Scrutiny will go on fund managers' strategies, MJW says

New Zealand managers have outperformed the markets during the Covid-19 disruption, in contrast to the experience of their international counterparts, actuaries MJW say.

Thursday, April 23rd 2020, 9:59PM 2 Comments

Actuary Ben Trollip said it was “very challenging” to make investment decisions at present. Cash rates were near zero, bond rates very low and equities were uncertain.

Governments were taking on record levels of debt.

New Zealand equity managers had largely done well this quarter, he said, although some had large amounts of cash in their portfolios. Bond managers had struggled. KiwiSaver funds had benefited from the bounceback in markets at the end of March.

But there was variation within that. Morningstar data showed OneAnswer’s sustainable international share fund had a 14.35% annual return, compared to a 16.09% loss for Summer’s Australian equities fund.

Trollip said global managers had returned a median loss of 11% in the quarter compared to a MSCI World Index benchmark loss of 10.2%.

In New Zealand, active managers had returned a median 12.4% loss, compared to a market loss of 14.5%.

That was possibly because a lot of managers had been biased away from “expensive” companies before the downturn hit, he said. Some had been underweight to stocks such as Auckland International Airport, which has been heavily affected by Covid-19.

“Global has been a much tougher market for active managers for a while.”

Trollip said many fund managers had been saying that they had been underperforming as the market rose because they had a defensive strategy.

Now that there was a downturn, some of those funds had not outperformed as much as might have been hoped, he said, which would put more scrutiny on them.

There would be more pressure to justify strategies, he said, particularly if managers were claiming they were defensive.

Trollip said investment advisers would need to help clients avoid decisions that permanently affected their long-term success.

“Some people might see the right decision is to take risk off the table but if you’re making a decision because of the returns over the last quarter it could well be the wrong decision. It’s a challenging thing to have that conversation that’s not linked to the returns of the last quarter.”

Tags: funds management MJW

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Comments from our readers

On 24 April 2020 at 8:30 am Felipe Falope said:
It's important to note all the manager returns discussed here are gross (i.e. before fees and tax).
On 24 April 2020 at 11:27 am Murray Weatherston said:
I assume the word "loss" is missing before the last word in the following sentence "In New Zealand, active managers had returned a median 12.4%".
Or did they really outperform the market by more than 25 big points?

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