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NEWS - PLANNING
Defensive strategies pay off for conservative investors
2/21/2002
Investors who opted for a conservative approach were rewarded last year due to solid returns from defensive assets such as bonds and listed property.
The latest InTech Financial Services figures for investor choice funds, where the investor can decide on the mix of growth and defensive assets, found the average return for conservative growth funds was 2.7 per cent for the year to January 2002.
Those conservative funds have 20 per cent to 35 per cent in growth assets such as shares, with the rest typically in cash and bonds. In contrast, high growth funds, which have more than 75 per cent growth assets, had an average return of -0.4 per cent. Those high growth funds were hurt by the dismal performance of overseas shares, with unhedged international share investments falling by 14.5 per cent.
However, the results are reversed over the long term. Over three years, high growth returned 6.9 per cent compared with 4.9 per cent for conservative growth. The difference widens over five years, with high growth returning 9.0 per cent and conservative growth 6.7 per cent.
The other styles of investment choice offered by fund managers - balanced growth and growth - provide a more even split between growth and defensive assets. Returns for both over the longer term have been behind high growth but superior to conservative growth.
Of the four styles of fund, the highest return for January was produced by Perpetual, with 0.5 per cent for its growth fund. This style of fund typically has between 60 per cent to 75 per cent in shares, with the average exposure among fund managers being 72 per cent.
The worst result among the four styles was AMP for its high growth fund. This returned -1.6 per cent for the month.
Choice between fund managers for investors is still limited in that few offer the full range of options.
InTech lists only five fund managers in balanced growth and nine in high growth.
InTech also commented on the treatment of transaction costs by fund managers. It said 80 per cent of the pooled funds have a buy/sell spread in their pricing.
This spread was there to ensure fund members were treated equally and were not hit unfairly by costs such as brokerage when other members made an investment, redeemed an investment or switched investment options.
InTech argued that employers that outsourced corporate super funds could be enticed by the offer to waive the spread.
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