New Zealand fund managers need to be more transparent about how much they are investing in Australia, according to a global research firm.

A study by Russell Investments, which holds its annual New Zealand conference in Wellington today, found all 12 New Zealand managers it studied had some exposure to Australian shares in their New Zealand funds.

Russell consultant Noah Schiltknecht said the decision to invest in Australia appeared to be driven by the fund management industry with some justifying their decision by saying it provided diversification.

Schiltknecht said he was not an advocate of investing in Australia as a way to avoid having a New Zealand-only portfolio because of the two markets' common economic risks.


Schiltknecht said that if managers wanted diversification, they should invest globally.

He said New Zealand managers also faced headwinds in Australia.

"New Zealand managers are small players in the Australian equity market, due to the relatively small pool of funds available for investment from New Zealand investors.

"The resources available to New Zealand-based managers are also constrained by the size of the funds under management."

Schiltknecht said these factors did not mean New Zealand fund managers were not competitive stock pickers in Australia and, in fact, the research showed New Zealand managers had done a relatively good job.

But he said managers should address the headwinds and justify why they were investing in Australia.

"We are not advocating against transtasman portfolios but investors need to be aware of the risks. There needs to be more transparency around performance."

Schiltknecht said that managers needed to separate out their New Zealand and Australian stock selection processes and decide how much of their money was going to be invested in Australia.

Fund managers had the ability to invest up to 100 per cent of their fund in Australian shares, he said, and some retail investors might not be aware of that.