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Don't expect a quick recovery

One of the big questions investors are pondering following the terrorist attacks in the United States is what changes should be made to their investment portfolio.

Saturday, October 6th 2001, 12:57PM

by Philip Macalister

The simple answer is to sit tight and wait to see what transpires in the next couple of months.

"History shows that markets bounce after disasters," Craig and Co strategist Cameron Watson says.

Ned Davis Research in the US documents 28 major world events since 1940 and says in all but three cases the Dow Jones fell sharply then regained all its lost ground.

The 'don't panic' message appears to have been taken on by New Zealand investors.

Financial planners Good Returns has spoken to say that clients have sat tight.

Most say only a handful have called them. Likewise, fund managers aren't reporting huge numbers of redemptions.

While money in the bank looks pretty good in the current environment, it's not necessarily the best long-term strategy.

Many of the experts are now favouring shares, both internationally and locally.

AMP Henderson chief investment officer Chris Wozniak says that international shares look like the best option for two reasons.

Firstly, shares have fallen so far that they have the most potential upside.

Global fixed interest is already at or near historically low levels and there isn't much room for further falls.

Once rates start going up investors will be looking at capital losses.

Wozniak says a 70 basis point (0.7%) increase in rates will start to trigger a loss situation.

Secondly, shares look good because central banks around the world are working hard to ensure that economic growth continues by increasing liquidity and having

By having a loose monetary policy approach the banks are trying to encourage economic growth, which is good news for shares.

The area that is getting the most interest at present is hedge funds, or alternative investment classes.

Tower Managed Funds says its Multi-Trading fund has been one of its most popular investments in recent months.

The latest offering on the market is Hedge Plus from Australian-based OM Strategic.

This closed-end fund is likely to attract considerable interest as it offers investors a capital guarantee as well as expose to hedge funds.

For more information on hedge funds see the Good Returns' Special Report - click here

Investors may not appear as cautiously optimistic about the future as the experts when they see their portfolio reports for the period to September 30.

Most will be bathed in red ink.

But as Watson points out it's not the terrorist attacks that are to wholly blame.

"Even before the tragedy investors were having a tough time," he says.

World shares are down 26% in NZ dollar terms, which is a one-in-20 year decline.

"You would have needed nearly 80% of your funds in fixed interest to avoid negative returns this year."

Watson warns that there is unlikely to be a quick recovery.

"Market indices may remain moribund for some time."

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

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Lender Flt 1yr 2yr 3yr
ANZ 6.74 5.59 5.59 5.59
ANZ Special - - 5.39 -
ASB Bank 6.75 5.99 5.99 5.99
ASB Bank Special - 5.35 5.39 5.39
BankDirect 6.75 5.99 6.09 5.99
BankDirect Special - 5.35 5.39 5.39
BNZ - Mortgage One 7.15 - - -
BNZ - Rapid Repay 6.74 - - -
BNZ - Special - - - -
BNZ - Std, FlyBuys 6.74 5.35 5.39 5.49
BNZ - TotalMoney 6.74 - - -
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.45 5.95 5.99 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
eMortgage 6.04 6.15 6.69 7.19
Finance Direct 6.10 6.45 6.69 7.10
First Credit Union 6.45 - - -
General Finance 5.95 6.25 6.50 7.10
HBS Bank 6.65 5.69 5.39 5.69
HBS Special - 5.59 5.35 5.35
Heartland 6.70 7.00 7.25 7.85
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 6.70 5.70 5.40 -
Housing NZ Corp 6.74 5.70 5.99 6.29
HSBC Premier 6.84 5.65 5.65 5.65
HSBC Premier LVR > 80% - - - -
HSBC Special - 5.29 5.29 5.29
ICBC 6.75 5.99 6.39 -
Kiwibank 6.65 5.39 6.09 6.29
Kiwibank - Capped - - - -
Kiwibank - Offset 6.55 - - -
Kiwibank Special - - 5.39 5.39
Liberty - - - -
Lender Flt 1yr 2yr 3yr
Napier Building Society 5.80 6.00 6.70 -
Nelson Building Society 6.95 6.15 6.60 -
NZ Home Loans 6.85 6.09 6.40 6.29
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SBS Bank 6.65 5.69 5.39 5.69
SBS Bank Special - 5.59 5.35 5.35
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Sovereign Special - - 5.39 5.39
The Co-operative Bank 6.70 5.29 5.39 5.49
Lender Flt 1yr 2yr 3yr
TSB Bank 6.74 ▼5.55 ▼5.55 ▼5.75
TSB Special - - 5.29 5.40
Wairarapa Building Society 6.20 5.75 5.95 -
Westpac 6.59 ▼5.59 ▼5.59 ▼5.59
Westpac - Capped rates - 6.74 6.99 -
Westpac - Offset 6.59 - - -
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Median 6.70 5.70 5.59 5.67

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