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Risks and returns in this market

Friday, November 28th 2008, 7:25AM

by Philip Macalister

One of the fascinating questions for investors at the moment is asset allocation. The markets are in a mess, indeed many consider these are quite unusual times. Added to that there are huge distortions, in particular the government’s deposit guarantee scheme. So how do you allocate money? It’s a question that was discussed at last week’s SiFA conference and also at ASSET Magazine’s Roundtable event in Auckland this week. During a discussion on asset allocation at SiFA advisers openly talked about what they were doing at the moment. There were many answers and also many conflicting views. Perhaps the most surprising was on cash. While some were strongly favouring cash and holding 60-80% of portfolios in cash (that is anything up to one-year), others had next to nothing and others were moving away from cash. Where were they going? All sorts of places. Some were into listed property, others leaving. Ditto gold. Allocations to international shares were varied too. It’s easy to draw the conclusion, no one knows what to do and some will get it right, either by luck or skill, and others will fail. I don’t think that is necessarily true. One thing that is true is that it seems advisers don’t have a lot of independent research to draw on, nor are there many places they can turn to for asset allocation advice. How this sort of information gets delivered to the market is a vexed question, but one that hopefully will be addressed. Meanwhile there is a whole different story going on in retail land. Work www.depositrates.co.nz has done shows investors are jumping into finance company offerings because of the rate and the government guarantee. The short-term logic of this is clear. However, there are some potentially scary outcomes. When these investments come to maturity, new rates are likely to be much lower (so low in fact equities may look attractive again). Secondly, there is going to be a whole heap of money coming up for repayment at once and this could be problematic for the companies to handle. While the markets have been sad and not much looks good at the moment, there are opportunities out there. Seems you just have to look for them.
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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 4.05 4.49
ANZ Special - 3.55 3.55 3.99
ASB Bank 5.20 3.89 4.05 4.39
ASB Bank Special - 3.39 3.55 3.89
BNZ - Classic - 3.49 3.55 3.89
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.54 3.54 3.69
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 3.97 4.05 4.39
Kiwibank 5.20 4.20 4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.39 3.45 3.89
Sovereign 5.30 3.89 4.05 4.39
Sovereign Special - 3.39 3.55 3.89
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.19 4.35 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.39 3.55 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.39 3.55 3.99
Median 5.34 3.99 4.07 4.39

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