Managed funds clawing their way back into the black

By MARK FRYER

Rising international sharemarkets are injecting a little more life into managed funds, but longer-term returns on overseas shares are still far from healthy.

In the past six months (to the end of August), all 23 of the international share unit trusts or group investment funds monitored by researcher FundSource produced a positive return, gaining 15 per cent on average after tax and ongoing fees.

However it will take much more of the same to repair the damage of the past few years.

In the 12 months to the end of August, only five out of 22 international share funds produced a gain for their investors, and many of the others lost 10 to 20 per cent.

Even for long-term investors, the gains from international shares have been modest. The seven funds which have been around for 10 years or more produced an average return of just 2.8 per cent a year over that decade, after tax and ongoing fees.

Investors in diversified balanced funds have also been enjoying a little relief lately. In the 12 months to the end of August, 15 out of 19 such funds made a small gain.

In the previous 12 months, to the end of August last year, all of the diversified balanced funds lost money, and it was the same story in the 12 months before that.

Longer term results suggest that investors should have modest expectations. The best-performing diversified balanced fund over 10 years - Guardian's balanced fund - earned an after-tax, after-fees return of 4.17 per cent a year, and the average for the five funds which have been in existence for that long was just 3.28 per cent a year.

Funds investing in New Zealand shares performed solidly in the latest 12 months; actively managed funds made 7.17 per cent on average, after ongoing fees and taxes.

Over the past 10 years, the average actively managed New Zealand share fund - out of five which have been around that long - earned 5.75 per cent a year, enough to turn $100 into $176, assuming all dividends were reinvested.

Fixed-interest funds have been solid, if not spectacular performers. The average international fixed-interest fund gained 4.28 per cent in the past 12 months, and 4.26 per cent a year over the past decade.

Local fixed-interest trusts told much the same story: up 4.31 per cent over the latest 12 months and just over 4 per cent a year for the past decade.