N.Z. Mutual Funds

Press, Volume CXII, Issue 33067, 7 November 1972, Page 18

N.Z. Mutual Funds

Sir, —The directors of the above fund claim that their

; earning rate continues to exceed 10 per cent for memibers. They apparently revalue their properties from 'time to time and add the as- 1 Isumed capital gain to their assets. To my way of thinking this is a highly dangerous 1 method of treating assets. I have before me figures relating to an office building [erected in 1939. Cost of the [building and section was $9060. This was a two-floor brick office built in very attractive materials. Today’s Government valuation, 33 years after it was built, is $23,000, a gain over cost of $13,940, or $422 per annum. This represents an annual gain of 4.6 per cent, yet the property was built in the cheapest of times. What Mutual Funds conveniently overlook is the fact that one day the bulldozer will level their buildings to make way for more up-to-date premises. What then?—Yours, etc. LOW FINANCE. October 31, 1972. [Mr R. M. Smith, secretary of N.Z. Mutual Funds, Ltd, replies: First I would remind the correspondent that of N.Z. Mutual Funds full-year earning rate of 10.3 per cent only 1.2 per cent was obtained by revaluation of properties, 9.1 per cent being received in cash from rents, interest, etc. Second, the figures submitted by ‘Low Finance’ do, in fact, prove our concept. If our fund obtained an annual capital gain of 4.6 per cent on each of our present 30 properties in addition to our normal 10 per cent from rentals, we would be delighted. Third, if the office building quoted was now leased at current rentals the market valuation of the property should be approximately 50 per cent, greater than the Government valuation. This would improve the stated annual gain to about 6.9 per cent, which is a very good investment- considering that rental income has also been received. In regard to the last point, over the 50year life of buildings, revaluations up and down will be included in our annual earning rate. As the fund has the advantage of continuous purchases of buildings in many areas, gains will substantially offset any reductions.”]