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Retail Funds Under Management Reach Record High

1st November 2005


Retail Funds Under Management Reach Record High

Retails funds under management in New Zealand reached a new record high in the September quarter, climbing to $20.79 billion. This is well in excess of the previous high before the bear market of $20.06 billion in March 2002, even after the impact of market acquisitions over the quarter are taken into account.

What make this result more impressive is that it comes despite an extended period of net outflows, totalling $805 million in the last 12 months alone, and a further $373 million the previous year. These outflows were certainly impacted by the closure of BT’s NZ-based funds over the quarter, which accounted for nearly $100 million in outflows. Strong growth in funds under management despite net outflows shows that managed funds have delivered strong performances over the period.

However, with the trends in asset class funds flows reinforcing investors’ preference for income assets, concerns remain that there will be negative implications going forward. Cash and International Fixed Interest asset classes showed positive inflows while all other sectors had outflows, raising questions about whether investors’ portfolios are appropriately diversified. There is also evidence showing some investors are leaving managed funds to chase the higher yields available from deposit and debenture type investments in the high interest rate environment. This pattern of chasing returns, while typical, is generally not a successful strategy in the longer term when the related risks are not considered rationally.

Investors are continuing to withdraw from International Equity funds after recovering some of the returns they lost in the bear market. Such assets experienced outflows of $123.7 million over the quarter, despite returns averaging over 15% over the 12 months to the end of September. With the outlook for domestic growth assets weakening, such a move away from international assets compounds concerns about irrational investment decisions.

Net Funds Flow

Over the September 2005 quarter retail managed funds experienced their seventh consecutive quarter of net negative funds flows. At $193.9 million these outflows were an improvement on the June 2005 quarter, when fund outflows totalled $233.7. The 12 months to the end of September 2005 brought outflows of $805.1 million, compared with $373.1 million for the same period last year.

International Fixed Interest and NZ Cash attracted net fund inflows over the quarter, with $40.7m and $1.39m respectively. Global International Equity had the largest outflows, with $88.5 m. In addition there were a further $35.2m in outflows from Regional International Equity funds. Over the September quarter alone Global funds had average returns of 7.6%, so those investors who withdrew during the quarter missed out on participating in a period of particularly strong performance.

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

September 05 Quarter $ M June 05 Quarter $ M
NZ Cash 1.39 20.87
NZ Diversified (38.44) (130.67)
NZ Mortgage (1.92) (4.13)
NZ Equity (38.20) (34.76)
Intl Equities (123.69) (84.42)

By legal structure, Unit Trust had the largest negative flows of $229.9 million, while Group Investment Funds and Australian Unit Trusts both had net inflows of $127.4 and $33.8 million respectively.

September Quarter Net Funds Flow by Manager

Only ten of the managers included in the survey enjoyed positive funds flow this quarter, with many of these are income-focussed managers, such as the regional mortgage managers. Managers with positive funds flows in the September quarter also tended to have positive results in the June quarter.

September 2005 Quarter $ M
Net Funds Flow
National Bank 34.2
NZ Funds Management 29.7
ASB Bank 26.9
Fund Managers Otago 23.4
Fund Managers Canterbury 17.9

National Bank also had the largest inflows over the year to September, at $75.1m. As with previous quarters, many of the larger fund managers had large outflows over the quarter. BT wound up their NZ-based funds during the quarter and as a result had the largest outflows at $100m. Tower had outflows of $54.9m and BNZ $42.0m.

Net Funds Under Management (NFUM)

Total Net Funds Under Management (NFUM) rose considerably over the September quarter to $20.79 billion, from $20.01 billion in June 2005, however this is in part due to acquisition activity that is not reflected in funds flows. Over the last 12 months, despite outflows of $805.1 million, net funds under management has grown by 5.9% thanks to strong performances across the spectrum of asset classes.

Net Funds under Management - Top 5 Managers

ING (NZ) (who also manage ANZ’s funds) continued to top the rankings this quarter, followed by NZ Funds Management and AMP. ING’s market share grew primarily because of acquisition activity during the quarter.

$ M September 2005 Mkt. Share % March 2005 Mkt. Share %
1 ING (NZ) Ltd (incl. ANZ) 3,769.5 18.1 16.0
2 NZ Funds Management 1,806.2 8.7 8.7
3 AMP 1,797.9 8.6 8.7
4 ASB Bank 1,682.8 8.1 8.3
5 Tower Group 1,433.5 6.9 7.2
Others 10,297.7 49.5 51.1
20,787.6 100% 100%

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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