Funds halt cash exodus

By ELLEN READ markets writer

A turnaround has started for the disaster-struck retail managed funds industry, which handles $18 billion worth of savings for nearly one in 10 New Zealanders.

FundSource figures issued yesterday show that the flood of money pouring out of funds over the past 18 months as poor returns spooked investors has started slowing now equity returns are improving.

The pace at which investors withdrew money slowed almost to a halt between April and June, and total funds under management - a combination of investors' money and fund returns - grew for the first time in 18 months.

The industry had a modest net outflow of $16.6 million for the three months to June 30, the FundSource figures show.

But solid returns pushed the net total of money under management up by 4 per cent over the quarter - a $700 million increase.

It was the first rise since the end of 2001.

FundSource business manager Tim Anderson said the result highlighted the strong performance of domestic and international equity funds and the resulting effect on diversified fund performance.

The $16.6 million outflow was the smallest since the start of last year, and was a huge improvement on the $247.8 million investors withdrew in the first three months of this year.

Diversified funds were again hardest hit in the three months to June, with a net outflow of $135.9 million.

Cash funds dropped $72 million, New Zealand equity funds $27.1 million and international equity $11.5 million.

Anderson said the withdrawals from diversified funds at a time when equities were rallying showed the risk investors took if they pulled out because of weak performance.

"With the diversified balanced sector averaging a second quarter return of more than 5 per cent, those investors have missed the opportunity to regain some of their losses."

The big exception to the rush to withdraw were mortgage funds, into which investors poured $277 million during the quarter.

This continued their trend of positive flows over the past three years as investors sought higher-yielding assets and capital-stable products.

ING kept its place at the top of the funds under management table, its $2.53 billion giving it a 14 per cent market share.

Retaining second and third places were Tower with $1.605 billion under management and AMP with $1.601 billion.

The popularity of mortgage funds took ASB Bank to the top of the flow tables for the quarter with a $136.9 million inflow, mainly into its residential mortgage fund.

The Southland Building Society followed with an inflow of $41.9 million, also mostly because of its mortgage portfolio.