Retail Managed Funds Flow Negative

Website: www.fundsource.co.nz

MEDIA RELEASE

Retail Managed Funds Flow Negative Despite Strong Fund Performances

FundSource’s quarterly report on “Industry Trends and Market Composition” indicates the retail managed funds industry has, in aggregate, grown net assets under management by nearly 1% in the three months to June 2004 - a result of the underlying positive performances of managed funds. This has occurred despite ‘funds flow’ data indicating a net outflow in that period of negative $58.63 million. The only sectors attracted inflows were the Mortgage and International Fixed Interest sectors.

Negative funds flow is somewhat counter intuitive to recent reports from FundSource indicating sustained positive performances in managed funds, and also an increasingly positive outlook for growth orientated assets.

“It appears that investors are acting out the ‘once bitten, twice shy’ axiom, following the bear market of 2000-2003 leaving holes in investor’s portfolios. However this implies the motivations behind investment decisions being emotive rather than objective. It also appears to rely on a backward versus forward looking investment perspective“ says Tim Anderson, Business Manager at FundSource. “For example, investments are being pulled from international and domestic equity funds, which are experiencing good returns and improved outlook, while funds are being placed into fixed interest, despite an rising interest rate market and even negative returns being experienced in that sector”.

Net Funds Flow

Retail managed funds have recorded a second consecutive net outflow in the June quarter of this year of $58.6 million. This is significantly lower than the March outflows of $169 million. Overall in the year to June 2004 the industry has seen a net outflow of just over $71 million, an improvement compared to the year before (June ’02 to June ’03), when the industry experienced net outflows of $630 million.

In the June quarter nearly all asset classes saw negative flows, the largest contributors to the net outflow being the asset classes with high levels of funds under management and poor performance during the last few years. Mortgage funds bucked the trends with inflows of $42 million. NZ diversified and international equity funds recorded the largest net outflows for the quarter.

The table below highlights some of the key net funds flow data compared to the previous quarter:

June 04 Quarter $ M
March 04 Quarter $ M
NZ Cash
NZ Diversified
NZ Mortgage
NZ Equity
Intl Equities
(15.3)
(53.5)
41.7
(15.4)
(23.0)
(62.8)
(30.5)
(21.5)
(20.7)
4.3

By legal structure, unit trusts had the largest negative flows of $138 million and Group Investment Fund’s had the largest net inflow of $125 million. However, once again a large proportion of the outflow from Unit Trusts was a transfer to that same manager’s new GIF structure. Australian Unit Trusts also saw positive inflows of $39 million, the largest contributor being the ING Diversified Yield fund with net inflow of $42.5 million.

June Quarter Net Funds Flow by Manager

Around 56% of the managers surveyed enjoyed flat to positive funds flow. ASB Bank, ING (NZ) Ltd (incl ANZ) and Forsyth Barr were ranked the top three managers by funds flow, recording $39 million, $16 million and $15.8 million respectively. As in previous quarters, demand for ASB mortgage products contributed significantly to their funds flow results.

June 04 Quarter $ M
ASB Bank
ING incl. ANZ
Forsyth Barr
First Mortgage Managers
Fund Managers Canterbury
38.9
16.0
15.8
14.0
12.1

Negative funds flow was largely confined to a few larger fund managers. BT Funds Management experienced heavy outflows of $63.82 million, perhaps reflecting recent company specific issues, while Westpac and Tower had outflows of $45.69 and $19.72 million respectively.

Net Funds Under Management (NFUM)

Total Net Funds Under Management (NFUM) increased by nearly 1% in the June quarter to just under $19.7 billion, up from $19.5 billion in March 2004.

This growth in NFUM was recorded even with total net outflows from the industry, due to positive performances from most asset sectors over the June quarter. For example, in the quarter to the end of June NZ equity funds returned 2.74%, international equity funds returned 2.11%, and Diversified Growth funds on average 1.55% after tax and fees

Net Funds under Management - Top 5 Managers

ING (NZ) (who also manage ANZ funds) continued to top the rankings this quarter, with $2.9 billion in assets under management.

Rank
$ M
June ‘04
Mkt. Share %
June ‘03
Mkt. Share %
1
2
3
4
5
ING (NZ) Ltd (incl. ANZ)
NZ Funds Management
AMP
Tower
ASB Bank
Others
2,968.8
1,742.0
1,694.9
1,632.2
1,539.5
10,087.3
19,664.7
15.1
8.8
8.6
8.3
7.8
51.4
100%
14.0
8.2
8.9
8.9
6.8
53.2
100%

During the quarter the only notable movement was ASB Bank emerging into the top five managers, displacing Westpac who slipped one place. NZ Funds consolidates their position as New Zealand’s largest unit trust fund manager.

Note: Net fund sizes are calculated by eliminating interfund investments that are included in publicly released gross retail fund sizes. They are therefore considered more relevant in determining market share trends.

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