Investor confidence drops

Managed funds’ strong performance over recent years hasn’t been enough to convince investors they should put their money in them.

Monday, August 20th 2018, 6:32AM

by Susan Edmunds

The latest ASB survey of investor confidence shows investor confidence dropped in the three months to June, from a net 21% to 16%.

It’s a continuation of a downward trend seen since the start of 2017, although sentiment is still higher than the net 3% recorded at the start of 2016.

Investors’ expectations of term deposit returns had eased. Only 9% said this would give them the best returns, from 13% a year earlier.

Respondents said their own homes were likely to be the best option for generating a return, followed by rental properties.

“It continues to be disappointing to see quite low expectations regarding KiwiSaver and managed funds relative to term deposits. It’s been an amazing few years for sharemarkets, which is great for share investors, and the sharemarket gains have flowed through to really good returns for a number of growth-focused funds found in KiwiSaver schemes and managed funds,” ASB economist Chris Tennent-Brown said.

“Term deposit rates are between 2% and 4%, whereas a number of KiwiSaver balanced and growth-focused funds will have posted returns far higher than this over the last few years.”

The most recent Morningstar KiwiSaver report showed that aggressive funds returned 13.1% over the past 12 months and conservative funds 4.73% - all better than the sub-4% offered on longer-term term deposits.

“Belief that KiwiSaver would provide the best return of the bank products dipped to 9% from 11%. This could be a delayed response to the negative Q1 performance, but it's disappointing given that a) annual returns were positive over the year to March 31 for many KiwiSaver funds and b) longer term returns (that investors should focus on) have been low on term deposits over recent years, and higher on many KiwiSaver funds.”

The majority of respondents are still positive. Some 27% expected returns from their investments in the next 12 months to increase, and 40% expect returns to stay the same, compared with 12% who thought it would decrease.

Financial adviser Alistair Bean said he was confident about the outlook for managed funds. But he said there were reasons why investors might not agree.

“Because returns have been very good for the past few years perhaps the ‘slope of hope and wall of worry gears’ are moving again. Then there’s Trump tweets, trade wars, perceive rising interest rate markets, Italy, Argentina... However we still have generalised global record low unemployment, interest rates, moderate to strong GDP [growth], rapid technological advancements in many areas and public and government pressured fee reductions on managed funds.”

Canterbury was the odd region out in terms of investor confidence – it remained flat there in June. “Canterbury is unique because of the huge influences of the earthquake on people, businesses, as well as the housing market and rental market over the years since the disaster,” Tennent-Brown said.

Tags: ASB financial advisers investment