Mercer quantifies losses

New Zealand superannuation funds lost 10% in calendar year 2002, slashing an estimated $2 billion value off the total amount of accumulated retirement savings of New Zealanders in superannuation funds according to Mercer Investment Consulting.

Mercer Investment Consulting executive director Louis Boulanger says results of the quarterly New Zealand wholesale superannuation fund managers survey were the worst recorded in more than a decade.

"Over the past three calendar years the median return was -1.3% pa, the poorest three-year return to December in the past 20 years and the only time a negative result has been recorded over such a period," he says.

A decline in global equity markets was the major factor impacting fund performance.

Boulanger says the global sharemarket was volatile during the final quarter of 2002. Despite strong positive returns recorded for the months of October and November, declining share prices in December dampened final results.

"Fuelling sharemarket instability across the world has been rising geopolitical concerns such as growing uncertainty over North Korea’s nuclear aspirations, domestic unrest in Venezuela and the threat of war between the US and Iraq," Mr Boulanger said.

Mercer survey results showed that despite the lacklustre performance of global markets, the New Zealand sharemarket performed relatively well with the gross benchmark index returning 0.9% over the past 12 months. Property returns for the 2002 calendar year were 9.9% and fixed interest investment returned 8.7% domestically, and 12.1% globally if foreign currency exposures were fully hedged back to the New Zealand dollar.

Boulanger expects equity markets to outperform other asset classes over the medium to long term.

The Mercer survey shows that Arcus Investment Management achieved the highest return for the final quarter of 2002 with 4.4% return.

That success is attributed to hedging its fund’s exposure to the UK pound sterling and the US dollar.

Returns for the past 12 months have ranged between -3.9% for Tower Asset Management and -12.3% from Alliance Capital Management. The median return for the 12 months was -10.0%.

Boulanger says a comparison of current managers’ results over three years, from December 1999 showed New Zealand fund managers jockeying for position.

"Arcus Investment Management secured top spot when the survey was conducted in 1999, and is placed third today. In contrast, Tower was in 10th position in December 1999, but has achieved the best return over the more recent three-year period. Tower and Colonial First State are the only managers to have posted a positive return over the past three-year period."

The award for consistent performance over the three-year period goes to BNZ Investment Management who ranked fourth and had above-median results in both surveys.

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