Do the fund managers know what they are doing?
The calendar year for 2002 was the worst on record for discretionary funds in New Zealand. The average return was –9.3%*
The major problem was shares. Given these results, anyone with a significant proportion of equities in their portfolio missed out on a positive return.
The 25.6% appreciation of the NZ$ against the US$ has been one of the major factors that has affected returns for these portfolios. The MSCI Gross return for the calendar year 2002, for a portfolio that was unhedged was –35.9%, compared with -23.8% for a fully hedged portfolio.
The above manager returns include the impact of any currency hedging they had in place over the year in both Overseas Equities (in which the average manager is about 50% hedged) and the Australian component of Australasian Equities (where managers can have hedging from 0% to 100%).
(*Source the Aon Investment update for December 2002) What are the fund managers currently predicting?
According to the fund managers there are still several reasons for buying equities. These are set out below, followed by some reasons why we think that they don’t stack up.
Reason 1. The Historical Bear Market argument.
We are in the worst bear market since the depression.
The following table shows the previous bear market events:
Dates
Number of Months
%Peak To Trough Decline
Months to Break Even Click the button below to subscribe and will have free unlimited access for a limited time to full article and all other articles on the site. You will also be able to comment on articles on Good Returns.
Overseas equities gross returns *
12 Months ended 31 December 2002
Best performance -26.9%
Worst Performance -34.7%
Australasian Equities gross returns*
12 Months ended 31 December 2002
Best performance +3.9%
Worst Performance -16.0%
Notable Bear Markets Since 1929
