Fund managers predict pick-up

Returns in most asset classes are likely to be sluggish over the next year but the outlook is brighter over the next five years, according to a new survey of local fund managers.

Monday, December 2nd 2013, 6:28AM

by Niko Kloeten

The latest Aon Hewitt Investment Forecasts survey, taken during October, found short-term growth expectations for the New Zealand market had declined since the previous survey in August.

New Zealand equities, which have grown by 25% over the past year, are now expected to return 6.6% over the next year, down from 7.5% in August.

Expected property returns in the year to September 30 next year are 5.5%, down from 6.1% in the August survey.

But the outlook for international equities has improved, with an average forecast of 6% in the latest survey, compared to 4.8% three months earlier.

Opinions differ widely, however, with a 9.4% dispersion between the lowest and highest forecast for international equities over the next year.

New Zealand cash (2.9%), New Zealand fixed interest (3.0%) and international fixed interest (2.4%) are all forecast to barely beat the expected inflation rate (2.1%) over the next year.

Returns for all these asset classes are expected to improve over the next five years, with cash tipped to average 3.7% and New Zealand fixed interest 4.0% as interest rates rise here.

Interest rates are also tipped to rise internationally, with fund managers forecasting 3.9% average returns for international fixed interest over the next five years.

New Zealand equities are predicted to average 8.3% per year, down slightly from their average of 10.4% in the past five years. International equities are forecast to average 7.1% per year.

Harbour Asset Management managing director Andrew Bascand says the big returns from equities had passed but returns were still likely to be solid in the medium term, especially compared to cash rates that are forecast to stay relatively low.

“Any return between 7-10% will look like a very good return. Cash rates are at 2.5% and will probably go up to 4% in the next two years but they won’t be at 8%.”

Bascand says active management will be important in the medium term as some sectors are likely to outperform the market as a whole.

He says three key themes are demographics (which will boost sectors such healthcare), the ongoing urbanisation of Asia (good for New Zealand’s primary industries) and the re-build of Christchurch.

“Also in the near term we’ve got the election next year which could determine New Zealand’s rate of growth.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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