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Balanced funds deliver highest median return

Media Release
Monday 2nd November 2009

Balanced funds deliver highest median return in 5 years – Mercer Managed Fund survey

Balanced funds have delivered a strong positive return for the second consecutive quarter, recording a median return of 7.6% for investors over the September 2009 quarter, up from the 6.4% median return experienced last quarter and a 7.2% median average per annum over the last five years, according to the latest Mercer Quarterly Survey of New Zealand Wholesale Balanced Funds.

Mercer’s September 2009 Survey results showed the highest performing fund for the quarter was Mercer, which recorded a return of 11.2% before tax and fees, while the lowest return was from NZAM/Milford Balanced Portfolio at 4.8%. Milford/NZAM Balanced Portfolio produced the highest return over a full year (at 13.4%) while AMP Capital Investors produced the lowest return (at 1.5%).

Martin Lewington, Mercer’s Business Leader in New Zealand, said the findings reveal those funds that have maintained faith in the view that risk and return are related over the longer term have again been rewarded this quarter and performed above the median return for the past five years.

“The reality of investment markets is that negative environments tend to be periods of opportunity and potential success, but this attitude often runs counter to human nature,” he said.

“However, high risk and high return are correlated but those returns are not guaranteed. Caution is warranted and there are no soft options open to long-term investors.

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“There is no guarantee the future path of investment returns will be smooth. There continues to be substantial risks with the economic recovery process in several countries, and there can be no certainty that this year’s resurgence in the prices of risky assets will be sustained,” Mr Lewington said.

“The global financial crisis has been associated with extreme financial market behaviour but we’ve seen it before, and therefore factored into our financial modelling of expected returns and risk.

“Mercer welcomes the return of much better news for investors but with a note of caution that ‘best practice’ governance of investment funds ought to be the primary goal of fund trustees,” he concluded.

Other findings from the September Mercer Managed Fund Survey include the following:

* In terms of the asset allocation of discretionary balanced funds, the average exposure to growth assets as at 30 September 2009 was 61.8% (including allocations to alternatives) compared with 57.5% 12 months ago. The shift over the last 12 months is reflective of a recovery in global stock markets along with managers gearing themselves for the likely recovery.

* The lowest exposure to overseas equities was 29.5% (Tyndall Investment Management) with the AXA Global Investors holding the highest exposure at 43.2%. The highest exposure to domestic (or Trans-Tasman) equities was 19.7% (Tyndall Investment Management).

* Balanced fund returns were negative over the last two years (median return of -2.9% per annum) and flat over the last 3 years (median return of 1.8% per annum). However over the past five years returns look more positive, the median manager returning 7.2% per annum, suggesting that for some longer term investors a balanced fund is not a bad place to weather a global financial crisis.

About Mercer’s Quarterly Survey of New Zealand Wholesale Balanced Funds

Mercer’s Quarterly Survey of New Zealand Wholesale Balanced Funds tracks the performance of local fund manager firms’ results, as provided to Mercer. The principal purpose of the Survey is to make available performance data for objective analysis over various periods. No account is made in the results for tax, fees and expenses because the focus of the survey is gross investment performance.

The Survey also covers the performance of each contributor for each asset class.

Fund performance is regarded by Mercer as one factor of many that investors need information about in attempting to match their specific needs with a specific fund.

The Mercer database extends back 27 years of performance records. The rolling 12 months median return from the Survey is charted below.


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