FundSource expresses “concerns about irrational investment decisions”

Wednesday, November 2nd 2005, 6:36AM

Managed fund research house FundSource says that when you look at fund flow figures it appears there are some “irrational investment decisions” being made.

These include investors leaving managed funds to chase the higher yields available from deposit and debenture type investments in the high interest rate environment.

“This pattern of chasing returns, while typical, is generally not a successful strategy in the longer term when the related risks are not considered rationally,” FundSource says.

It also says investors are continuing to withdraw from international equity funds after recovering some of the returns they lost in the bear market.

“Such assets experienced outflows of $123.7 million over the quarter, despite returns averaging over 15% over the 12 months to the end of September. With the outlook for domestic growth assets weakening, such a move away from international assets compounds concerns about irrational investment decisions.”

Although there are concerns about investment decisions retails funds under management have reached a record high of $20.79 billion, surpassing the previous high which was set before the bear market in March 2002.

“What make this result more impressive is that it comes despite an extended period of net outflows, totalling $805 million in the last 12 months alone, and a further $373 million the previous year.”

“These outflows were certainly impacted by the closure of BT’s NZ-based funds over the quarter, which accounted for nearly $100 million in outflows. Strong growth in funds under management despite net outflows shows that managed funds have delivered strong performances over the period.

A river of outflows

Over the September 2005 quarter retail managed funds experienced their seventh consecutive quarter of net negative funds flows.

FundSource says the outflows of $193.9 million were an improvement on the previous quarter, when outflows totalled $233.7. On an yearly basis managed funds lost $805.1 million in the 12 months to September, compared with $373.1 million for the same period last year.

International fixed interest and cash attracted net fund inflows over the quarter, with $40.7m and $1.39m respectively. Global international equity had the largest outflows, with $88.5 million.

In addition there were a further $35.2 million in outflows from regional international equity funds.

Over the September quarter alone global funds had average returns of 7.6%, so those investors who withdrew during the quarter missed out on participating in a period of particularly strong performance.

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