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There is an old saying that states if something seems too good to be true then it probably is. And in a world where bank term deposits are paying less than 1%, investors should look at funds with returns of 30% with suspicion. AdviceFirst adviser Brent Hunt provides commentary on the 12 month returns to the end of March 2021, and why these returns have the Financial Markets Authority (FMA) urging caution.

During the past 15 months we have seen a number of unprecedented events in the global markets due to the impact of COVID-19. Markets fell sharply at the start of the pandemic in early 2020, and Governments around the world responded with huge packages of stimulus and support for economies that were being hit by lockdowns and an economic slowdown like we had not seen before.

What followed was an unexpected rapid rebound which continued into 2021. This rise in markets coming off a very low base has resulted in 12 month returns to the end of March 2021 being quite spectacular, causing the FMA to note that these returns, without context, are misleading.

The FMA has asked fund managers and financial advisers to avoid advertising performance for the 12-month period to 31 March 2021 as it includes none of the February and March 2020 COVID-19 sell-off in the market, but all the following recovery. For example, the 12 month return on NZX 50 to February 2021 was 7.7% and just one month later the return to March 2021 was 23.94%.

“Encouragingly, some fund managers with growth products share our concerns and have already told us they will not be promoting performance focused exclusively over this 12-month period,” said Paul Gregory, FMA Director of Investment Management, who also said the FMA would be keeping a close watch on anyone who used these returns to entice investors to their scheme.

“For investors, the strong performance over the past year is not a reason to chase performance. Rather, it shows the value to investors of staying the course through market ups and downs with the manager and product you have, provided you’ve chosen the right fund for your risk needs and tolerance,” said Mr Gregory.

At AdviceFirst we have seen how the 12 month returns to March 2021 have affected our client portfolios. We have been able to discuss the unusual impacts of the last year with our clients and encourage them to look at their portfolios over a longer timeframe and in the context of what their goals are.

If you would like a review of your investment portfolio, reach out to your AdviceFirst adviser on 0800 438 238 or email letstalk@advicefirst.co.nz and they will be able to talk you through the options that align best with your attitude to risk and your short- and long-term investment goals.

AdviceFirst is a Financial Advice Provider (FSP23242).