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Managed fund returns strong in May

Monday 20th June 2005

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New Zealand managed fund investors were delivered strong returns across the board in May, according to research house FundSource.

It says New Zealand and international sharemarkets performed well over May, and this carried through to fund returns both in those funds that focus on these sectors and the diversified funds with exposures to equities markets.

The positive returns from New Zealand and international sharemarkets in May have shown that the poor performance seen in March and April was simply a temporary dip in investor sentiment.

While the short-term negative performance is not unusual or unexpected given the extended period of growth of equities, the turnaround in May demonstrates that investment fundamentals remain strong, particularly in international markets, and investors' confidence has rebounded on this realisation.

The decline in the New Zealand dollar over the month of May also enhanced the returns of many funds with an exposure to foreign currencies, which have been impeded while the currency has been appreciating.

The strongest performances for May were recorded in the international equity (global) sector, with the funds delivering an average performance of 4.61% for the month.

Regional international equities were the next best sector with 4.29%.

Following is a summary of the main investment sector performances:

New Zealand equity (active) unit trusts
Average performances for New Zealand equity active funds in May were 1.63%, while posting a 9.96% return for the year.

The poor performance of the New Zealand sharemarket in March and April mean that returns for the three months to the end of May were negative across the board, but such a correction came as little surprise given the long run of good performance the sharemarket had experienced.

Funds also outperformed the market over May, with the NZX50 gross (33%) returning 1.16% against the average fund return of 1.64%.

The top performing fund in this sector in May was the Fisher Funds NZ Growth fund with 3.33% and 18.49% for the year, while ING's Equity Selection Fund was in second place for the month with a return of 3.12%, and was also the top performing fund over the quarter to the end of May.

"There is renewed strength in the New Zealand sharemarket despite the less-than-favourable economic conditions we expect in the near future," FundSource research manager Binu Paul says.

"The correction seen over March and April appears to have been enough to counter any feeling that the market had overheated, and has lifted investor confidence back up."

Poorer performers in May included the BNZ NZ Equities Discovery Trust 0.73% and the Asteron NZ Share growth trust with 0.90%.

International equity (global) unit trusts
Excellent global sharemarket performance during May resulted in average performance for the sector of 4.61%. The top-performing fund for May was the AXA Global Equities Trust, which returned 7.27%.

The strong return across May was assisted by a 3.7% depreciation in the New Zealand dollar against the US.

Variation in performance amongst global equity funds can often be explained by the different currency policies of the managers, with hedged funds outperforming unhedged while the New Zealand dollar has been appreciating and vice versa.

Like New Zealand equity funds, the global equity fund returns on average exceeded the relevant benchmark, the MSCI World Free Gross (33%), which climbed 3.83% in May.

"After an extended period where fund returns were hampered by the strength in the New Zealand dollar, we are now seeing what happens when our dollar depreciates" Paul says.

"As the New Zealand dollar declines from the record highs we have seen this year, the performance of unhedged funds will continue to be enhanced."

Joining the AXA fund as a top performer was the Affinity Healthcare Worldwide Growth fund with 7.22%, while poor performers included the volatile TOWER GAM Global Gateway Fund and the TOWER Global Responsibility Fund, which is closed to new investment due to its small fund size.

Diversified Funds
Diversified funds, which are the largest sector with more than $7 billion in funds under management, also enjoyed good growth in the year to May 2005.

Diversified balanced funds returned 1.88% in May, while defensive funds returned 1.16% and growth funds, with their higher allocation to equities, returned 2.64%. Over the last 12 months results are consistent with the returns for this month, again reflecting their respective asset allocations.

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