Home / Analysis / Aussie allocation creeps up among NZ managers

Aussie allocation creeps up among NZ managers


Local equities fund shops have increasingly allocated to Australian shares over the last four years, a new Mercer NZ analysis has found, partly to ease pressure from ballooning assets under management.

The Mercer study of a dozen NZ fund managers found Australian shares now represent 34 per cent of their collective portfolios compared to 26 per cent just four years ago.

In fact, the Australian equities component of the local manager cohort monitored by Mercer was up almost 250 per cent over the four-year period to reach about $9 billion while NZ share holdings rose 70 per cent to $17 billion by 2021.

  • David Scobie, Mercer NZ head of consulting, said at least one manager in the study allocates more to Australian equities than home-based shares.

    A single NZ manager now owns 40 per cent of the group’s total Australian share exposure, the report shows, compared to 28 per cent for an unnamed firm in a similar 2017 analysis.

    The reweighting to the Australian market followed a period of strong returns on both sides of the Tasman (although the NZX has outperformed over the decade) and increasing flows from KiwiSaver schemes.

    According to the Mercer analysis, five managers hold 1 per cent or more of the total S&P/NZX 50 index by market cap – a figure unchanged from 2017.

    “Managing more than 1% of market cap is rare by international standards, especially in relatively illiquid/narrow markets,” the report says. “Across the Tasman, firms typically manage 0.25-0.75% in Broad Cap Australian Equities (none over 1%) and less than 0.25-0.5% in Small/Mid Caps.”

    However, Scobie said while the NZ situation might be unique, owning 1 per cent or more of the market was not “inherently wrong” if managers continue to generate outperformance.

    As well, he said market ownership was a “blunt” measure of capacity limits with other factors such as active trading strategies coming into play.

    “Capacity is more nuanced than just the amount of funds under management compared to the benchmark,” Scobie said.

    In spite of the rapid growth in assets under management, since 2011 Mercer has added just one NZ firm to its monitoring universe, which excludes government-owned and passive operations.

    The report says start-up local share managers face some barriers to entry such as high compliance costs and the capacity constraints of the sector as a whole.

    However, Scobie said there was a fine line between growing assets large enough to generate sustainable business income and hitting capacity limits.

    Mercer also found of nine ‘core’ NZ strategies under review, only three scored ‘fairly good’ or ‘strong’ returns above benchmark over a recent three-year period. But during the nine years to 2021 the performance record was slightly better with four of eight strategies delivering fairly good or strong (above-benchmark by 1.5 per cent or 2.5 per cent per annum, respectively) returns: three strategies returned 0.5 per cent or less and may not have covered the cost of fees compared to the index.

    Scobie said the Mercer study is part of its regular review of the local funds management sector designed to track those firms it already allocates to and identify potential promising alternatives.

    Currently, the Mercer NZ shares multi-manager fund uses Devon, Harbour and a smaller allocation to index player, the NZX-owned Smartshares.

    The study covered: ANZ; Aspiring; Castle Point; Devon; Fisher Funds; Harbour; Milford; Mint; Nikko; Pie Funds; QuayStreet; and Salt.

    Print Article

    Why taming the inflation tiger will be harder than the 1970s

    Inflation is making a latter day comeback, and a financial system “sanitized by 15 years of free money” is totally unprepared. It’s time, once again, for tough medicine. Inflation hasn’t been this high in 40 years, but investors have become convinced that central banks can still tamp it down it with relative ease – a…

    Lachlan Maddock | 27th May 2022 | More
    Bragg offers a super manifesto (from opposition)

    One of the Coalition’s few surviving  “super soldiers”, Andrew Bragg has called on his party to go further down the route of “flexibilising” super – if not abolishing it completely. Senator Andrew Bragg finds himself in a curious position following Labor’s election win. He’s one of the few super partisans to survive the teal clean…

    Lachlan Maddock | 27th May 2022 | More
    Appen left at the altar. Market heads lower. Good week continues for US markets.

    Appen left at the altar A bizarre blink-and-you-missed takeover approach came and seemingly went for one of the local market’s tech leaders Appen, which develops the datasets for machine learning and artificial intelligence. Canadian company Telus International sprang a $9.50 a share bid on the company, which said it would talk to Telus to try to…

    Drew Meredith | 27th May 2022 | More
    News and OneVue go live with brightday
    Alec Law | 11th Jan 2015 | More
    Perrignon off to HK with Credit Suisse
    Alec Law | 22nd Dec 2013 | More
    Sports betting as a new asset class
    Alec Law | 3rd Jul 2016 | More
    BlackRock ahead of consensus with bullish view
    Alec Law | 14th Jan 2017 | More
    Statewide seeds bespoke Apostle fund
    Lachlan Maddock | 23rd Mar 2022 | More
    UniSuper’s VC foray a sign of things to come
    Lachlan Maddock | 25th Mar 2022 | More