the funds management industry is pleased to see ‘normal’ type market performances internationally, over the last year, and after a couple of months of lower equities results we appear to have returned to typical asset class performances in May. In the short term the NZ economy appears to still be strong, although there are certainly signs of a slowing in activity. Global equities remain attractive, and if the NZ dollar depreciates against the US this has the potential to further enhance fund returns" says Binu Paul, Research Manager at FundSource.

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