Managed funds turn the corner

The managed funds industry is on the verge of a major turnaround. Latest figures show a reverse in the trend which has seen cash flowing out of the sector for the past few years.

The FundSource quarterly report on managed funds shows investment for the quarter to March 2006 was almost neutral with a mere $2.2 million outflow of cash.

That compares with outflows of $35.8 million and $170.3 million in the December 2005 and March 2005 quarters respectively.

FundSource general manager Binu Paul said the return to a neutral flow was encouraging. And with the Government's new tax rules removing disincentives for investing in managed funds there would soon be "a whole lot more interest".

He said the improvement had been driven in part by the slowdown in the popularity of investment property but also by the strength of returns the funds were achieving.

Total funds under management grew to a record $21.8 billion - up 4.5 per cent in the March quarter. It was the largest quarter-by-quarter increase since 2001.

In the past 12 months, active New Zealand equity funds averaged returns (after tax and fees) of 17.3 per cent. International equity funds had net annual returns of 29.1 per cent.

Paul said the new tax regime was going to add another level of complexity for the high-wealth individuals who wanted to do their own investing in offshore markets.

That would add to the appeal of managed funds which could take the hard work out of it.

Money flowed into international fixed interest funds, global international equity and New Zealand cash.

It flowed out of Australasian equity, New Zealand diversified and New Zealand property.

Superannuation funds, while still experiencing net outflows, saw the biggest improvement. They went from an outflow of $68.6 million in the December quarter to an outflow of just $2.8 million this quarter.