New Zealand Unit Trusts: Asset Allocation, Style Analysis and Return Attribution

Abstract

This article explores three facets of the historical performance of a sample of actively managed unit trusts available to New Zealand investors: asset allocation, style analysis, and return attribution. Because New Zealand does not require unit trusts to disclose their security holdings, we used returns-based style analysis to infer how these trusts have allocated their funds among asset classes. We find that asset allocation is a primary determinant of return performance for these trusts both across time and among trusts. Our results suggest that although these trusts publicize that they invest primarily in equities, their returns perform as if between 16 and 33% of their funds were invested in fixed interest instruments (e.g. bonds). Finally, we analyze performance to determine the relative contribution of asset class returns and manager skill. We find that after adjusting for fees and transaction costs, these active managers contribute little, on average, above what could be earned in a similarly allocated passive portfolio.