Market dip wipes millions from community trusts

By Chris Hutching

Friday 19th July 2002

Financial results published this week by community trusts around the country reflect the slump in earnings from international investments, particularly equities.

Most trusts earned about half as much as last year and had to dig into reserves to maintain levels of distribution to community and sports groups. A few suffered negative income returns.

Auckland's two ASB community trusts provide a fairly typical snapshot of how the funds have performed. The community trust earned $7 million while the charitable trust earned just $2 million.

After distributions from reserves of $27 million and $30 million the level of funds stands at $466 million ($487 million last year) and $448 million ($478 million) respectively.

Chief executive Mike Hamilton said the trust had reserves of $130 million and $108 million respectively that had been built up during the good earning years. There were no plans to change weightings at this stage. Since investing the fund in 1994, average income had been 8.5% annualised.

The Canterbury Community Trust also took a fall in annual income to $3.6 million compared to $7.1 million. After distributing $17 million, partly from reserves (currently $39 million), the trust stands at $427 million compared with last year's $446 million.

Chief executive Wayne Ward said the Canterbury trust was a little more defensive, with 55% of investment assets in New Zealand and 35% overseas and with 63% of assets in bonds and 35% in equities. But results were similar to other trusts.

One change introduced by the Canterbury and Otago trust after the latest March results has been a move to a multi-manager approach using the Frank Russell suite of funds.

Otago Community Trust chief executive Keith Elwood said his trust had reduced exposure to international equities from 40% to 35%, with 30% in global shares and 5% in New Zealand shares.

The volatility of earnings in recent years was reflected in the fact that one year the trust enjoyed a 46% return mainly from international equities but the average overall was 8.7% since 1994.

Otago took a big hit this year with a loss of $588,000. The fund stands at $168 million compared with $180 million 12 months ago. It distributed $5.54 million from reserves this year compared with last year's $8 million. Mr Elwood said the trust had moved to a multi-manager style of investing because of lower than average returns from a single manager over the past year.

All of the trusts remain committed to the long-term investment view that the market will provide positive returns over a long period in spite of boom and bust cycles. The trusts were set up during the 1994/95 period and have enjoyed the benefits of the bull run on international markets until the past 24 months.

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