News Round Up: August 22

Advisers choose voluntary authorisation; Market turmoil produces mixed quarter for KiwiSaver funds; How insurers can benefit from sustainability; Investment trust discounts - the latest.

Monday, August 22nd 2011, 7:21AM

Since regulation 41 people have been voluntarily authorised and the FMA is processing a further 20 applications.

At the latest count there are 1771 AFAs approved by hte FMA.

Market turmoil produces mixed quarter for KiwiSaver funds

KiwiSaver funds enjoyed a good start to 2011 with positive returns, however the recent economic turmoil has tempered growth, according to the latest Mercer KiwiSaver report.

The head of Mercer New Zealand, Martin Lewington, said "heightened volatility this quarter has produced mixed returns."

Over the last quarter, funds with the lowest allocation to shares and property were the best performers, with the median KiwiSaver Conservative fund returning 1% against -1.4% for the more aggressive Growth funds.

Lewington said despite the volatility, it was important investors took a long term view of their KiwiSaver cash and selected the appropriate investment options for their age.

How insurers can benefit from sustainability

Investment Savings & Insurance Association (ISI) chief executive Peter Neilson has outlined why environmentally sustainable business practices can be good for the insurance industry.

In a speech at the United Nations Principles for Sustainable Insurance regional consultation meeting in Auckland last Friday, Neilson said the insurance industry was in a position to be "highly influential" on matters such as climate change.

He said that trust was fundamental to the success of the insurance industry, and that taking a more socially responsible stance would demonstrate the industry could be trusted to act in consumers interests.

He said losing trust would result in greater industry regulation and fewer customers.

"A strong industry committed to sustainability helps build trust and also answers the question, ‘does my insurer care about me and my country, when it is not selling me something," he said.

Investment Trust Discounts-Mixed trends in market fall

The average investment trust sector discount has widened out during the recent market weakness from 8.9% on July 22, to an estimated 10.1% on August 10. This widening trend is in line with what would be expected during a significant market fall, First NZ Capital investment trust specialist Peter Irwin says.

However, there has been quite a mixed performance in discount trends between the different geographic sectors. Discounts have widened in Asia and Emerging Markets and on some international generalist ITCs. UK specialists have seen discounts narrowing or premiums increasing. The Private Equity sector has also seen a sharp discount widening, although it should be noted that the Thomson Financial data is currently based on historic NAVs and some of the discount widening reflects the market trying to anticipate falls in private equity fund NAVs over the past couple of weeks.

Historically, the investment trust sector has suffered during market falls, due to the effect of gearing and widening discounts. This has provided sophisticated investors with the opportunity to buy out-of-favour asset classes on wide discounts, which has led to significant outperformance when markets have eventually turned and discounts tightened. Traditionally investment trusts have tended to outperform in strong market conditions while under performing in weak markets.

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