Our comprehensive review of Moderate fund regular savings returns as at September 30, 2015, identifying who has the best long-term returns

The key theme for this review of the Moderate KiwiSaver category for the period ending September 30 is one of capital erosion across the sector over the short term.

Global events and a slightly higher exposure to riskier assets has meant many funds in this sector have started to extend some of the losses we highlighted in the last review. These are, of course, simply paper losses at this stage for those investors who have not withdrawn from the funds.

We are not able to award a best in class title to the top performing fund in the sector as the recent performance has not been above its long run track record based on our regular savings model. To receive this recognition the manager must keep producing results which add value over all time frames. We don't want managers having a couple of exceptional years and then resting on their laurels.

No fundamental change has been recorded in our leader board and Aon and ANZ continue to be the top performers over the long run.

Looking at the unit price data we collect each month that feeds into our regular savings model, we have observed some fairly wide variances in unit price performance over the past three and twelve month periods.

Many of the funds over the last three months have seen their unit prices fall. The range of the decline across the funds we monitor is between -0.75% (Craigs IP Conservative Fund) to -3.6% (BNZ Moderate Fund) at the top end.

There are several reasons for the wide variance including vast differences in asset allocation, investment approach and hedging position.

One noticeable difference is the asset allocation and the exposure to Cash and bonds. Craigs IP have a bias towards NZ assets and hold 20% cash, while BNZ have taken a more global bond focus and hold roughly 9% cash.

Also BNZ have taken the position of fully hedging their international assets (except the Australian exposures). The Australian securities may be hedged at the manager's discretion per BNZ's prospectus (page 41).

By comparison Craigs IP have a more flexible hedging strategy and can move to being unhedged if market conditions dictate this is appropriate. BNZ's hedging and global bond exposure is likely to have been the dominating influences on their relatively poor performance over the quarter.

The Fisher Funds Conservative fund has not been operating for the entire period and therefore its position in the table does not reflect its comparative performance versus other funds in the peer group.

The top ranked fund in this category is again the Aon Russell LifePoints 2015, however we are not able to allocate it our best in class award as the three year returns have dropped below the long term trend. Our best in class recognition is reserved for those funds that achieve a rate of return over the last three years that equals or exceeds the long run return.

There remains a large divide between the top and bottom performers in this category.

You might expect less variation across funds which are principally cash and bonds, however it is becoming evident that even the decision about whether to hold local or offshore bonds is an important one, and so to is the level of hedging for international assets.

Over the full term of our regular savings analysis, Moderate funds compared to Default funds, have delivered an extra $2,130 worth of returns on average; that is they have delivered $9,995 in returns over and above the contributions compared with the $7,865 for Default funds.

Since last quarter's survey of regular return performance the Default funds have closed the gap between the two categories.

One fund has managed to deliver an 7.6% after tax and fee return over the full term. A further four funds delivered in the low to mid 7% range. Over the past three years ANZ's Conservative Balanced and OneAnswer Conservative Balanced funds are the standout performers.

Across the industry there is currently no consistency on how funds are categorised so readers will see funds with different risk descriptors (i.e. Conservative, Conservative Balanced & Moderate) appearing in the performance table. To learn more about how we categorise the various funds click here.

The SmartKiwi Conservative Fund is now closed to investors and we have removed this fund from our comparison tables.

Here is the comparison as at September 2015 for Moderate Funds:

Moderate Funds      
Cumulative
contributions
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
Effective
cum return
= Ending value
in your account
Effective
last 3 yr
return % p.a.
since April 2008 X Y Z
to September 2015      
$
% p.a.
$
                 
Aon Russell LifePoints 2015 M C M
24,968
10,347 7.6% 35,316 6.6%
Aon Russell LifePoints Conserv M C C
24,968
10,088 7.4% 35,056 6.2%
ANZ OneAnswer Cons. Balanced M B M
24,968
9,998 7.3% 34,966 7.3%
ANZ Conservative Balanced M B M
24,968
9,939 7.3% 34,908 7.3%
ANZ Default Conserv. Balanced M B M
24,968
9,600 7.1% 34,568 6.9%
AMP Moderate M B M
24,968
7,663 5.3% 32,631 4.3%
ANZ OneAnswer Conservative M C C
24,968
8,358 6.2% 33,326 5.8%
ANZ Conservative M C C
24,968
8,300 6.1% 33,268 5.8%
Fisher Funds TWO Conserv M C M
24,968
8,190 6.1% 33,158 5.1%
Westpac Conservative M C M
24,968
7,925 5.9% 32,893 5.3%
AMP Conservative M C M
24,968
7,663 5.5% 32,631 4.5%
Grosvenor Conservative M C M
24,968
7,333 5.4% 32,301 4.4%
Craigs Conservative M C  
24,968
7,329 5.4% 32,297 5.3%
Fisher Funds Conservative M C C
21,182
7,105 7.0% 28,287 5.8%

 

Those funds that have recently launched and do not have a long enough track record to be included in the main table above are shown below:

Moderate Funds      
Cumulative
contributions
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
Effective
cum return
= Ending value
in your account
Effective
last 3 yr
return % p.a.
since April 2008 X Y Z
to 2015      
$
% p.a.
$
                 
BNZ Moderate M B M 8,487 1,722
5.0%
10,209
n/a
Generate Conservative M C M
8,265
1,786
5.6%
10,051
n/a

 

For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.

There are wide variances in returns since April 2008, and even in the past three years, and these should cause investors to review their KiwiSaver accounts especially if their funds are in the bottom third of the table.

The right fund type for you will depend on your tolerance for risk and importantly on your life stage. You should move only with appropriate advice and for a substantial reason.

Our June reviews of Default and Conservative funds can be found here and 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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