Return expectations fall
Fund managers' expectations of investment returns have fallen in all but two asset classes over the past three months.
Aon Consulting's quarterly investment forecasts survey of eight funds management firms reveals that return expectations have fallen for all asset classes except New Zealand and international equities.
It says that in the current year firms surveyed expect New Zealand and international shares will return 17.1 per cent and 8.3 per cent respectively before tax and expenses.
These represent an increase of 0.7 per cent and 1.7 per cent respectively since the October survey.
|
Investment sector |
Average expected return Jan 1- Dec 31 |
Change from previous quarter |
|
NZ cash |
4.6 |
-0.6 |
|
NZ fixed interest |
5.4 |
-1.5 |
|
NZ property |
9.6 |
-1.4 |
|
NZ equities |
17.1 |
+0.7 |
|
Intl fixed interest |
5.0 |
-1.3 |
|
Intl equities |
8.3 |
+1.7 |
|
Inflation |
1.6 |
-0.1 |
Source: Aon Consulting
Looking back of the past year Aon notes that managers, overall, earned very high real rates of return. However, the firm warns that even if equities manage to return between 10 per cent and 12 per cent, the return on balanced portfolios will probably not exceed 5 per cent to 6 per cent after tax, on average over the next few years."While this is not high in absolute terms, it will be very high in real term on a historic basis," Aon says.
It also notes that markets have been volatile and have changed direction rapidly, and finding consensus amongst investment managers is difficult.
This is evident in the dispersion measure (which is a standard deviation of the estimates received). With New Zealand equities this was 5 per cent, and 3.3 per cent for international equities. However, the dispersion measure for property narrowed from 4.9 per cent to 2.1 per cent.
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