Beware those who love to cry wolf

By MARY HOLM

Q. Last year my wife and I invested in international shares through a managed fund.

Although recent performance results advised by the fund manager were disappointing, we understand and appreciate that the investment we made was long term, and we hope that this will ultimately reap rewards.

We were, however, concerned to read a recent advertisement in Weekend Business entitled "Urgent Notice - Special Seminar For All Investors".

While normally taking little notice of such seminar advertisements - we are working people - some of the statements made were disturbing.

We quote:

* "The economic environment for the next 10-20 years will, in many ways, be the exact opposite of that on which current [investment] principles are based."

* "Why the losses you experienced last year will continue for another 10-14 years."

These, among other comments attributed to the seminar presenter, are alarming - yes, frightening to smaller investors.

We have been much unsettled by the nature of the comments made in this advertisement.

We will not be attending this seminar, but would appreciate your views on the signals this article is sending to investors.


A. The way I see it, the signals are: "Let's scare everybody enough that they spend $100 (or $150 for couples) coming to our seminar."

And given that the presenter is a financial planner, I would be amazed if he doesn't also drum up business while he's at it.

From your response, the signals might be working. And that makes me mad.

The presenter seems to have a selective memory. He tells, in the ad, how he predicted "the current fall in the residential property market. AND the fall in the American and international share markets".

What he doesn't say, though, is that in the mid 1990s he said he was worried about shares, particularly US shares, and suggested that his clients move into cash.

Those who took that advice would have missed out on one of the best US and world share rallies in a long time. Despite recent drops, world shares are still way above their levels then.

Never mind. Our presenter is at it again, making ridiculous claims about his ability to foretell the future.

All the experts I respect say that their forecasts for just the next few months are highly uncertain.

Beyond that, they will make only broad estimates, such as: if you invest in international shares for 10 years or more, it is highly unlikely they will lose value, and quite likely they will gain a fair bit.

On what do they base such optimism?

I've got graphs of returns on US shares since 1845, and on UK shares since 1869.

They wobble around a fair bit, but the trend lines are strongly upward. I doubt if there's ever been a 10-year period when returns declined, let alone a 14-year period.

And I don't see why a 150-year trend should change now.

I'm glad you didn't go to the seminar, which has since been held. And I wish everyone else would stay away.

The people who run those shows often seem pretty credible. But, believe me, they haven't got your welfare at heart.

Stick with your international share fund.

You're among the unlucky ones, who struck a down market right after you invested.

And nobody knows what will happen next to world shares. But they will rise again, and probably well within the next decade.

Q. I have a small amount to invest and can make regular $130 monthly payments. I have a couple of question about your article two weeks ago.

Who do I get in touch with over the Start series?

Is WiNZ a managed fund or shares?

Is Tower Tortis International Index fund the same as Tower Tortis International fund? I have a couple of Tower investments and found that in their booklet.

What does NZIJ stand for?


Here are some quick answers: Start is run by ABN Amro Craigs, stockbrokers with branches around the country.

For info, dial 0800 878-278 or go to www.abnamrocraigs.com and click on "investor education".

WiNZ is a managed fund of international shares, run by AMP Henderson Global Investors.

Because it is listed on the Stock Exchange, it is also a share in its own right.

The correct name for the Tower fund is Tower Tortis International Fund.

Both WiNZ and the Tower fund are index funds, which means they hold the shares in market indexes.

NZIJ, as in NZIJ Stockbrokers Ltd, doesn't stand for anything. But the firm publishes the New Zealand Investment Journal, also sometimes called NZIJ.

When the firm changed its name from Reuhman & Co, it picked up those initials.

You can reach the firm on 0800 906-090.

Referring to the letter and answer in last week's Herald, I think that if you check with Tower and other fund managers, you may find that if the trail commission is not paid to an adviser, it is retained by the fund manager, not the underlying fund or individual investor.

I understood that the trail commission is paid from the manager's fees, not direct from the underlying fund.

Let me know if I am wrong!

A. You're not wrong. But the conclusion you seem to be drawing is wrong.

Last week, I said that if you invest in Tower via a financial adviser, Tower pays the adviser an annual trail fee of 0.25 per cent of your investment.

But if you invest directly through Tower, no trail fee is paid.

I added: "These trail fees are not taken out of individual investor's accounts. They come out of the whole fund.

"So it makes no difference to you whether or not there's a trail fee attached to your investment.

"You could argue, though, that the more people who go directly to Tower, the less the fund will pay out in total trail fees, and the better off all investors will be."

I got that information from Tower. Spokesman Martin Pike now says that, strictly speaking, you're right. Any trail fees not paid to advisers are retained by the fund manager.

To the extent those fees are retained, the general expenses of the fund are reduced. So the total management expense ratio, which shows all the costs paid by the fund, will be lower.

That means, says Pike, "the costs incurred by the investors will be lower".

I'm sticking to my conclusion last week: all other investors in Tower funds should be grateful to those who invest directly.

* Send questions for Mary Holm to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@pl.net. Letters should not exceed 200 words.