Defensive investors in overseas stocks achieve mixed results

Friday 2nd February 2001

By Peter V O'Brien

Overseas-based investment trusts and companies listed on the Stock Exchange performed unevenly over the past year. There was nothing unusual in that when the sector was compared with the rest of the New Zealand sharemarket and overseas markets.

The "unusual" element was the change from a uniform solid improvement in the previous year.

Prices for shares/units of six selected funds are in the table. The July 2, 2000, column was included because that was the cutoff point for prices when The National Business Review examined the sector on July 14. Stocks in the table are only a selection.

There are 16 such funds listed in New Zealand.

Part of the unevenness in price movements related to the funds' profit performances which in turn were linked their geographical specialisations and, within the geographical regions, country and stock selections.

Latest reports of some funds included in the table were in broad agreement about the recent market developments and the outlook, while varying in comments about specifics related to their portfolios and regional specialisations.

Bankers Investment Trust has worldwide investments but most of the portfolio is in UK stocks, with Europe, North America and Japan in, respectively, second, third and fourth places as at October 31.

The four countries/regions accounted for £491,485 or 94.7% of a total portfolio market valuation of £518,873.

Remaining investments were spread, in order of size, across Hong Kong, Australia, "Far East," Latin America, "other countries" and fixed interest.

Net asset value a share was up 13.9% to 360.1p in the year ended October.

Looking to the current year, the preliminary report said global equity markets were having to adjust to a reduction in global growth, a squeeze on profit margins, reduced earnings growth expectations and a contraction in credit for many medium-sized and small businesses.

Many equity markets were (at December 12) significantly below their earlier peaks. It was no surprise to find investors had switched from high growth to defensive investments with financials, pharmaceuticals and utilities showing strong relative outperformance.

The rapid correction in "new economy" stocks and consequent re-appreciation of the merits of "solid old economy companies" reintroduced more realistic equity ratings and a much more balanced understanding that new and old economy companies needed each other to survive and prosper.

Bankers Investment Trust said Wall Street would inevitably have a great influence on all financial markets (which seemed to state the obvious).

Any evidence of a severe slowdown in the US economy would make the company more concerned about prospects but it expected stockmarkets to react favourably to any interest rate reductions in 2001.

Federal Reserve chairman Alan Greenspan has confirmed a "severe slowdown" in the US economy since those words were written but markets were underpinned with expectations of a consequent reduction in US interest rates.

Bankers Investment Trust deals in relatively large markets and companies. Investment trusts with different specialisations had other views about 2001, depending on their areas of operation.

Templeton Emerging Markets Investment Trust's interim report for the six months ended October 31 said a slowdown in company earnings in major economies, the high price of oil and the markdown of technology stocks had affected emerging markets.

Taking a counter-cyclical approach, the company said emerging markets offered opportunities to buy shares in companies at prices well below their true value.

"Many of these companies continue to operate profitably in spite of the difficult economic conditions they face in the emerging markets."

Templeton said the massive discounts such companies traded at in relation to other companies were excessive.

Henderson TR Pacific Investment Trust specialises in Asia, despite the "pacific" in the name.

The interim report for the six months ended June showed the investment portfolio confined to South Korea (25.2%), Taiwan (21.5%), China (13.5%), Hong Kong (19.5%), Thailand (5.2%), Philippines (0.3%) Malaysia (3.8%) Singapore (10.9%) and Vietnam (0.1%).

Henderson said (in August) the global investment climate had become less clear as rises in US interest rates may not have been sufficient to cool excessive growth.

Looking ahead, the fund believed Asia's long-term underperformance was ending.

International investment funds usually report in the most optimistic way they can, commensurate with the need to be realistic, but comments from recent reports suggested there were growth opportunities this year.

The funds listed in New Zealand provide another option to international equity participation through a local managed fund or direct personal investment but individual investors should be watchful about the funds' performance as against each other.

Selected funds' share prices (NZc)

Company/fund	Jan 30, 2001	July 7, 2000	Dec 31, 1999	% change Dec 1999 to Jan 30, 2001
Bankers Investment Trust	1100	1035	955	+15.2
FCI Trust	930	875	775	+20.0
Fleming Overseas	2016	2080	1830	+10.1
Henderson Far East	385	370	385	Nil
Henderson TR Pacific	300	360	338	-11.2
Templeton Emerging Mkt	400	415	455	-3.6

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