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Managed Fund Returns Continue Strong Run

17th August 2005


Managed Fund Returns Continue Strong Run

A third consecutive month of strong returns has once again rewarded investors in NZ managed funds in July.

According to the latest managed fund performance figures, released today by investment research company FundSource, both NZ and international sharemarkets performed well over July, translating into good results for investors, whether they are invested directly into these sectors or exposed to these markets via Diversified funds.

FundSource’s managed fund returns are provided net of all relevant fees and taxes, reflecting the returns received by an investor in the fund.

July’s strong performance has also meant that average five-year performances for all Diversified sectors have returned to positive results, despite the extended bear market between 2000 and 2003. This shows just how important it was to take a long-term view and hold on to such investments through the bear market, as those who withdrew at the bottom of the market in favour of more conservative assets are highly unlikely to have recovered their capital yet, due to the lower returns they have received from these investments.

Funds invested in International Equities had the strongest returns over July, with Global funds averaging 4.86% for the month (after tax and fees), while by comparison NZ Mortgage funds returned 4.69% over the whole of last year. This brings the Global funds returns for the last year to 11.82%. Regional international equity funds also performed very well over the month with a 3.93% return, and the stronger 12-month performance of 17.73%. Actively managed NZ Equity funds returned 2.32% on average in July, bringing one year performances to an average of 13.20%. Australian Equity funds returned an exceptional 2.39% for the month, while Australasian Equity funds returned 2.07%.

Following is a summary of the main investment sector performances:

New Zealand Equity (Active) Unit Trusts

Actively managed NZ Equity funds had their third consecutive month of positive performance in July with an average return of 2.32%, down from 4.82% in June. In the two years to the end of July, these funds have delivered 15.81% per annum net of tax and fees to their investors. The top performing fund in this sector over July was the Fisher Funds Fledgling Fund with 3.73%, and over the last year the top fund was the ING Equity Selection Fund with a return of 19.92%.

"Returns for the NZ sharemarket and the funds that invest in it were slightly lower in July, which is in line with our expectations for this market looking ahead. While the performance of NZ Equities has continued to surprise, as has the strength of the economy in general, investors should be aware that such high returns from domestic equities are not likely to be maintained. NZX-listed companies have been reporting their results over recent weeks, and many have been warning that they are expecting tougher conditions going forward” says Binu Paul, Research Manager at FundSource.

International Equity (Global) Unit Trust

Strong global sharemarket performance over July, coupled with a further weakening of the NZ dollar, delivered strong returns to investors in International Equities. The average performance for the sector was 4.86% in July, an increase from June’s 2.59%. Top performing funds in July included the AXA Global Equities Trust with 7.66%, and the Thoroughbred International Equity Trust which returned 5.85%.

Globally sharemarket returns across July were good, with the MSCI World Free Gross (33%) Index growing 3.73% in NZ dollar terms. Part of this return is accounted for by a 1.9% depreciation in the NZ dollar against the US. Funds with higher exposure to foreign currencies outperform when the NZ dollar depreciates, and the currency exposure often provides the explanation for the diversity of funds performances in this sector.

“Continuing strong performances in international equities are very encouraging for investors, and the outlook going forward is also very promising” says Binu Paul, Research Manager at FundSource.

Diversified Funds

Diversified funds also performed well in July, reflecting the strong performance of the markets they invest in.

Diversified Balanced funds returned 2.08% for the month, up from 1.79% in June. Over the last year investors in these funds earned 9.84%. Defensive funds returned 1.14% on average in July, and Growth funds, with their higher allocation to equities, returned 2.91%.

Over five year time periods, each of these three sectors now have positive performances. This is great news for those investors who took a long term view and stayed invested through the difficult bear market.

Unfortunately, those who withdrew their funds at the bottom of the market to invest in income assets are almost certainly still struggling to recover the capital losses they cemented when they terminated their investments.


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