Managed funds surge in popularity

Managed funds have had a surge in popularity among New Zealand investors thanks to better returns, but residential property remains the country's favorite investment, according to a survey released today.

The ASB Quarterly Investor Confidence Report found 16 per cent of New Zealanders expect managed funds to provide the best returns, up from 9 per cent three months ago.

People's confidence in managed funds has increased in the past few months, and rightly so, said Jonathan Beale, head of investment services at 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.

This month the Government announced that investments in Australian and New Zealand shares by managed funds would no longer be taxed.

Also, income from managed funds would be taxed at either the individual's marginal tax rate or 33 per cent, whichever was lower.

Both changes were welcomed by the funds industry, which thought they would put it on a more level playing field with housing investment.

The ASB survey was conducted in March, before the tax changes were announced.

Beale said the changes would make managed funds even more competitive and it seemed popularity among investors would continue over coming months.

Residential property remains New Zealanders' favourite investment, but slightly less so.

Some 20 per cent of people said property provided the best return.

That figure had declined from the 24 per cent expressed in the survey three months ago.

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

House price and sales figures from the Real Estate Institute of New Zealand this month showed that house prices around the country have continued to rise, albeit not as quickly as in the past couple of years.

The number of houses sold was up sharply in March, leading some commentators to suggest that the housing market is perhaps not slowing as quickly as expected.

The third- and fourth-best investments were rated as term deposits, with 12 per cent of respondents favouring them. Ten per cent of respondents favoured bank savings. In general, Kiwis are less confident about how their investments will perform over the coming year.

A net 9 per cent expect a better performance in the next 12 months, down from the 16 per cent who three months ago expected a better performance. Beale said ASB had been surprised in previous reports by the levels of optimism among investors for even higher returns than they had seen in recent years.

A more pessimistic outlook from investors was probably a reflection of the general market sentiment as New Zealand experienced a slowdown in the economy.

The double-digit performance seen in many asset classes over the last few years could not go on forever.


The best returns

The investments New Zealanders believe give the best returns:
1. Residential property
* 20 per cent, down 4.

2. Managed funds
* 16 per cent, up 7.

3. Term deposits
* 12 per cent, down 1.

4. Bank savings
* 10 per cent, up 3.