Managers lose value when investing in overseas markets

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Consulting actuaries Melville Jessup Weaver report on what happened in the past quarter and how the fund managers fared.

Friday, January 25th 2002, 12:18PM

Investment Survey – December 2001

Consulting actuaries Melville Jessup Weaver report on what happened in the past quarter and how the fund managers fared.

December quarter features

• The CPI rose 0.6%, up 1.8% for the year,
• the local share market was up 12.2%, 13.4% for the year,
• while overseas shares rose 6.2%, over the year they lost 11.3%, and
• the NZ$ rose 4.7% in TWI terms, -0.5% for the year.

The average fund return was 6.5% for the quarter, compared to 1.6% for the year.

Do Managers add value?

The results show that managers add value consistently in the local market asset sectors and with their tactical asset allocation decisions. They lose value when investing in overseas markets raising the question of whether investments in this sector should be made on an index basis particularly given the tax favoured position.

Results for the balanced funds reviewed show that overall the managers have added value in the last 12 months, but lost value over the 5 year period, reflecting the dominance over this period of the returns achieved by a manager in the overseas shares sector.

How did 2001 compare to the managers’ performance over the last 5 years?

In our review below we look to answer the question of how each manager's performance in 2001 compares to the past 5 years results.

• Alliance Capital - 2001 was a good year and must vindicate the decision of AXA to form an alliance with ACM. The numbers for local shares, bonds and cash were good for the last 12 months.
• Arcus Investment Management - Strong results for the last year for local shares, bonds and property and for the total fund. Overall, performance was marginally down compared to the previous 4 years.
• Armstrong Jones - 2001 was not a good year and has seen their relative 5 year position deteriorate against other managers. The recent good performance of their overseas share manager must have come as a relief, albeit the exposure to this manager is being diluted.
• AMP Henderson Global Investors - Overall 2001 was a reasonable year with little change to their 5 year relative position. While their local share results improved, the results for their balanced fund were disappointing because of its high exposure to passive overseas shares.
• ANZ Asset Management - The last 12 months saw a small overall fall in their relative 5 year position. Their local share results continued to be disappointing, but their passive asset allocation stance continued to add value.
• BNZ Investment Management – 2001 was a good year for the fund monitored, which is now the second best performing fund over the 5 year period. But overall, when their results are compared to benchmark, they have lost value over the period, highlighting the critical importance of the benchmark in driving the actual performance results.
• BT Funds Management – 2001 was an average year with little change in their 5 year value-added rankings. The need to improve their overseas share results remains outstanding.
• Colonial First State – It is 6 months since the investment team moved to Sydney and the results have held up since then. With good results for both share sectors and for tactical asset allocation decisions, they achieved a number 2 ranking for value added for their total fund. A good year.
• Global Retriement Trust – Recent results have improved and the decision to include an active NZ manager has been vindicated by the results achieved over the last 9 months. Their added value results for the last 5 years have not improved
• Guardian Trust Funds Management – While their overall absolute results continued to disappoint, they have good results in all but one sector and only their local share numbers are holding them back.
• Tower Asset Management – With one exception all the funds have their greatest asset allocation to overseas shares, and the good year achieved by TAM illustrates just how important the results achieved in this sector are. Their 5 year position has improved significantly.
• WestpacTrust Investment Management – 2001 was another bad year and they must be considering their options on the future management of their business. Their results can only get better.

 

Table 1 - Actual Gross Returns (before fees and tax)

Total Fund (after fees and tax)
Manager	3 mths (%)		1 yr (%)		3 yr (%)		5 yr (%)
ACM	6.7	(1)	2.0	(4)	4.0	(6)	5.0	(11)
AIM	5.5	(2)	0.5	(7)	4.2	(4)	6.7	(2)
AJ	4.3	(5)	-2.0	(11)	2.6	(10)	5.4	(10)
AMPH	3.9	(10)	-1.0	(10)	2.5	(11)	5.5	(9)
ANZAM	4.0	(9)	0.1	(8)	3.3	(8)	5.6	(8)
BNZIM	4.3	(6)	2.5	(3)	4.4	(3)	7.2	(1)
BTFM	4.2	(8)	1.0	(6)	4.9	(2)	5.8	(7)
CFS	4.7	(4)	3.7	(1)	5.3	(1)	5.9	(6)
GRT	4.8	(3)	1.1	(5)	3.7	(7)	6.2	(4)
GTFM	4.2	(7)	-0.4	(9)	3.2	(9)	6.1	(5)
TAM	3.6	(12)	2.9	(2)	4.1	(5)	6.2	(3)
WIM	3.6	(11)	-2.8	(12)	2.3	(12)	4.9	(12)
Average	4.5		0.6		3.7		5.9
Index	2.8		0.6		3.2		5.8

Notes:

1. The index return for the total fund is the average of the benchmark returns of the managers.

2. ACM, AJ and GTFM provided their net returns on a pre-fees basis. A net fee of 30 basis points was assumed.

3. AIM, ANZAM, and GRT were unable to supply net figures. Fees of 30 b.p and tax at 33% were assumed.

4. ACM and ANZAM share returns are 'active'. AMPH and BNZIM 'passive' returns are unhedged.

5. FUM (Funds Under Management) is in $m and is in respect of the funds analysed and performance results shown.

Table 2 - Value Added

Total Fund
Manager	3 mths (%)		1 yr (%)		3 yr (%)		5 yr (%)
ACM	4.7	(1)	1.8	(3)	1.1	(6)	0.1	(6)
AIM	3.1	(3)	1.2	(5)	2.3	(2)	1.6	(1)
AJ	2.5	(4)	-4.7	(11)	-0.7	(9)	0.4	(4)
AMPH	0.0	(11)	1.2	(6)	-0.8	(10)	-1.2	(9)
ANZAM	1.2	(7)	-0.3	(9)	1.2	(5)	1.3	(2)
BNZIM	0.3	(9)	1.3	(4)	0.3	(7)	-0.4	(7)
BTFM	1.2	(8)	0.0	(7)	3.4	(1)	0.9	(3)
CFS	2.1	(5)	3.1	(2)	1.9	(3)	-2.1	(11)
GRT	3.5	(2)	0.0	(8)	-0.1	(8)	-0.6	(8)
GTFM	n.a		n.a		n.a		n.a
TAM	1.4	(6)	3.6	(1)	1.3	(4)	0.1	(5)
WIM	0.1	(10)	-3.1	(10)	-1.0	(11)	-1.3	(10)
Average	1.8		0.4		0.8		-0.1

Asset Allocation
Manager	3 mths (%)		1 yr (%)		3 yr (%)		5 yr (%)
ACM	0.3	(3)	0.2	(7)	0.1	(6)	0.2	(4)
AIM	n.a		n.a		n.a		n.a
AJ	0.5	(1)	0.7	(3)	0.5	(3)	0.7	(1)
AMPH	0.1	(6)	0.4	(5)	0.1	(7)	-0.2	(6)
ANZAM	0.0	(8)	0.8	(2)	0.4	(4)	0.5	(3)
BNZIM	0.1	(5)	0.5	(4)	0.5	(2)	0.6	(2)
BTFM	0.4	(2)	-0.6	(9)	0.8	(1)	0.0	(5)
CFS	0.0	(7)	1.5	(1)	0.3	(5)	-1.7	(9)
GRT	n.a		n.a		n.a		n.a
GTFM	n.a		n.a		n.a		n.a
TAM	-0.1	(9)	0.0	(8)	-0.4	(9)	-0.3	(7)
WIM	0.3	(4)	0.4	(6)	-0.2	(8)	-0.6	(8)
Average	0.2		0.4		0.2		-0.1

Notes: 1. No Total Fund figures are shown for GTFM as no benchmark asset allocations are available.

2. The asset allocation figures are the difference between the value added in total and that added for stock selection.

Table 3 - Actual Asset Allocation as at 31 December 2001

Manager	NZ Shares		Aus	O'seas Shares		Property	Growth	NZ	O’seas	Cash	Income	Currency	Currency
	Active	Passive	Shares	Active	Passive		Assets	Fixed Int	Fixed Int		Assets	Exposure	Outlook
ACM	10.6	7.9	0.6	14.8	21.0	5.9	60.8	19.2	13.6	6.4	39.2	16.1	Positive
AIM	13.4	0.0	5.7	46.3	0.0	5.0	70.5	14.1	6.4	9.0	29.5	25.5	Negative
AJ	20.4	0.0	0.0	36.4	0.0	13.5	70.3	21.5	7.3	0.9	29.7	19.1	Positive
AMPH	8.9	6.3	0.0	0.0	41.7	5.7	62.7	24.9	10.1	2.4	37.4	35.5	Positive
ANZAM	5.0	7.5	2.6	41.3	0.0	5.0	61.4	22.6	12.4	3.6	38.6	21.2	n.a
BNZIM	4.0	15.9
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