Retail Funds Under Management Reach $20 Billion

Website: www.fundsource.co.nz
28th July 2005

MEDIA RELEASE

Retail Funds Under Management Reach $20 Billion

Retail funds under management broke through the $20 billion mark in the June 2005 quarter, with strong performances counteracting the effect of heavy outflows. This is the highest level of funds under management since March 2002 and the fourth highest quarter end in history. Since the low of March 2003 at the end of the bear market, when net funds under management were at $17.6 billion, net funds under management have risen by 14% despite net outflows of $845 million over this time.

While the increase in funds under management back to pre-bear market levels is good news, investors have continued to withdraw from managed funds despite the excellent performances that have been delivered recently. Over the June 2005 quarter investors withdrew a total of $213.5 million, 25.3% greater than in the March 2005 quarter when outflows totalled $170.4 million. Outflows were widespread, with only NZ Cash, NZ Property and International Fixed Interest receiving net inflows over the quarter.

The increase in funds under management despite such heavy outflows clearly demonstrated just how strong financial markets have been over this time, which is great news for those investors who maintained a long term view and held on to their investments despite the temptation to avoid volatility.

Historically funds flows have been positive after periods of strong returns, so this phenomenon goes against our past experiences. However, with the hype surrounding the performance of the residential property market investors may be chasing returns in this asset class. Funds flows suggest that investors are moving to investments with a focus on income rather than growth. In general we can expect to see average asset allocations become more conservative as the baby boomer generation near retirement and need to reduce the level of risk in their investments. But it is concerning that perhaps a sense of security is being favoured, rather than an appropriate risk-return balance, which is needed to achieve investment goals.

“It is great to see the level of funds under management continuing to grow steadily” says Binu Paul, Research Manager at FundSource. “However the trends we are seeing in funds flow are a cause for concern. Investors who have cashed up and perhaps invested in lower risk assets have missed out on some very good returns. They may now also have inappropriate asset allocations for their needs, which is always a risk when you let your emotions interfere with rational investment decisions.”

Net Funds Flow

Over the June 2005 quarter retail managed funds experienced their sixth consecutive quarter of net negative funds flows. At $213.5 million these outflows were 25.3% greater than the outflows in the March quarter of $170.4 million, and the largest outflows since March 2003. The 12 months to the end of June 2005 brought outflows of $791.2 million. International Fixed Interest, NZ Cash and NZ Property attracted net fund inflows over the quarter, with $20.8m, $20.9m and $13.5m respectively. Diversified funds had the largest outflows, of $130.7 m. Given that Diversified funds comprise over a third of funds under management at just under $7 billion, with outflows across the board it is not surprising that the majority of outflows were from this sector. International and NZ Equity funds also had large outflows. The table below highlights some of the key net funds flow data compared to the previous quarter:

June 05 Quarter $ M March 05 Quarter $ M
NZ Cash 20.87 (16.77)
NZ Diversified (130.67) (77.63)
NZ Mortgage (4.13) (41.62)
NZ Equity (34.76) (8.51)
Intl Equities (84.42) (31.11)

By legal structure, Superannuation funds had the largest negative flows of $126.3 million, while Group Investment Funds had the only net inflow of $83.6 million.

June Quarter Net Funds Flow by Manager

Just over half of the managers included in the survey enjoyed flat to positive funds flow. The
managers with good inflows were generally those focussed on income investments, such as
Macquarie, First Mortgage Managers and Fund Managers Otago. These managers had inflows of $25.6m, $20.3m and $13.1m respectively. Forsyth Barr were the only manager in the top five in terms of funds flow in both June and March quarters.

June 2005 Quarter $ M Net Funds Flow
Macquarie 25.6
First Mortgage Managers 20.3
Fund Managers Otago 13.1
Forsyth Barr 12.9
National Bank 12.0

As with previous quarters, many of the larger fund managers had large outflows over the quarter.

The three managers with the largest outflows in March were again the bottom three in June. BNZ had the largest outflows of $58.8m, closely followed by Tower with $52.4m and Westpac with $47.4m. Interestingly, the two top managers in terms of funds flow in the March quarter, AMP and ASB Bank, were among the managers with the largest outflows this quarter, in 32nd and 30th out of 35 respectively.

Net Funds Under Management (NFUM)

Total Net Funds Under Management (NFUM) rose marginally over the June quarter to $20.0 billion, from $19.9 billion in March 2005. Over the last 12 months, despite outflows of $791.2 million, net funds under management has grown by 1.1% thanks to strong performances across the spectrum.

Net Funds under Management - Top 5 Managers

ING (NZ) (who also manage ANZ’s funds) continued to top the rankings this quarter, followed by NZ Funds Management and AMP.

Rank $ M June 2005 Mkt. Share % March 2005 Mkt. Share %
1 ING (NZ) Ltd (incl. ANZ) 3,193.2 16.0 15.6
2 NZ Funds Management 1,744.6 8.7 8.7
3 AMP 1,736.8 8.7 8.6
4 ASB Bank 1,669.2 8.3 8.4
5 Tower Group 1,447.8 7.2 7.4
Others 10,213.8 51.1 51.1
20,005.4 100%
100%

ENDS

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