(Russell.com)

Quality Fund Managers Critical

AUCKLAND, 8 September, 2004 — Investors should look carefully at the full range of investment options before buying into the low fees, high returns argument which is being promoted with the NZX's launch of the Smartshares range of products, according to Dr Edward Schuck, Russell Investment Group Ltd Managing Director.

Dr Schuck said the debate between active and passive funds had been revived with the high profile launch of the MOZY fund prospectus, which is promoting lower fees and higher returns than many active investment funds, on an after-tax basis.

"Active managers undertake research, and buy and sell on the basis of that information. This sort of activity costs money, which means active managers charge higher fees," said Dr Schuck.

"However, lots of investors and managers actively trade, but don't have the skills or information needed to beat the market. Generally speaking, retail investors who trade shares on the basis of broker reports and internet news also fall into this category," he said.

Dr Schuck said one challenge for investors was selecting active managers who make the best decisions, and also knowing when they aren't good anymore.

"Russell has been doing this sort of research for institutional investors for years, and people can access it through our investment funds," he said.

The second challenge is determining whether the extra return, on an after-tax basis, is sufficient to beat the passive alternative.

"Good active managers do produce additional returns and the tax treatment need not be as onerous as the NZX makes it out to be. Australian unit trust products like those run by Russell offer tax efficient means of accessing active managers," said Dr Schuck.

Even for investors who decide to go passive, the MOZY opportunity may not be the best choice for low cost diversification. "Anyone contemplating going offshore for diversification shouldn't set their sights on Australian mid-cap stocks alone. Several fund managers in NZ offer global diversification through tax-favoured passive funds, and investors can access these for far less than the 0.9% base fee charged by NZX," he said.