Investor risk aversion spurred on by the Greek sovereign debt crisis has revealed flight-to-safety effects in the relative performance of bonds versus shares, says Tower Investments.
A performance update from the Kiwisaver provider reveals risky assets such as shares and commodities took a hammering in the last quarter.
The basket of market indices tracked by Tower over the three months to June revealed share market investors gave up about half of their gains made since June 2009.
Even so, global equities remained the strongest performer on a local currency basis, compared to the other indices in the basket – used as a benchmark for Tower’s managed funds.
Tower Investments chief executive Sam Stubbs said share market indices remained positive for investors on a year-on-year basis.
Global bonds returned positively on a monthly, quarterly and annual basis to the end of June on a New Zealand dollar-hedged basis and performed just behind global equities on a year-on-year basis.
New Zealand bonds outperformed New Zealand shares on an index basis over the June year, while returns from local commercial property were fairly close to returns from New Zealand equity.
Commodities were the poorest returning risky asset class on an index basis over the June year, but conservative New Zealand cash wasn’t far ahead due to low settings of the official cash rate (OCR).
“Hedge funds did not do to badly on a June year index basis, but the past quarter clearly knocked them back with its high volatility,” said Mr Stubbs.
Despite the market turbulence over the June quarter, the merits of investing in a diversified portfolio spread across a range of asset classes were underscored by positive performances put in by cash and bonds, he said.
Indices tracked as benchmarks for Tower’s managed funds include New Zealand cash, bonds, propriety, shares, global bonds and equities, commodities and hedge funds.
The top three index basket performers for the year to June were global equities (+12.1%), global bonds (=10.4%) and New Zealand bonds (=8.2%)
Mr Stubbs said it was a tough period ahead for investors as Greek sovereign debt crisis continued to bite on risky assets such as shares and commodities.
Tower Investment’s funds had performed well due to its conservative investment policy and there was no reason to change this yet, he said.
Georgina Bond
Fri, 23 Jul 2010
