Black year for equity fund investors

By ELLEN READ

Last year's annus horribilus belonged to managed equity funds, according to figures released today.

The 2002 performance data, from fund researcher FundSource, does not look good. It shows losses potentially wiping $1.5 billion from the value of New Zealanders' investments.

International equity funds lost on average 28.35 per cent last year, and although New Zealand equity funds proved stronger,, they still ended down 2 per cent on average.

The year was dominated by poor international equity performance, as world markets plunged amid a recessionary environment and growing geopolitical uncertainty.

Add to this an appreciating New Zealand dollar and it is as investor-unfriendly as it gets, says FundSource research head Tim Anderson.

Equity funds suffered significantly, although cold comfort could be derived from the fact that New Zealand managers were able to beat many of the world's largest bourses (see table), he said.

The award for the 2002 top performer in international equity funds went to the Tower Global Gateway Fund, which scraped together returns of minus 9.87 per cent - no international equity fund finished in positive territory.

The worst performer was the Affinity Healthcare Worldwide Growth Trust with minus 51.68 per cent.

So what does this mean to Kiwi investors' pockets? Anderson said that in a sector which started the year with slightly less than $1.8 billion under management, a minus 28 per cent return was obviously significant in terms of capital destruction.

If the international equity component of diversified funds was added - by far the largest sector with about $4 billion in international equities (as of January last year) - the picture became much worse.

Assuming constant funds flow, a 28 per cent loss equated to a cumulative loss of about $1.5 billion of New Zealand investment dollars, Anderson said.

Fortunately, he offers two points to consider. First, New Zealand investors are maturing in their long-term approach to fund investing and have not flocked to withdraw their funds, therefore realising any current paper losses.

Secondly, those investors in diversified funds have had positive returns from other asset classes, offsetting this poor performance.

New Zealand equity performance was certainly more robust on a relative basis, but still had a negative effect on investors' wealth last year.

Average performance was minus 2.16 per cent for the year, below the NZSE40 Gross index performance of 0.7 per cent.

Top performers in New Zealand equity were the Westpac Selected NZ Share Trust and the ING New Zealand Share Fund, with returns of 1.16 and 1.08 per cent respectively.

The poorest were the AXA NZ Leaders Trust and BT NZ's NZ Plus Share Fund, with minus 6.91 and minus 6.77 per cent returns respectively.

But the year had some highlights, with New Zealand Fixed Interest Funds up just under 5 per cent and International Fixed Interest up more than 5.5 per cent.

Property returned 3.41 per cent and mortgages 3.85 per cent (all figures are post-tax and fees).