KiwiSaver to boost flows into managed funds

31 January 2007

MEDIA RELEASE

KiwiSaver to boost positive fund flows into managed funds

The December 2006 Retail Managed Funds Trends & Market Composition report from FundSource shows fund flows improved in 2006 from recent years. While still modest with a net inflow of $4.7 million in 2006, this compares to net outflows of $617.8 million in 2005.

This is the first time that net fund flows on a rolling twelve month period have been positive since June 2002. Binu Paul, general manager at FundSource, the NZX subsidiary researching managed funds, says “Moderate as it may be, it is definitely positive news for the industry, although we are nowhere near the trends of the late 90’s when annual net inflows were in the range of a billion dollars. But rather than look back, what the future holds for the industry and investors alike looks very attractive in the light of proposed changes to investment taxation and savings initiatives such as the KiwiSaver.“

KiwiSaver is a workplace savings initiative to be launched on 1 July 2007.

Paul says, “KiwiSaver especially will create fundamental shifts in the savings mindset as there are very significant tax savings and investment benefits for all employees and employers alike. For a significant number of employees and employers the range of benefits will be very compelling to participate in Kiwisaver. The key now is to raise the level of Kiwisaver literacy. For instance, it may not be common knowledge that a KiwiSaver earning an annual gross salary of 60,000 could save around $1,700 in tax alone every year”.

FundSource’s quarterly report captures trend information for the last 16 years for New Zealand’s retail managed fund industry across unit trusts, superannuation funds, group investment funds, insurance bonds and Australian unit trusts.

The turnaround in fund flow trends to positive territory was assisted by investor inflows in both the December and June quarters ($4.5m and $25.4m respectively). The recent improvement in fund flows can be attributed to a number of factors, including the strong returns managed funds have experienced over the past few years. On a sector basis, investors preferred International Fixed Interest and NZ Property over NZ Cash, NZ Diversified and Global International Equity.

Following are some of the highlights from the report:

NET FUND FLOWS

The table below highlights some of the main trends in fund flows across sectors for the quarter ended December 2006:

Sector Net Fund Flow ($mil)
Int'l Fixed Interest 56.4
NZ Fixed Interest 21.4
NZ Property 15.5
Australasian Equity 1.5
Global Int'l Equity -12.3
NZ Diversified -33.2
NZ Cash -77.3

In terms of legal structure, Group Investment Funds and Australian Unit Trusts were the most popular, with net inflows of $59.2m and $39.0m respectively.

NET FUNDS UNDER MANAGEMENT

Total Net Funds Under Management (NFUM) for the December quarter grew 2.3% from September with an increase of $476.5m. This compares to growth of 0.2% over the September quarter, when the industry grew by just $36.0m.

Assisting the December quarter growth was strong performances from managed funds across the board; Diversified Balanced funds for instance returned on average 3.1% for the quarter, while NZ Equity and NZ Property Funds returned on average 8.6% and 7.9% respectively (net of tax and management fees).

TOP 3 RETAIL UNIT TRUST MANAGERS (as at December ’06)
Manager Funds Under Management ($ Billion)
ING (incl. ANZ & NBNZ) 4.82
NZ Funds Mgmt. 2.03
ASB (incl. Jacques Martin) 1.99

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

ENDS

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