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Craig Simpson reports on the latest after-tax and fees returns for Gareth Morgan and Mercer's KiwiSaver schemes

Posted in KiwiSaver

It's widely known that the Kiwibank owned Gareth Morgan KiwiSaver Scheme (GMKS) is a little different to the rest of the KiwiSaver providers and schemes offered. There is absolutely nothing wrong with being different mind you.

Not only does GMKS not participate in regular performance report league tables, it does not have exposure to Australasian equities in its portfolios and reports under the Global Investment Performance Standards (GIPS).

GIPS is a set of global standards for measuring and presenting past performance. The GIPS standards were designed to ensure firms use reliable performance measurements based on the principles of fair representation and full disclosure. GIPS is widely accepted internationally as a best practice standard for reporting investment returns.

Because of the way GMKS reports performance on the interest.co.nz website we have established a separate GMKS performance page for our readers to refer to and this can be found here.

Although not operating under the GIPS framework, Mercer also produces after tax and fee returns to investors so we thought it would be useful for readers to be able to compare GMI's performance against Mercer's.

We have endeavoured to match up the three GMI portfolios against a comparable Mercer portfolio. There will be differences in performance due to asset allocation preferences, stock or fund manager selection, currency hedging and fees. These differences will be incorporated into the variances in performance over time.

On the subject of fees, GMKS has compiled a table showing fee comparisons across a number of providers - click here to view.

NZ, Aussie equities too small for GMKS

One notable variance between the two managers is in the asset allocations. GMKS does not support investing into New Zealand or Australian shares principally as the market capitalisation of this part of the world is tiny (approx less than 4%) compared with the rest of the world.

In addition, there does not appear to be a specific property allocation within the GMKS portfolios, however some exposure may be gained indirectly via some of the global equity holdings.

Last year's results would suggest that having an exposure to New Zealand shares and property (both domestic and global) would have been beneficial for investors. These sectors returned in-excess of 20% for the 12-months to 31 December 2012.

When examining the performance data it appears that Mercer is performing better across a majority of the time periods but GMKS has the upper hand over 5-years in the Balanced and Growth portfolios.

The superior longer term performance could be due to a combination of lower fees on the GMKS products and the underlying asset allocation preference for global equities over Trans-Tasman.

In the short term, i.e. less than one year, there is very little difference in the performance of the two providers. But if anything, GMKS has the slight edge.

What should possibly concern investors is the large divergence in performance across the last three and four years. In the four year returns there is as much as a 4% per annum differential in favour of Mercer.

If this trend should continue you would then see the five year numbers flick around quite quickly in favour of Mercer.

Below is a table of the longer term performance of the various funds. The return data is after tax at the top PIR of 28% and after fees and is as published by the managers. We have not made any adjustments to the reported data other than to round to 1 decimal place.

KiwiSaver Performance
31 December 2012
3 mths 1 year
(p.a.)
2 year
(p.a.)
3 year
(p.a.)
4 year
(p.a.)
5 year
(p.a.)
Gareth Morgan Conservative Fund 1.6% 5.5% 4.2% 4.0% 3.6% 3.3%
Mercer Conservative Fund 1.4% 6.2% 4.5% 4.9% 6.5% 3.8%
Gareth Morgan Balanced Fund 2.6% 8.5% 3.5% 3.3% 3.2% 1.8%
Mercer Balanced Fund 2.5% 8.8% 3.7% 4.5% 6.9% 0.6%
Gareth Morgan Growth Fund 3.7% 11.7% 2.2% 2.1% 2.4% -0.4%
Mercer High Growth Fund 3.3% 11.2% 3.0% 3.9% 6.7% -2.0%

 

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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1 Comments

Craig, it is good to see some

Craig, it is good to see some analysis of returns being done on a net-of-tax and net-of-fees basis.  Interest.co.nz should be congratulated.  At SuperLife this is what we believe is important because it focuss on the member and not the manager.  We also think that the optimal calculations also allow for cash flows and are shown in dollars.  SuperLife gives each member details of their individual net returns in dollars and percentages on their statements and on the member section of the SuperLife website.  We also publish the net of tax and fees returns on the main SuperLife website. 
 
Taking the table of returns in your article and adding in those of the relevant SuperLife options's gives a more complete picture of the range of returns that members actually receive. Remember SuperLife has a wider range of options as well to let members set their own strategy and not have to take a stamdard mix. 
 
What the analysis shows is that there are advantages in keeping costs low and investment arrangements simple with a bias to passive (not necessarily index) management.  The differences in returns at the levels shown will over time make a material differemce to the ultimate savings of member.
 
KiwiSaver Performance ...... 3 mths ...... 1 year ...... 2 years ..... 3 years .... 4 years .... 5 years
31 December 2012
 
"Conservative" Funds
Gareth Morgan .......................  1.6%  ........  5.5%  ...... 4.2%  .......  4.0%  ......  3.6%  .....  3.3%
Mercer ......................................  1.4%  ........  6.2%  ...... 4.5%  .......  4.9%  ......  6.5%  .....  3.8%
SuperLife 'the D Fund' .........  2.3%  ........  9.2%  ....... 6.1%  ......   6.0%  ......  6.3%  ..... 5.0%
SuperLife Managed30  ........  3.0%  .......  10.6%  .....  5.8%
SuperLife AIM 30 ....................  2.4%  .........  9.1%  .....  5.7%  ......   5.8%  ......  6.5%  ......  4.4%
 
"Balanced" funds
Gareth Morgan  .....................  2.6%  .......  8.5%  ......  3.5%  ......  3.3%  .......  3.2%  ......  1.8%
Mercer  ....................................  2.5%  .......  8.8%  ......  3.7%  ......  4.5%  .......  6.9%  ......  0.6%
SuperLife Managed60  ........  3.7%  ......  13.4%  ...... 6.1%  ......  6.3%  .......  7.4%  ......  3.6%
SuperLife AIM60 ...................  3.4%  ....... 11.8%  ......  5.1%  ......  5.5%  .......  7.6%  ......  2.4%
Ethica  .....................................  3.2%  ....... 10.6%  ......  5.8%  ......  5.1%  .......  6.1%
 
"Growth" funds
Gareth Morgan  ....................  3.7%  .......  11.7%  ...... 2.2%  ......  2.1%  .......  2.4%  ...... -0.4%
Mercer High Growth  ...........  3.3%  .......  11.2%  .....  3.0%  ......  3.9%  .......  6.7%  ...... -2.0%
SuperLife AIM80  ..................  4.2%  ........  13.4%  .....  4.5%  ......  5.2%  .......  7.9%  ......  0.5%