Super returns slump to all-time low

By MARK FRYER

Prospects of a comfortable retirement grew more distant for thousands of New Zealanders last year as superannuation funds turned in their worst performance in memory.

In the 12 months to the end of March, locally based super fund managers produced a median return of minus 10.8 per cent, figures released yesterday by Mercer Investment Consulting show.

None of the 12 managers surveyed produced a positive return. The best, minus 5.7 per cent, came from Arcus Investment Management. At the other end of the rankings, Frank Russell Company lost 14.4 per cent.

The real impact on investors will be somewhat different from those figures, since Mercer calculates returns before deducting management fees and tax.

Fees will make the losses even worse, but the after-tax picture will be better, depending on each fund's investment strategy.

The numbers are for "discretionary" investments, where managers have the freedom to invest the money as they see fit.

Mercer's figures, which go back to 1984, show this is by far the worst return on record. The only other time when the survey has seen a negative return overall was in 1987-88, when the median manager lost 1.5 per cent, before tax and fees.

The figures reinforce the idea that investors need to keep their eyes firmly fixed on the long term. Looking back three years, only one manager (Tower) has managed to produce a positive return. Even looking back five years, the median return is still only 2.7 per cent a year.

However, Mercer's executive director, Louis Boulanger, said that over the past 15 years the average return was 7.9 per cent a year.

The figures also show how variable investment returns can be. In 1983-84 the median manager made 41.6 per cent, in 1986-87 the figure was 39.2 per cent and in 1997-98 21.7 per cent.

The latest negative returns come at a time when managers have been reducing their investment in New Zealand shares and putting more into overseas markets.

Three years ago the average manager had 19.3 per cent of the fund in New Zealand shares; now the figure is 15.9 per cent.

Over the same period, the average proportion invested in overseas shares has risen from 33.3 per cent to 39.7 per cent. Out of the 12 managers, only one (BNZ) had less than 30 per cent of its money in overseas shares.

The average manager's asset allocation is now: 39.7 per cent overseas shares; 18.3 per cent overseas fixed interest; 15.9 per cent NZ shares; 13.9 per cent NZ fixed interest; 6.5 per cent NZ cash; 5.1 per cent property.