16 January 2001
Colonial First State (NZ)’s balanced fund portfolio produced a top quartile performance for the year ended 31 December
2000 to end the year ranked as the number one balanced fund in its universe.
For the 12 months ended 31 December, Colonial First State’s balanced funds portfolio produced a gross return of 7.9 per
cent. This follows strong relative December, September and June quarter results, which ranked Colonial First State in
the top quartile for investment managers.
Chief Investment Officer Mike Gibbs-Harris said the excellent investment performance was a combination of being
overweight in bonds and a disciplined bond and share selection process.
“For virtually all of 2000 we advocated an approach that emphasised maintaining capital, reducing risk and not chasing
returns. This required a more disciplined approach.”
“Early in the year bonds were undervalued compared to technology shares and we kept our nerve even when the technology
bubble got bigger. We take a long-term approach and don’t get sucked into overvalued fads.”
Mr Gibbs-Harris said the balanced portfolio also benefited during the December quarter from having approximately 50% of
its overseas share holdings hedged back into New Zealand dollars.
“It therefore suffered less from the recovery of the NZ dollar during the quarter which further depressed the value of
foreign share holdings.”
Looking ahead, Mr Gibbs-Harris said sharemarkets delivered returns significantly lower in 2000 than in the last few
years and investors can expect more of the same in 2001.
“We believe that these years, rather than just 2000, were an aberration and that investors need to lower their
expectations over the next few years.”
“This does not mean that we will always be pessimistic. Compared with twelve months ago, various factors are becoming
increasingly more favourable for shares. Lower prices and lower valuations, the likelihood of lower short-term interest
rates and reduced bond rates are all significantly more supportive than they were twelve months ago.”
“What has deteriorated is the global earnings outlook, although New Zealand is likely to be one of the few countries
with an accelerating economy in the New Year. The credit outlook has also deteriorated, with banks suffering increased
loan losses and being more reluctant to make credit available.”
Mr Gibbs-Harris said bonds were no longer as attractive as they were in 2000 with real rates now at 3% or less. Colonial
First State is likely to reduce its bond holdings at some stage in the first half of the year.
“Central banks are now focusing on lowering short-term interest rates; longer-term rates are already anticipating these
moves. Real long-term interest rates are unlikely to fall much further and expected returns on bonds for 2001 will be
less than the double-digit returns of 2000.”
ENDS
Source: Morningstar Research Ltd, January 2001