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For those of you who have money to invest in other things, then read on:
Spicers finds the best finance company investments
SUNDAY , 23 JANUARY 2005
By ROB STOCK
Poor value, highly risky finance company investments have been investigated by $1.2 billion financial planning giant Spicers.
The firm has spent the past six months conducting research to sift the duds and ticking timebombs from the star-performers in a sector that has exploded into a multibillion-dollar industry in the last past two years.
The research shows most finance firms are offering too small a return for the risk investors are taking on.
Finance companies borrow from investors and lend to businesses and property developers, or make personal and hire purchase loans to consumers. But fears are growing that one or more could go to the wall as the property and retail markets slow.
Spicers put the nation's finance companies through a series of "filters" to sift out minnows, fly-by-nights, Johnnies-come-lately and those with more than 70% of their clients' money in property, which Spicers considers too risky.
Out of more than 100 finance companies in New Zealand, just six were deemed possible investments: UDC, Marac, South Canterbury Finance, Elders, Fisher & Paykel Finance and Medical Securities.
Of those, Spicers now plans to recommend UDC, which has an AA credit rating from Standard & Poor's and has a loan book of more than $2b, and the riskier Marac, which has more than $760 million in well-diversified loans.
The research shows New Zealanders have forgotten the lessons of the 1987 financial meltdown, and are chasing high returns without a thought for the risk involved, says Spicers' Jeff Matthews.
With bank term deposits and government stock offering low interest rates of between 6% and 7%, investors are willing to take a punt on a 9% finance company debenture stock.
Matthews says: "Ten years ago term deposit rates were up in the 12-13% range. The next time people came to roll over their investments they were being offered 8-9%. The next time, it was 6%."
Just how little return investors are getting is shown on the graph. The red dots represent finance companies. Only those above the blue line are offering fair returns for the level of risk taken.
But regulatory change could be on the horizon. The market is awaiting the results of a Securities Commission investigation into forcing finance companies to tell investors more about what they plan to do with their money.
SUNDAY , 23 JANUARY 2005
By ROB STOCK
Poor value, highly risky finance company investments have been investigated by $1.2 billion financial planning giant Spicers.
The firm has spent the past six months conducting research to sift the duds and ticking timebombs from the star-performers in a sector that has exploded into a multibillion-dollar industry in the last past two years.
The research shows most finance firms are offering too small a return for the risk investors are taking on.
Finance companies borrow from investors and lend to businesses and property developers, or make personal and hire purchase loans to consumers. But fears are growing that one or more could go to the wall as the property and retail markets slow.
Spicers put the nation's finance companies through a series of "filters" to sift out minnows, fly-by-nights, Johnnies-come-lately and those with more than 70% of their clients' money in property, which Spicers considers too risky.
Out of more than 100 finance companies in New Zealand, just six were deemed possible investments: UDC, Marac, South Canterbury Finance, Elders, Fisher & Paykel Finance and Medical Securities.
Of those, Spicers now plans to recommend UDC, which has an AA credit rating from Standard & Poor's and has a loan book of more than $2b, and the riskier Marac, which has more than $760 million in well-diversified loans.
The research shows New Zealanders have forgotten the lessons of the 1987 financial meltdown, and are chasing high returns without a thought for the risk involved, says Spicers' Jeff Matthews.
With bank term deposits and government stock offering low interest rates of between 6% and 7%, investors are willing to take a punt on a 9% finance company debenture stock.
Matthews says: "Ten years ago term deposit rates were up in the 12-13% range. The next time people came to roll over their investments they were being offered 8-9%. The next time, it was 6%."
Just how little return investors are getting is shown on the graph. The red dots represent finance companies. Only those above the blue line are offering fair returns for the level of risk taken.
But regulatory change could be on the horizon. The market is awaiting the results of a Securities Commission investigation into forcing finance companies to tell investors more about what they plan to do with their money.
Regards
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