Large fund outflows confound experts

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Investors continue to pull money out of managed funds at record levels despite a period of strong returns.

Tuesday, February 1st 2005, 5:38AM

by Philip Macalister

The latest fund flow figures from Fundsource, for the period to December 31, show money is coming out of the industry across the board and no manager is immune to this leakage.

What’s more the reasons for this fund leakage aren’t readily apparent.

“I have given up at this point attempting to predict when the turn around may come for funds flow into managed funds” Fundsource business manager Tim Anderson says.

Ever the optimist he does say that with “continuing good fund performance it is only a matter of time”.

The puzzle is neatly summed up by these two statistics.

During the quarter investors withdrew $630 million from funds, yet, because of good performance the managed fund industry in aggregate grew net funds under management by 1.5% to $19.9 billion.

“Net outflows in the face of good performance come as a surprise to us as this pattern goes against our past experiences of investors’ behaviour. With improving forecasts in international equities, and strong momentum in New Zealand equities it also raises the question of whether these investors are making rational choices guided by a sound investment strategy, or instead relying on less rational decision criteria,” Anderson says.

• The stats
  Over the December retail managed funds experienced their fourth consecutive quarter of net negative flows of $222.8 million, 11% greater than the outflows in the September quarter of $200.1 million, and the largest outflows since March 2003.
• The only winners were international fixed interest and property, which attracted $15.4 and $2.0m respectively.
• The biggest losers where diversified and international equity (global and regional) with outflows, of $107.9 and $61.8 million respectively. 
• Unit trusts and group investment funds saw outflows, but Australian unit trusts saw positive inflows of $8.29 million, mainly due to the ING Diversified Yield fund (inflow of $37.4 million).
• Only half of the managers surveyed enjoyed flat to positive funds flow. SBS, National Bank and ASB Bank were ranked the top three managers, recording $27 million, $24 million and $17 million respectively.
• Many of the larger fund managers experienced negative funds flow over the quarter. Tower had outflows of $70.73 million, while Westpac and BNZ had outflows of $51.35 and $45.17 million respectively.

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