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Fixed interest winner, but unlikely to continue

Tuesday 29th April 2003

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Global and local fixed interest enjoyed a strong performance over the first quarter of 2003 achieving their highest annual returns in over five years, AMP Henderson Global Investors says.

For the year ended 31 March 2003 Henderson's global fixed interest and New Zealand fixed interest funds returned 12.6% and 11.2% respectively.

Henderson chief investment officer Paul Dyer says that while fixed interest had been the best performing asset class over the last year, current levels of return were unlikely to continue.

"Given the yield on NZ Government stock is now around 5.5%, it seems clear that investors are going to experience significantly lower fixed interest returns going forward," he says.

Over the same quarter world share markets moved sideways and over the last six months, on a currency-hedged basis, they've given stronger returns than New Zealand equities.

The strong New Zealand dollar had an impact on unhedged funds with Henderson's unhedged fund falling 9.5% over the quarter. However, Dyer said the NZ dollar is most unlikely to continue to appreciate at the same rate as it has over the last quarter.

Property also continued its recent solid performance delivering 1.5% for the quarter and 8% for the March year.

"We continue to believe property assets are well priced with yields substantially higher than current interest rates," Dyer says.

"All eyes will be on the US economy in the wake of the Iraq War to see whether the sluggish recovery we expect will actually occur. Although interest rates are very low around the world, to date there's little evidence they've stimulated growth.

"It is clear that economic growth is slowing from a high base in 2002. The extent of this remains to be seen, however, we believe there will be solid grounds to further lower interest rates in the second half of this year," Dyer says.

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