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Craigs Investment Partners KiwiSaver results show over diversification erodes potential returns

Posted in KiwiSaver

The latest data released for KiwiSaver performance as at December 31, 2012 is from Craigs Investment Partners (Craigs IP). Our story covering the returns to September 30, 2012 can be found here.

We read with interest a recent media article titled Ten market predictions for 2013 where Craigs IP put forth their views for what's going to happen in 2013.

Craigs IP also reviewed how they had gone with last years predictions. With a 'self scored' success rate of getting right 9 from 10 for 2012's predictions.

With this type of success rate it would be easy to get excited and expect the same level of performance from the firms' KiwiSaver portfolios.

Looking at the latest results you would be quite disappointed to see many of the funds returned below their benchmark and/or below the peer group average as reported in Morningstar's latest return summary.

Some of the funds performed above their appointed benchmark over the longer term of five years (Balanced, Growth, Balanced SRI) and managed to achieve returns above the industry peer group average. The score for performing both above the appointed benchmark and the industry average was 3 out of 8.

In fairness to Craigs IP some of the portfolios have not been going for five years. The NZ and Australian equity funds have been going for approximately two-years and in that time both portfolios have performed above their respective benchmarks. There was no industry peer group average for two-year performance so maybe we give them half a mark for each fund which brings their tally up to 4 out of 8 - a pass mark (just). 

When examining the respective portfolios we see the Growth Fund has a high proportion of Cash (currently 25%) and this will have detracted form the portfolios performance as global equity market rose strongly in the latter part of 2012.

Similarly for the Conservative Fund, 75% of the portfolio is dedicated to income assets. The 75% income assets is split 39% directly held bonds and inflation linked bonds and the balance in Cash and bank term deposits with maturities out to April 2013.

Craigs IP are one of the few providers that give you access to all the underlying holdings on their public website. Clicking on each of the respective fund names takes you through to a fact sheet and their respective weights are found on page two of this document. The documents are very infromative and we wish more managers were this transparent.

One downside to this transparency is you can see just exactly how many securities are held in the portfolio. By our count in the Conservative Fund there were a total of 162 individual holdings.

This was made up of 61 fixed interest securities, 37 New Zealand shares, 30 Australian shares and 34 international shares. Many of the international holdings were in index funds or listed investment trusts so the underlying number of holdings would blow out to be in the thousands.

Given the relative poor performance of some of the funds compared to their benchmark and/or peer group you would have to speculate the portfolios were "over-diversified" and yes there is such a thing. There was a reason Noah only took two of every animal onto the ark.

Another point we noted is the international equity holdings are unhedged at a time when the NZ dollar has been strengtheing against the major currencies and this could have contributed to some of the under-performance.

Some of the major fund managers and Craigs IP's competitors have some degree of hedging in their international  share portfolios as part of a risk management strategy.

Below is a table of the longer term performance of the Craigs IP funds. The return data is before tax and after fees and is as published by the managers. (No adjustments have been made to take into account those additional fees which scheme providers may charge and which are not included in calculating the fund performance. We do make such adjustments, but they will not be included until the full benchmarking is published.)

Craigs IP KiwiSaver Scheme
(31 December 2012)
1 year
(p.a.)
5 year
(p.a.)
Since inception
(1 Oct 2007)
(p.a.)
Conservative Fund 7.1% 4.9% 4.8%
Balanced Fund 10.8% 4.1% 4.1%
Growth Fund 12.0% 4.0% 3.9%
Balanced SRI Fund 11.3% 4.2% 4.2%
Equity Fund 14.3% n/a 5.6%
Fixed Interest Fund 5.5% n/a 6.2%
NZ Equity Fund 19.5% n/a 11.6%
Australian Equity Fund 16.0% n/a 5.5%

 

 

 

 

 

 

 

 

 

 

* 5 year returns are not available for all of the funds.

More detailed performance reporting can be found here ».

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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