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Shares beat property: FundSource

Sunday 26th September 2004

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Managed fund research house FundSource says forget all the hype about property, New Zealand shares are a better investment.

Numbers the company have crunched show that local shares have outperformed property at every point during the past 18 months.

“This result may not come as news to many,” Fund Source general manager Tim Anderson says.

While shares have given investors a better return than property in the past 18 months, FundSource believes this situation will continue looking forward.

“FundSource believes near term expectations for NZ equities continue to outstrip property.”

Anderson says what also may surprise people is the margin which shares have outperformed property.

Since March 2003, nationwide house prices have recorded gains of around 25%. In particular, on the basis of the latest Quotable Value NZ index – the official NZ house price measure - house prices until the end of the June 2004 quarter have risen by 25.6%.

Using the timelier REINZ monthly index over the period March 2003 until August 2004, house prices have recorded an increase of 23.5%.

“As impressive as these house price gains have been, they are significantly overshadowed by the increases recorded by the NZ equity market over the same period.”

From March 2003 until the end of August 2004 the NZSE50 index has risen by 42.3%.

“If investors had adopted an 80/20 gearing ratio, commonly undertaken with residential property investment, then the gains to be made from New Zealand equities would have been correspondingly magnified,” Anderson says.

FundSource suggests that investment dynamics will continue to favour shares in the near term as property falters in the face of higher interest rates and oversupply in certain areas.

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