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Return expectations lowered

Fund managers are expecting returns in most asset classes to fall over the next 12 months.

Wednesday, May 12th 1999, 12:00AM

by Philip Macalister

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Investment returns for a number of key asset classes, particularly New Zealand equities and property, have weakened over the past three months.
Fund managers surveyed by Aon in its quarterly investment forecasts report, shows that managers have downgraded their return expectations for all asset classes, except cash.

Asset class

Expected average return over next 12 mths

Change from last quarter

Expected five year returns

Cash

4.8

+0.2

5.4

Fixed interest

5.2

-0.2

6.1

Property

7.8

-1.8

8.6

Equities

14.3

-3.8

11.4

Intl fixed int

5.0

N/C

6.0

Intl equities

7.6

-0.7

10.9

Inflation rate

1.6

N/C

1.8

The nine managers surveyed expected cash to return 4.8 per cent over the next 12 months, which is 0.2 per cent better than what was predicted three months ago.
The biggest downgrading has been for New Zealand equities. In this asset classes managers expect the sector to return 14.3 per cent over the next year, compared to an annual return of 17.1 per cent in January.
Likewise property return expectations have been lowered from 9.6 per cent to 7.8 per cent.
The survey also asks managers what they expect each asset class to return over the next five years.
New Zealand equities is the only sector where managers anticipate that the returns over the next 12 months will be higher than those predicted for the next five years.
Aon says wholesale funds have, in the 12 months to March 31, continued to generate high returns. It says the average return for this period has been in the vicinity of 11 per cent gross (7.5 per cent net).
The returns compare very favourably with cash returns of around 7 per cent gross and inflation of -0.1 per cent.
While international shares have produced a strong return in the past 12 months (MSCI up 17.2 per cent), only two managers actually earned more than the benchmark.
The average return was only 8.9 per cent and the range of returns was wide from -2.7 per cent for Spicers to 20.8 per cent for Armstrong Jones.
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