Positive net funds flow persists through December quarter

Friday, January 30th 2004, 2:21PM

by Tim Anderson

The New Zealand retail managed funds industry recorded positive net funds flow (NFF) of $90.6m for the quarter ended December 2003, continuing the return to positive inflows begun in the September quarter. Two consecutive quarters of inflows are particularly pleasing after the five consecutive quarters of industry outflows beginning June 2002.

Of note are the inflows into equity funds, particularly after numerous consecutive quarters of fund outflows. The NZ equity sector for example experienced an encouraging turnaround in receiving inflows of $13.3m, following outflows in the previous six quarters. International equity also experienced inflows for the December quarter - $32.29m - although is still down < funds flow, with a significant turnaround in the fortunes of these sectors. In the year ending December 2003, unit trusts investing in global international equity returned a post-tax average of 8.35%, those in regional international equity 12.3%, and NZ equity (active) 16.2%. Conversely, investing in NZ or international fixed interest funds would have returned an average of 3.7%. Overall, the positive NFF data is consistent with expectations, and results from solid performances in domestic and international equities markets recently.

The main source of funds flow over the quarter was the NZ Mortgage sector with $55.5m. This was a smaller inflow than in previous periods, indicating that investors’ interest in this sector may be falling. While international fixed interest inflow of $33.5m is quite unusual given the environment of very low international interest rates,the irregularity has occurred because of the inflows into the ING.

Diversified Yield Fund, a new CDO product, which created a positive inflow out of what would normally be expected to be an outflow.

new pNZ Fixed Interest experienced the largest outflow of $24.5m - not a surprising result as we see investors' increase their appetite for growth orientated asset classes away from capital stable asset classes such as fixed interest and mortgages. The outflows in the diversified sector lessened again, following on from the improved performance of this sector. Investors are now reaping the benefits as the strategic positions taken by managers begin to pay off.

Industry net funds under management (NFUM) expanded 3.0% to just below $19bn over the quarter, a rise of more than $500m. NFUM has now increased a total of $1.7bn since March 2003, which at $17.3bn was a 3½ year low. This increase has been fuelled by the combination of good fund performance and net inflows. Fund investors are now $1.14bn wealthier than at December 2002 thanks to the positive performances of managed funds, which increased in value by $1.1bn in spite of negative funds flow over the year.

December Quarter Net Funds Flow by Manager

AXA had the highest NFF of all managers, with an inflow of $47.9m. Three AXA funds made it into the top 15 for NFF over the quarter. They were the Global Equities Trust with $21.6m, Australasian Equities Trust with $15.7m, and the Mortgage Backed Fund with $11.97m. Maintaining their position from last quarter, New Zealand Funds Management was second with $38.6m, and National Bank moved up to third with $26.9m.

Fund Manager	*December 2003* Quarter NFF $M	Rank	*September 2003 Quarter* NFF $M	Rank
AXA	$47.94m	1	-$0.63m	17
NZ Funds Mgmt.	$38.64m	2	$57.26m	2
National Bank	$26.90m	3	-$13.40m	27

This quarter net inflows were experienced by twelve of the 31 managers surveyed, to a total of $182.3m. Fifteen managers experienced outflows, totalling $91.6m, while four had no change.

On the negative side, the outflows experienced by BT persisted, with a NFF of -$32.6m over the quarter and -$121.2m for the year. Sovereign and Public Trust also experienced outflows of $12.7m and $11.7m respectively.

Main Asset Sector Net Fund Inflows and Outflows in the June Quarter

Selected Sectors:	*December 2003 Quarter* NFF $M	*September 2003 Quarter* NFF $M
NZ Mortgage	55.46	205.8
International Fixed Interest	33.45	46.51
International Equity (Global)	32.29	16.48
NZ Equity	13.05	(36.47)
NZ Cash	(2.84)	(88.0)
NZ Diversified	(0.28)	(22.9)

Legal Fund Type - Key Statistics

Legal Fund Type	*Q December 2003 Quarter* NFF $M	September 2003 Quarter NFF $M	Year to December 2003 Quarter NFF $M
All Funds	90.6	118.6	(34.42)
Unit Trusts	65.5	142.9	389.59
Group Investment Funds	32.6	(0.7)	(9.2)
Superannuation Funds	(24.4)	(84.7)	(483.3)
Insurance Bonds	(35.6)	(31.2)	(117.0)
Australian Unit Trusts	52.5	92.3	140.5

Net Funds under Management - Top 5 Managers

Positive fund performances in the fourth quarter across all sectors and positive net funds flow have both led to an increase in net funds under management.

Between September 2003 and December 2003 there was no change in the rankings of the top five managers, all of whom have experienced increases in NFUM over the past year except Tower. These top five managers have 48.3% of the total NFUM for the industry between them, coming to a combined total of $9.2bn, and the top ten of the 31 managers surveyed manage over $15bn, representing 80% of the market. While there is a difference of more than $1bn between ING and AMP, the differences between second, third and fourth positions are marginal.

Rank	Fund Manager	NFUM $ M	*December 2003* Market Share %	*December 2002* Market Share %
1	ING (NZ) Ltd (incl. ANZ)	2727.0	14.4	14.0
2	AMP	1665.2	8.8	9.0
3	Tower Group	1646.4	8.7	9.5
4	NZ Funds Management	1646.0	8.7	7.9
5	Westpac	1485.8	7.8	8.1
	Other	9817.4	51.6	51.50
	Totals	18987.8	100.0	100.00

Note: Net fund sizes are calculated by eliminating inter-fund investments that are included in publicly released

gross retail fund sizes. They are therefore considered more relevant in determining market share trends.

Three of the top ten managers have increased their market share in the year to December 2003.

ING (NZ) Ltd (incl. ANZ) has increased by 0.4%, NZ Funds Management by 0.8% and ASB Bank by 1.5%.

Source: FundSource

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Positive net funds flow persists through December quarter

Friday, January 30th 2004, 2:21PM

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