New Zealand unit trust disclosure: asset allocation, style analysis, and return attribution

Abstract

Purpose -This article aims to explore three facets of the historical performance of a sample of actively managed unit trusts available to New Zealand investors: asset allocation, style analysis, and return attribution. Design/methodology/approach -Because New Zealand does not require unit trusts to disclose their security holdings, the paper used returns-based style analysis to infer how these trusts have allocated their funds among asset classes. Findings -The research has found that, for unit trusts available to New Zealand investors, asset allocation can explain a significant amount of the differences in return across time and between trusts. Across time, asset allocation accounts for about 80 per cent of the variation in actual return. Between trusts, asset allocation explains about 60 per cent of the variation in returns. From either perspective, the choice of asset allocation is an important factor in explaining returns. Originality/value -The paper suggests that active management barely earns its fees and that passive investments might do as well or better.

The Potential Effects of Mandatory Portfolio Holdings Disclosure in Australia and New Zealand

“…In Australasia, Gallagher (2007) examines the case for requiring mandatory portfolio holdings disclosure in Australia in a qualitative study. This researcher also offers support for the case of mandatory disclosure of portfolio holdings, which is in line with Fowler et al (2010) and…”

“…Most researchers have determined that using aggregate portfolio data may disguise important information (Engstrom, 2004), and most recent studies focus on using portfolio holdings data to determine fund trading in order to more precisely measure fund skill (e.g., Comerton-Forde, Gallagher, Nahhas & Walter, 2010;Engstrom, 2004;Wermer, 2000). Fowler et al (2010) found that New Zealand active managers do not provide any excess returns, a significant finding for the industry. However, the viability of the conclusions is questioned due to the old-fashioned methods employed.…”

“…They examine characteristics of the funds' returns to determine whether managers are investing in securities that accurately represent their stated investment objectives. Fowler, Grieves and Singleton (2010) find evidence that New Zealand fund managers are deviating from their stated investment objectives, with equityorientated funds providing returns that are significantly different from equity returns. This, in turn suggests that opportunities for investors to appropriately diversify are impaired because of a lack of information about the asset allocation of the fund.…”

“…The study's findings offer support for a mandatory requirement for New Zealand funds to disclose their holdings and thus better serve the needs of investors. Fowler et al (2010) provide another example of problems encountered due to the lack of disclosure regulation. This study examines the value of active management in New Zealand, which is a very important question to investors.…”

Do You Know where Your Money Is? Product Disclosure Statements for Discretionary Investment Services

“…Investors who need experts to invest on their behalf are generally unsophisticated; if they lack the knowledge or resources to evaluate an issuer they are unlikely to be competent to evaluate an intermediary such as a DIMS adviser (Bank of New Zealand, 2010). Recent studies have found evidence that New Zealand authorised advisers providing DIMS are deviating from their stated investment objectives, with equity-oriented funds providing returns that differ significantly from underlying equity returns (Fowler, Grieves, & Singleton, 2010). This further suggests that poor information about portfolio asset allocation limits opportunities for investors to diversify.…”