Top of the heap

Performance alone is not enough when it comes to comparing investment companies, says the judge of the Fund Manager of the Year awards.

Two companies share top place in the Morningstar/Business Herald Fund Manager of the Year awards.

The dead-heat finish means BT Funds Management and ING New Zealand (formerly Armstrong Jones) are joint winners of the Fund Manager of the Year title for 2001.

Third place goes to BNZ Investment Management.

The winners are chosen by Morningstar, a company which researches managed funds.

It says the awards recognise "the New Zealand-domiciled fund managers which, in Morningstar's opinion, have demonstrated retail funds management excellence during the calendar year 2001".

As well as the overall award, there are six awards for the best managers in various sectors (for the sector winners, see below).

BT and ING were also joint winners of one of those categories, for best New Zealand/Australian Equities Manager, while BT won the award for best multisector manager and ING was chosen as the best property fund manager.

A dozen fund managers are eligible for the awards, which are limited to superannuation and unit trust managers based in New Zealand, and which are rated by Morningstar.

"Index" or "passive" funds are not eligible.

The awards are based on a combination of past performance and qualitative research - Morningstar's assessment of how well a manager does its job.

That means looking at each manager's performance, relative to their competitors, measuring both risk and return, as well as looking at things such as their corporate strength, the quality of their investment teams, the features their investments include and their administrative systems.

Some performance data on which awards are based can go back as much as five years, though more weight is given to more recent performance.

Morningstar's approach is based on the idea that past returns alone are not the way to judge fund managers, and that it is also important to assess the quality of their staff and the processes they use to manage investments.

Certainly, neither of the joint winners would have taken the overall title if the awards were based simply on recent performance.

ING had a particularly bad year last year. According to figures from superannuation consultants Aon Consulting, ING came 13th out of 14 managers surveyed when assessed by the return earned on "discretionary" assets - those where the manager decides what portion to allocate to the investment categories.

That was largely the result of its international sharemarket investments losing more than 24 per cent of their value during the year.

The company's international share investments performed spectacularly in the late 1990s, but have fallen into negative territory since 2000.

BT did somewhat better overall, but was still a middle-of-the-pack performer last year, ranking 6th of the 14 funds in Aon's survey.

Would-be investors should keep in mind that the awards cover only a portion of the many managed investment choices.

As already noted, they exclude index funds and overseas-based managers, both of which can offer worthwhile tax advantages over their New Zealand counterparts.

Multisector funds

Winner: BT FUNDS MANAGEMENT

Morningstar's comment: An extreme level of volatility in all markets and wide fluctuations in currency rates presented a major challenge to multisector managers during 2001. BT attained our top rating for multisector unit trusts and superannuation funds by achieving the best value for risks taken, compared with other multisector fund managers. BT applied a tightly controlled asset allocation process that benefited from access to research and macroeconomic analysis from global partners and a comprehensive process integrating portfolio risk parameters.

Finalists: ANZ Funds Management, Sovereign Services

NZ property

Winner: ING

Morningstar's comment: The New Zealand property sector held up reasonably well during 2001. ING's philosophy of buying well, adding value, managing intensively and selling profitably was a winning formula. A well-resourced and highly qualified property team enabled ING to consistently achieve better value, for risk taken, for investors in its property trusts and superannuation trusts over time, compared with other New Zealand property fund managers.

Finalists: NZ Guardian Trust, Tower Managed Funds

NZ/Australian equities

Joint winners: BT FUNDS MANAGEMENT and ING

Morningstar's comment: The New Zealand and Australian equity markets outperformed most global markets in 2001, and investors in both BT and ING unit trusts and superannuation funds benefited from very experienced and stable investment teams and strong investment disciplines. BT's value-biased style and ING's growth-biased style were both combined with a rigorous analytical process which rewarded investors with consistently higher than average risk-adjusted returns.

Finalist: National Bank of New Zealand

International fixed interest

WESTPACTRUST INVESTMENT MANAGEMENT

Morningstar's comment: In an environment of extensive global interest rate reductions, WestpacTrust attained top ratings. WestpacTrust sub-contracts international fixed interest investment management to ING, which appointed Fiduciary Trust International to manage the funds. Fiduciary employs a disciplined "top-down" approach to region, country and currency allocation and a "bottom-up" approach to security selection, enabling WestpacTrust's unit trusts to produce the highest returns and among the best value for risks taken, compared with other international fixed interest managers.

Finalists: BNZ Investment Management, Sovereign Services

International equities

Winner: BNZ INVESTMENT MANAGEMENT

Morningstar's comment: Despite higher than normal volatility in international equity markets during 2001, BNZ Investment Management's unit trusts and superannuation funds performed better than others rated in this asset sector. BNZ Investment Management subcontracts international equities investment management to Franklin Templeton. Franklin Templeton's value-oriented and active "bottom-up" stock selection style, which is implemented by a highly experienced team, enabled BNZ Investment Management's investors to achieve the best value for risks taken over time, compared with other fund managers.

Finalists: ANZ Funds Management, Sovereign Services

NZ fixed interest

Winner: NATIONAL BANK OF NEW ZEALAND

Morningstar's comment: Despite volatile domestic and international interest rate markets, the National Bank unit trusts and superannuation funds performed well during 2001. National subcontracts New Zealand fixed interest investment management to AMP Henderson, which has a strong focus on duration management, active assessment of credit risk, and the ability to draw on extensive global resources and experienced personnel. This enabled National to provide investors in its fixed interest unit trusts and superannuation trusts with the best value for risk taken and lowest volatility over time, compared with other New Zealand fixed interest fund managers.

Finalists: BNZ Investment Management, NZ Guardian Trust

Morningstar