KEY POINTS:
A survey by institutional investment advisers Russell has found New Zealand fund managers are feeling bearish on almost every asset class apart from cash.
While a third of the fund managers surveyed thought shares were now looking cheap the majority still believe the market will drop further before it recovers.
This was in contrast to a survey of Australian fund managers which found most believed the Australian sharemarket had already hit the bottom point for this year.
Russell senior manager of investment consulting Alister Van der Maas says New Zealand fund managers have been getting progressively more bearish since he started doing the quarterly survey two years ago. He says most are expecting slower or no economic growth over the next year and some are even forecasting recession.
But the one area NZ managers feel bullish about is cash, with 60 per cent favouring the asset class. However Van der Maas says this does not mean New Zealand managers are converting their portfolios all to cash.
He says most have a limit of 5 to 10 per cent that they cannot go over and for others it will depend on what they are trying to achieve with their portfolio.
"With the extremely high interest rates in New Zealand it means cash is extremely attractive short term. It's pretty damn good for most retail investors and quite hard for a fund manager to beat that."
But he says those with longer timeframes, such as superannuation funds, are unlikely to invest much of their portfolio in cash as over the longer term studies have proven that investment in shares produces better returns.
He says institutional managers who look after money on behalf of big organisations would be unlikely to get much in the way of thanks for running funds with high levels of cash investments as they are being paid a management fee to actively invest the money not just hold on to it.
PILES OF CASH
However, one manager who is favouring cash at the moment is Brook Asset Management's senior portfolio manager Paul Glass.
Glass has around 55 per cent of the $73 million invested in Brook's Alpha fund sitting in cash.
The fund is a concentrated portfolio and only invests in 10 to 15 companies across Australasia. Glass says he decided to move to a high level of cash 12 months ago because of concerns about overpriced shares, the number of finance company collapses in New Zealand and the slowdown in the economy.
He has the ability to go to 100 per cent cash but says that would be an unusual situation. Instead he plans to wait it out until shares drop back to a level where they make for a cheap buy again - and that time is not yet, according to Glass.
"We still think it is time to be pretty conservative. It's likely to be a bear market that lasts for quite some time."
He says the aim of the fund is to produce a high level of return to investors over the medium term and if he doesn't see any good investment opportunities he is not afraid to go with his conviction and hold cash. He says cash is not the main reason for the fund's strong return, with Australian energy company and takeover target Origin proving the best performer over the past year.
The fund has returned an average of 21.74 per cent per annum over the past 9 years to May 31 and 11.17 per cent over the past year gross of tax and fees.
ADVISERS LAW
Tighter regulation of financial advisers and financial service providers came a step closer yesterday as select committee hearings began on two bills designed to increase protection for investors and boost confidence in the sector.
More than 40 parties are expected to make submissions to the finance and expenditure select committee on the Financial Advisers Bill and the Financial Service Providers (registration and disputes resolution) Bill and a second date has been set date for July 23 to hear the overspill.
The Financial Service Providers Bill is designed to see all financial service organisations become registered.
The Registrar of Financial Service Providers, likely to come under the companies office, would then monitor those who do not register and have the ability to report them to the Securities Commission, the Reserve Bank and other agencies such as the police if they do not meet specified requirements.
The bill also aims to set up industry-based dispute resolution schemes to improve consumer access to redress in the financial sector.
Much of the Financial Service Providers Bill has already been worked out and agreed to by the industry.
It is the second Financial Advisers Bill which has has come under greater fire. Initially it proposed a co-regulatory scheme in which the Securities Commission would work together with approved professional bodies of which all financial advisers would have to be registered with.
But in April the committee swung more towards advisers being directly registered and monitored by the Securities Commission. There has also been debate over who should be defined as a financial adviser.
The committee is expected to provide feedback to Parliament by September 1 in time to be passed into law before Parliament breaks up for the election campaign.
But there remains concern that Parliament won't get around to the bills before then leaving uncertainty over their future under a new government. Whenever they are passed it is likely to be too late for the thousands of investors already burned by finance companies.
ANOTHER HELPING
ASB is the latest bank to come out with a cash portfolio investment entity (PIE). The ASB Cash Fund is offering 8.25 per cent per annum on an on-call basis. It follows similar product announcements by Westpac, ANZ, Kiwibank and Rabobank.
The cash PIEs are similar to savings accounts or term deposits but allow taxpayers in the 39 per cent and 33 per cent tax brackets to pay a flat 30 per cent tax rate on their savings.
ASB has said investments in its cash fund will be 100 per cent invested in New Zealand dollar deposits with ASB Bank and will carry a guarantee that is unconditional and unsecured and is equivalent to depositing with ASB directly.
KIWISAVER BALANCES
All KiwiSaver investors should have received a statement from their providers by now outlining their contributions and balance as of March 31.
The statement should also let you know how much tax you will have paid on any income earned from the investment.
This will depend on your prescribed investor rate, or PIR.
Most people are likely to be on the 30 per cent tax rate but if you are a low-income earner and you are being taxed at the higher rate you should get in touch with your provider and let them know.
If you don't know which rate you should be on you can find out more information about it on the Inland Revenue's KiwiSaver website (www.kiwisaver.govt.nz) or by calling the IRD direct.
