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June quarter returns a cracker

Rob Hosking

Wednesday 23rd July 2003

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"A rising tide lifts all boats", as the saying goes, and AMP Henderson's latest quarterly result shows a harbour full of bobbing vessels.

The three months to June 30 was the best since late 1998 - the burst of recovering following the Asian Crisis and Russian default - and was the third best in a decade, chief investment officer Paul Dyer says.

The AMP Henderson result was just one sign this week that, after a low tide especially international equities, since March 2000, markets are now swelling again.

A further, if more muted, sign, was the latest Fundsource figures, which showed the smallest outflow of retail managed funds for more than a year.

The AMP result included a 17.8% return on AMP Henderson's global equities passive hedged investments. On an unhedged basis, the return was 9.3%.

"That level of return won't be sustained," says Dyer. But the company remains optimistic about the returns going forward.

The global equities was the best performing sector over the three months, but all were in positive territory. New Zealand shares made a return of just above 15%.

The company's gross balanced fund performance was all a change from most of the result last year. the low equity fund made a return of 5.6%, the balanced fund made 8.6%, and the high equity fund managed to break 13%.

AMP Henderson has virtually jettisoned all its holdings in fixed interest, says Dyer.

Central banks, led by the US Federal Reserve, have sent clear signals since early in the year that they would keep interest rates low, he says.

That may now be on the turn, however, with long term rates now starting to climb again.

And while there is still some talk of the risks of deflation, he now believes that danger has past.

"We believe the risks [of deflation] are overstated and that the low interest rate sentiment has probably peaked. Bonds have had a great run over the past 12 moths but this is unlikely to continue."

The other feature of the quarter-and perhaps a major factor in the market bounce-back - was the number of threats which failed to materialise.

The war in Iraq was over more quickly and less disruptively than expected, and much of concern about SARS turned out to be unfounded, for now anyway.

The upbeat mood of the AMP Henderson result has been reflected in other market comment this week.

The Bank of New Zealand, previewing the Reserve Bank of New Zealand's official cash rate review due this Thursday, noted the recent gain in world equity markets and the sharp steepening of global yield curves over the past couple of months.

Both of these suggest strong economic growth ahead - and recent comments from the US Federal Reserve and European Central Bank seem to back this up.

The FundSource data, also showed that net funds under management rose by 4.0% to $18 billion over the quarter.
That is a $700 million increase - the first increase since the end of 2001.

"This highlights the strong performance of both domestic and international equity funds, and the resulting flow through into diversified fund performance, offsetting the industry's modest net outflow."

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