By Peter V O'Brien
Friday 14th February 2003
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Most of those in the table were priced at substantial discounts to net asset backing when surveyed.
New Zealand investors would have suffered greater losses over the year without a solid appreciation in the exchange rate against sterling, which went from 29.26p on January 31, 2002, to 33.87p this week. That point relates to the fact that most are mainly UK-based and local prices are calculated from a translation from sterling to New Zealand dollars.
The relatively few trades in New Zealand are insufficient to affect base prices.
Local investors did much better if they had a year of New Zealand shares. The NZSE40 capital index declined 6.7% during the 12-month period.
Comments in the Merrill Lynch European Investment Trust report for December were indicative of fund managers' views. It said geopolitical tensions that placed significant downward pressure on global equity markets in December were likely to continue into this year.
Conflict in the Middle East seemed almost inevitable. The economic environment was looking cloudy: "While US economic growth looks well supported from a fiscal and monetary policy standpoint question marks remain over the consumer."
Growth was likely to be varied in continental Europe, with deflation a possibility in Germany. Equity markets were likely to remain "range bound" (apparently a fancy jargon term for narrow movements) until there was a challenge to the consensus view of weak economic recovery.
Consumer spending sectors would remain under pressure, given the poor outlook in that area. Then came a typical international fund manager's statement: "The trust continues to focus on selected socks across a range of sectors with emphasis on earnings visibility, effective restructuring and attractive valuations."
It might be better off focusing on holding cash investments (which admittedly were at a reasonable 12% of total assets on December 31) in view of current gloom.
The past three years were a period of massive worldwide erosion of personal savings invested in managed funds and managed by individuals.
It did not absolve fund managers, some of whom are guilty of relationships with broker mates who could benefit in bull and bear markets through "churning." That is the process whereby stocks are bought and sold regularly, generating commissions on every trade. Kickbacks to the funds are supposed to be illegal in many jurisdictions but it can be hard to trace them.
It becomes worse when fund management companies have direct full, or partial, ownership of brokerage firms or engage in financial planning advice. Investors could get ripped off three times in those circumstances, or four, when fund management fees are injected into the equation.
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