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Managed funds unpopular

Monday 21st July 2003

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Investors’ confidence in returns from residential rental property is the highest it’s been and looks as though it’ll keep on climbing ASB Bank Head of Relationship Banking and Financial Services James Mitchell says.

The results released in the latest quarterly ASB Bank Investor Confidence Survey show that confidence in returns from residential rental property is soaring above other investment types with 21% of respondents (the highest proportion ever recorded) believing it is the investment that provides the best returns.

Those with their main investments in residential rental property are particularly optimistic with a net 68% expecting a better return from their investments this year (also the highest level recorded for any investment type in over three years).

The next closest investments were term deposits and bank savings accounts at 11% and 12% respectively. Bank savings accounts were also at their highest ever recorded levels as the investment that provides the best return.

"If these two investment types are combined, then bank investments were the most popular category," Mitchell says.

In stark contrast, confidence in managed investments continues to drop to its lowest ever levels as recorded by this survey with just 10% of respondents believing it will give the best return.

"The survey shows that investors do not yet have confidence in the returns from managed funds and shares, and favour leaving their money in the bank, or turning to traditional ‘bricks and mortar’ investments.

"The confidence in managed investments has dropped as relative returns have not been great for several years. However, positive returns have begun to flow into managed investments in the last six months. When combined with the passing of the SARS scare, the war in Iraq, and given there are no more negative global events for a while, we should start to see a more positive outlook towards managed investments.

"For many investors, leaving their money in the bank has become an attractive prospect during uncertain times, however anecdotal evidence suggests there is a ‘wait and see’ attitude among these investors. Many are considering when global markets and events will turn and in contrast when the local housing market will peak. Where and when to invest funds is likely to become a bigger issue for these investors as interest rates continue to drop as predicted and higher returns are sought.

"Given the level of liquidity in bank accounts and term deposits, managed investments and shares could make a rapid recovery in popularity as many investors have the flexibility to respond quickly," he says.

The latest results show that overall confidence is steady and positive, up by 2% on the previous quarter to a net 10% positive. This appears to be due to a more stable global environment, some signs of economic growth and the continued confidence in local housing Mitchell says.

"A continued belief in housing is likely for some time, particularly as New Zealand’s strong migration flows continue, interest rates continue to fall and supply continues to lag the demand for housing. The question on everyone’s mind is how long will it last?

"For the more speculative investor timing is everything, so over the next year we are likely to see more caution towards housing and perhaps more favour towards other forms of investment.

"It is important for investors to focus on looking forward when making investment decisions as past returns are not necessarily a good predictor of future returns," he says.

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