Funds defy odds

With stockmarkets still roiling, most recently over European debt woes, jittery investors are undoubtedly feeling lost at sea. But survey the landscape from a distance and there are some bright spots amid all those dark clouds. AMANDA MORRALL finds reason to hold the course.

There is no disguising the ugly aftermath of the worst market meltdown since the Great Depression.

World indices are clawing their way to recovery and despite bursts of hope and robust rallies, underlying economic conditions, while improved, are uncertain.

Regardless, green-shoots have delivered some tidy returns for those who captured the pick-up from the bottom. For an investor boost - and some perspective - Your Money, with investment research house Morningstar, sought out the stars of the retail managed funds sectors.

The resulting list (based on five year performance after fees but before tax) shows a cheerier picture than painted in headlines.

Investors in the top three performing funds have mostly doubled their money in that time.

Returns of this nature may be the exception but relative to property it shows the market - or a good fund manager - can stand on its own, even in bad times.

"This is the forgotten story in New Zealand," says Morningstar's Chris Douglas, co-head of fund research for the Australasian branch.

The stockmarket today might have to produce miracles to unseat property as the mainstay investment in New Zealand, but this sampling of funds tells a story in itself.

"It clearly illustrates there are some great funds available to New Zealand investors with pretty low investment minimums."

Interestingly, the top funds were not hot hedge funds but the "plain vanillas", with a broad mix of New Zealand, Australian, global equities, fixed income and emerging markets.

Here's a closer look at the top 10 retail managed funds structured as tax efficient portfolio investment entities (PIES) (They exclude listed properties trusts held mostly by superannuation schemes).

Brook Alpha Fund: The Alpha Fund has proven a leader in the retail managed fund sector. Run by Auckland-based Brook Asset Management Ltd (under the direction of portfolio manager Slade Robertson) this actively managed (re: "aggressive") fund is geared to investors who have medium-time horizons and high tolerance for "significant volatility". The Alpha has delivered total five-year returns of 112 per cent, 16.23 per cent each year, a rate to make bank depositors weep. Total one-year returns were 33 per cent, generated mainly from the bounce back in the market after it hit bottom. A point to note is most of the track record belongs to managers who have since moved on, namely Paul Glass, now with Devon, which also has a fund in the top 10.

ING Australian Share Fund: ING's controversial Diversified Yield Fund may have sullied its reputation but this Aussie Share Fund is arguably its redemption. Run from Sydney by portfolio manager James Wright, it returned a one-year return of 50 per cent. What's more impressive is its five-year performance - a 103 per cent growth or 15.27 per cent per year. The fund invests predominantly in companies listed on the S&P ASX 300 Accumulation Index. It maintains a minimum of 90 per cent of its portfolio in the shares of Australian companies. The balance is invested in cash or short-term deposits. The fund aims to maximise capital growth and generate returns ahead of inflation. So far, so good.

AXA Emerging Markets: Investors have hesitated over the future stability of emerging markets, but this fund proves critics wrong. Population growth and industrialisation in emerging markets have driven growth of 6 per cent per year for the past five years, compared to 1 per cent for developed markets. Keith Poore, head of investment strategy for AXA, told Your Money that growth has been the "tailwind" for Emerging Market's Fund.

It has delivered total five-year returns of 13.89 per cent each year (or total five-year growth of 91.6 per cent, and a one-year return of 44.06 per cent) from the bounce off the bottom.

Poore says emerging markets have grown without the massive borrowing of developed nations which makes them attractive.

"That's one reason why emerging markets recovered so quickly and why the future prospects look that much better." Good reason to stay hopeful about the future - and invested.

NZ Guardian Trust GIF - Small Companies: On one-year returns alone, this small cap Australian equities fund came out leader with returns close to 60 per cent. From a one-year high of 57.9 per cent, it posted total returns over five of 9.2 per cent a year. Proof good companies can be found in small cap funds.

TOWER Global Fund: This global fixed income fund, overseen by Tower's Simon Brodie, but subcontracted to UK-based Marathon Asset Management Ltd, is billed as a high-risk investment for those interested in exposure to world sharemarkets. The fund aims to outperform the MSCI World Index in New Zealand over each five-year rolling period and so far has met its objectives. One-year performance (at the end of March 2010) was 38.23 per cent. Over five, pre-tax returns work out to 8.94 per cent per year. It became a Portfolio Investment Entity (PIE) on October 1, 2007.

Devon Trans-Tasman Fund: This Auckland-based fund, managed by Stephen Walker, predominantly invests in New Zealand and Australian companies. Previously managed by Goldman Sachs JBWere Asset Management, Devon (former managers of the Brook Alpha Fund) assumed control and renamed it on March 12 after buying all the shares of its former manager. Good timing with Goldman Sachs' parent company being sued for fraud a month later by the Securities and Exchange Commission. The fund's investment and new owners are a safe distance from controversy. With a one-year return of 39.72 per cent and five-year total returns of 8.65 per cent per annum it is nothing to sneer at.

AMP Premium PIMCO Global Fixed Interest: Designed for investors seeking mainly income- based returns over the medium-term through a range of international fixed securities, this fund has delivered predictably above average returns for five years. One-year returns run close to 20 per cent but on the five-year mark, 7.93 per cent per year. Australian-owned by AMP, the fund invests in the Tower Asset Management International Trust, International Bond Fund that in turn is managed by PIMCO, an industry legend as an asset management firm based out of Newport Beach, California. The fund, while fully hedged to New Zealand dollars, "employs an aggregate investing style, combing government and investment grade non-government debt, with country, currency and duration remaining key investment decisions". The benefit of being fully hedged to New Zealand dollars is that it reduces investor risk by making it less volatile as a fund.

ING International Share Fund: This multi-manager fund is comprised of stocks from leading companies listed on the major American, UK, European, Japanese and emerging sharemarkets. The fund maintains a minimum of 85 per cent invested in international shares at all times. Small in value by industry standards, the $17.4m fund is one of several run by ING that feeds into a larger international shares pool worth $600 million. Rated a high-risk investment, over the course it has delivered above-average returns. By five-year performance, it delivered returns of 7.66 per cent a year.

AMP Capital NZ Fixed Interest Fund: Considered a low-risk investment, the fund (managed out of Wellington by Grant Hassell) is designed to provide exposure to a diversified portfolio of investment grade New Zealand fixed-interest securities.

With $695.2m under management, the fund has proven popular as a steady performer. Its five-year returns track in at 7.55 per cent a year, not widely out of range of short-term targets. The aim of this actively managed fund is to meet or beat the returns of the ANZ NZ Government Stock Gross Return Index on a rolling 12-month basis.

TOWER Multi Sector Fund: This award-winning balanced fund is a broad mixed of equities, bonds, property and cash. For what is considered a moderate risk investment, the fund has delivered some tidy returns for investors. Managed by Tower's Simon Brodie, the fund has delivered total five-year returns of 7.34 per cent per year. This "vanilla fund" is more like a chocolate eclair for conscientious savers who aren't in KiwiSaver and don't have a superannuation scheme.

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