Mercer survey of fund managers

Mercer survey of fund managers shows funds returned -4.7% for the March quarter, -1.8% for past 12 months

Superannuation funds delivered negative returns for the second consecutive quarter, recording a median return of -4.7% for investors.  Over the longer term returns were more positive with the median return for a 5 year period a healthy 12.0% per annum.

Published last week, Mercer’s Quarterly Survey of New Zealand Wholesale Superannuation Fund Managers showed the highest performing fund for the quarter was AMP Capital Investors Superannuation Fund, which recorded a return of -2.5% before tax and fees while the lowest return was from Arcus Investment Management at -7.8%.  AMP Capital Investors Superannuation Fund also produced the highest return over a full year (at 1.9%) while BT Funds Management lagged the rest with a return of -7.0%. 

With the exception of Tyndall, fund managers with a lower than average allocation to New Zealand equities tended to perform better over the quarter.

“With the notable exception of global and local Fixed Interest markets, including Cash, there were few places for investors to hide in the March quarter.” said John Gallacher, a Principal of Mercer.  “The standard index for Global Equities fell by -9.3% in the month of January – the worst monthly return since September 2002 when the index fell by -11.3%.  Again, for comparison, the September 2002 quarter returned -15.5%, the March quarter 2008 returning  -11.0%.  The extent of such declines registers the extent of the surprise to financial markets of the real financial and economic possibilities underlying the daily headlines.  The credit crisis which was evolving during 2007 started to appear to be of much greater concern to the health of the US and global economy such that the confidence of investors in the more risky asset classes such as shares and property was suddenly damaged.  NZ balanced funds could not hope to escape negative returns in the quarter.  The Mercer Survey is important in that it tracks the performance of balanced funds over a long period, on an ‘apples with apples’ basis and with very high integrity.  It measures returns at the gross level to provide reliable measures over time of the performance of funds and their fund managers relative to relevant benchmarks.  For the record, the most recent high return for Global Equities was +10.7% in March 2006 for a quarterly return of +18.8%.  Again there was no place to hide but on that occasion investors were the better off for being invested in a diversified portfolio.”.

Findings from the survey include the following:

§         Global stockmarkets, for hedged and unhedged New Zealand investors recorded negative returns over the quarter, with unhedged investors benefiting from a fall in the NZ dollar.  Major international share markets delivered varying degrees of negative returns in local currency terms, with Japan once again delivering the worst returns for the quarter of -17.9%.

§         In US dollar terms the Nasdaq fell 14.1% over the quarter while the S&P500 and Dow Jones Industrial Average fell 9.9% and 7.6% respectively.  Emerging Markets and the MSCI Small Cap Index both ended the quarter down 11.3% and 11.2% respectively (both in local currency terms).   

§         ‘Growth’ as an investment style performed better than 'Value' over the three month period, although still gave negative returns.

§         During the March quarter the domestic sharemarket fell 13.6%.   The NZ dollar was down 2.1% on a trade-weighted basis over the quarter. 

§         AMP Capital Investors Superannuation Fund achieved the highest return for the quarter of -2.5%, followed by Tower Asset Management who returned -3.9% (returns before tax and fees). The median return for the quarter was -4.7%.

§         Returns for the past twelve months ranged between a gross return of 1.9% from AMP Captial Investors Superannuation Fund to a -7.0% return from BT Funds Management. The median return for the twelve months was -1.8% before tax and fees.

§         In terms of the asset allocation of discretionary balanced funds, the average exposure to growth assets as at 31 March 2008 was 61.6% (including allocations to alternative assets). The lowest exposure to overseas equities was 31.4% (Mercer) with Arcus Investment Management holding the highest exposure at 37.7%. The highest exposure to domestic (or Trans-Tasman) equities was 19.4% (BT Funds Management).

§         Comparing the asset allocations of the current fund managers with their allocations as at 31 March 2005, the average allocation to overseas equities is lower than that of three years ago (34.0% compared with 36.5% three years ago).  Tower Asset Management is the only manager to increased their overseas equity exposure over this time. The average exposure to domestic equities has decreased from 16.6% at 31 March 2005 to 13.8% at the end of March 2008.  In March 2005 two funds had exposure to an alternative asset strategy.  In March 2008 five funds had allocations to alternative assets, ranging from 2.3% to 10.2% of the overall fund.    

§         Mercer has also compared the current managers’ three-year results from the March 2005 survey with those of the current survey.  In March 2005, Arcus was the highest performing manager, with a return of 8.7% per annum.  At the end of March 2008 AMP Capital Investors Superannuation Fund was ranked first over three years with a return of 11.0% per annum.  The managers with three-year performance at or above median in both surveys were Arcus and Tower Asset Management.

§         The median return for the three year period to 31 March 2005 was 6.4% per annum.  For the three year period to 31 March 2008 the median return was 9.9% per annum.

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