Stock pickers eye Cullen fund

By Nick Stride

Friday 4th October 2002

Only gifted stock-pickers have had a good ride on the New Zealand sharemarket lately.

The NZSE40 index is scarcely changed from its value three years ago and the trading range has been only around 10% plus or minus.

Going on that performance investors might wonder whether their money might be better placed elsewhere.

But the index movement masks a vast disparity in the fortunes of the various component stocks.

While the share prices of the market's biggest companies have plunged or slithered sideways some often overlooked companies have rewarded investors richly.

The country's two largest listed companies by market capitalisation, Telecom and Carter Holt Harvey, have seen their share prices slide by 39% and 29% respectively (not allowing for share issues or dividends).

Other hefty losers have been Air New Zealand, Natural Gas Corporation, Trustpower, Fletcher Challenge Forests and Tranz Rail.

Falls in investor confidence internationally have also weighed on "growth" stocks formerly trading on high PEs (price to earnings ratios).

Major casualties have been Baycorp Advantage and Sky Network Television.

But the big end of town has also produced some notable winners.

The Warehouse's share price doubled, Sky City climbed 150%, and Auckland International Airport lifted 55%.

Lion Nathan rose 41% and Contact Energy 20%, both assisted partly by share buybacks. Winners were in good supply among the smaller-cap companies.

On the NZSE40, the Ports of Auckland, Port of Tauranga, Kiwi Income Property Trust, Infratil, Nuplex, Property for Industry and Hallenstein Glasson all posted solid gains.

Mid-cap index companies such as Cavalier, Hellaby, Michael Hill International, Restaurant Brands, Steel & Tube and Wrightson also delivered.

With sharemarkets in decline around the world new investors now face the tricky task of picking the bottom.

The institutions who dominate trading are discounting the possibility of a "double dip" global recession.

Of the 298 fund managers polled by Merrill Lynch in its latest survey, the majority said they expected some improvement but no major growth in equity markets over the next year.

But most also said they remained risk-averse.

The picture is much the same in New Zealand despite the sharemarket holding up better than most on the back of a prolonged spell of high commodity prices.

The Stock Exchange recently reported a modest loss for the June year, mostly because the value of market turnover fell from $30 billion to $19 billion.

Fund managers have also seen net outflows.

According to Fund Source data retail money managers suffered June quarter net outflows of $83 million, the worst result since records started in 1993.

Among sharebrokers and traders a lot of speculation is being devoted to the likely winners from Finance Minister Michael Cullen's $40 billion state super fund.

The fund is expected to invest around $2 billion a year for the next 20 years.

According to Tower Asset Management managing director Paul Bevin that could translate into something between $100 million and $300 million a year going into New Zealand equities.

Given the lack of liquidity in many stocks that level of investment would have a dramatic effect on share prices. It hasn't yet been decided whether the fund will have "ethical investment" guidelines that prohibit buying the shares of, for instance, brewers or polluters.

One possibility is that the fund will simply invest according to weightings on the new NZSE50.

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