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Managed Funds find favour as conditions change

Announcements regarding taxes and regulation and changing market dynamics have seen investors placing increased confidence in managed funds, according to the latest ASB Investor Confidence report.

Friday, April 28th 2006, 11:16AM
When asked: What type of investment gives the best return?
While residential rental property remains the highest ranked asset class, it dropped four points to 20%. The big change in the first quarter of 2006 was managed funds, up seven points to 16%.

"The last few months have seen an increase in confidence amongst people invested in managed funds, and rightly so," says Jonathan Beale, Head of Investment Services ASB Investments. "The New Zealand dollar began its drop against major currencies in the last quarter, while local and international equities performed well, increasing the desirability of managed funds."

The performance of ASB's Balanced, Growth and Dynamic Strategy Funds, which have exposure to both local and international equity markets, reflects the type of performance that appears to be attracting investors. The Balanced, Growth and Dynamic Strategies returned 5.45%, 7.01% and 9.94% respectively for the period.

"The interest rate increases from the Reserve Bank pushed mortgage rates up, while median house price growth slowed, and the number of days to sell a house increased, impacting the yields and capital gains for rental properties," said Beale.

"Recent announcements regarding capital gains tax changes will make managed funds even more competitive and it seems likely investor sentiment will continue in this manner over coming quarters."

When splitting investors by region and asking them what investment gives the best return between residential rental properties and managed funds, there were some interesting results.

"While investors in the upper and lower North Island mirror the overall results in the report closing the gap in confidence in residential rental property and managed funds, South Islanders have completely changed their stance, with managed funds now by far the preferred investment to get the best return."

"It is unclear at this stage what is driving this change in confidence. South Islanders have typically been more conservative when it comes to investment returns, but the change in confidence this quarter has been surprising."

When asked: Do you expect your net return from investments this year to be better or worse than last year?
Confidence amongst investors that investments will perform better this year than they did last year has dropped to a net 9%, the lowest point since the first quarter of 2003.

"We have been surprised in previous reports with the levels of optimism amongst investors for even higher returns than they have seen in recent years," says Beale. "A more pessimistic outlook from investors is probably a reflection of the general market sentiment that we are experiencing a slowdown in the economy. The double digit performance seen in many asset classes over the last few years couldn't go on for ever."

When asked: How confident are you in your current main investment?
Findings when asking people about their own investments were similar to those about investments in general. Confidence in managed funds surged up 18 points to 57%, while residential rental properties dropped one point to 60%.

"People are generally pretty confident in their main investment," says Beale. "The jump in confidence for people with managed funds is warranted as, in general, managed fund performance over recent times has been very good. This measure does tend to fluctuate over quarters as performance ebbs and flows, but reinforces the adage that with managed funds it is time in the market, not timing the market that provides good performance.

"At the moment the difference in confidence between people who use investment adviser (42%) and those who don't (32%) is relatively static. It is likely to change in favour of those using investment advisers as market conditions become more difficult, and with changes to tax around investments and regulation."

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ANZ Term fund - 6 months 0.80    0.82    0.85
ANZ Term Fund - 150 days 0.55    0.56    0.59
ANZ Term Fund - 9 months 0.80    0.82    0.85
ANZ Term Fund - 18 months 0.85    0.87    0.91
ANZ Term Fund - 2 years 0.85    0.87    0.91
ANZ Term Fund - 5 years 0.90    0.92    0.96
ASB Bank Term Fund - 90 days 0.35    0.36    0.37
ASB Bank Term Fund - 6 months 0.80    0.82    0.85
ASB Bank Term Fund - 12 months 0.75    0.76    0.79
ASB Bank Term Fund - 18 months 0.80    0.82    0.85
ASB Bank Term Fund - 2 years 0.80    0.82    0.85
ASB Bank Term Fund - 5 years 1.00    1.02    1.07
ASB Bank Term Fund - 9 months 0.75    0.76    0.79
BNZ Term PIE - 120 days 0.45    0.45    0.47
BNZ Term PIE - 150 days 0.55    0.56    0.59
BNZ Term PIE - 5 years 0.90    0.91    0.95
BNZ Term PIE - 2 years 0.85    0.87    0.91
BNZ Term PIE - 18 months 0.80    0.82    0.85
BNZ Term PIE - 12 months 0.80    0.82    0.85
BNZ Term PIE - 9 months 0.80    0.82    0.85
BNZ Term PIE - 6 months 0.80    0.82    0.85
BNZ Term PIE - 90 days 0.35    0.35    0.37
Co-operative Bank PIE Term Fund - 6 months -    -    -
Heartland Bank Term Deposit PIE - 12 months 1.00    1.02    1.07
Heartland Bank Term Deposit PIE - 6 months 0.90    0.92    0.96
Heartland Bank Term Deposit PIE - 9 months 0.90    0.92    0.96
Heartland Bank Term Deposit PIE - 18 months 0.95    0.97    1.02
Heartland Bank Term Deposit PIE - 2 years 1.00    1.02    1.07
Heartland Bank Term Deposit PIE - 5 years 1.00    1.02    1.07
Kiwibank Term Deposit Fund - 90 days 0.35    0.36    0.37
Kiwibank Term Deposit Fund - 6 months 0.90    0.91    0.95
Kiwibank Term Deposit Fund - 12 months 1.00    1.02    1.07
Kiwibank Term Deposit Fund - 150 days 0.60    0.61    0.64
Kiwibank Term Deposit Fund - 120 days 0.45    0.46    0.47
Kiwibank Term Deposit Fund - 9 months 0.80    0.82    0.85
Westpac Term PIE Fund - 150 days 0.55    0.56    0.59
Westpac Term PIE Fund - 120 days 0.45    0.46    0.47
Westpac Term PIE Fund - 18 months 0.80    0.81    0.84
Westpac Term PIE Fund - 12 months 0.80    0.81    0.84
Westpac Term PIE Fund - 6 months 0.80    0.81    0.84
Westpac Term PIE Fund - 9 months 0.80    0.81    0.84
Westpac Term PIE Fund - 90 days 0.35    0.36    0.37
Westpac Term PIE Fund - 2 years 0.85    0.87    0.91
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