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Poor Australian share performance spurs downgrade

BT Australia's star rating downgrade has little impact in New Zealand.

Friday, January 12th 2001, 7:13AM

by Philip Macalister

BT Funds Management in New Zealand says it's disappointed that research house Morningstar has downgraded BT Australia from a four star manager to a three star one.

"We are not comfortable with it," BT NZ vice president Mike Newton says. "We don't like it at all."

Newton says the downgrade is primarily due to an under-performance in the Australian equities sector.

He says the portfolio managers had taken a long-term view on the market and have been short on banking stocks. However, the fund has significantly underperformed the indices as banking stocks have been strong performers in recent years.

The manager downgrade illustrates the importance of performance in the rating process and the size of the BT's Australian share portfolio.

While Morningstar's Star Ratings are based on both quantitative and qualitative factors, past performance is important. When the rating is calculated the performance of all of a manager's funds are added up together and put into the rating on fund weighted basis.

Because BT's Australian share fund exposure is so big it has influenced the outcome of the manager rating.

The impact of big funds on a manager's rating was highlighted in November when Morningstar decided to move Macquarie to a not-yet-rated status. The main reason behind this is that it had just one fund, its Gilt-Edged Access cash account, and the performance of this significantly impacted the ratings process.

The BT Australia downgrade doesn't affect BTNZ. However, a reasonable amount of money is directly invested into BT Australia funds, and some of the New Zealand funds invest into BT Australia funds.

"The impact on us is not great," Newton says.

BTNZ would be "very unhappy" if Morningstar decided to downgrade its manager rating.

"(Australian shares) is a small part of our business," Newton says as only a maximum of 10% of the New Zealand equity fund can be invested into Australian shares.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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