Our comprehensive review of Balanced KiwiSaver fund returns to September 30, 2015, identifying who has the best long-term returns

Having a mix of both bonds and equities in roughly equal proportions is providing investors with returns that are like Goldilocks' porridge - not truly awful, not overly fantastic, but about right given the increased global uncertainty and market stresses.

One saving grace for investors with a bet each way portfolio is that at present the returns on the bond portion is to a degree off-setting some of the damage done from falling share markets. That is if your portfolio manager has a bias to domestic government bonds.

Many of the KiwiSaver schemes have a tilt towards international fixed income, which you can understand given the depth of the global bond market and the availability of securities, however this is detracting from the overall portfolio return at present.  

We are observing that recently the managers who have a home bias and are investing into predominately government bonds or high credit rating securities, are edging out managers who are concentrating solely on corporate bonds.

Managers who have assumed a little more risk with their allocation and favoured NZ bonds are generally performing better. Depending on whether the investments are hedged or not will also be influencing the returns and will be reflected in the return data over the shorter term.

On a regular saving basis over the period from April 2008 to September 2015 there is approximately 2.5% difference between the top and bottom funds that are included in the directly comparable universe. Over 8 plus years this equates to around 0.3% per year variance.

Over the shorter periods, that is 12-months to 3-years, we are seeing a substantial jump in the dispersion of returns from the top to bottom schemes.

Some other observations from our data are that only 1 manager (Kiwi Wealth) achieved a return over 10% for the past three years on a regular saving basis

The top 5 fund's average return since April 2008 has reduced from 9.3% in the June quarter to 8.3% as at the end of September quarter.

To try and put the returns into some sort of context, we referenced a very long data series of US 10-year bonds and US shares (S&P 500 index) dating from 1928 - 2014 in order to gauge what a portfolio which has a mix of 50% bonds and 50% shares might produce over a person's lifetime (approx. 85 years).

The data shows an average annual return since 1928 to 2014 was 7.3% achieved from the portfolio proxy. The return is a simple calculation based on the sum of 50% of the bond return plus 50% of the return on the shares.

This average return expectation does not include other inputs such as hedging, tax or fees, and therefore returns from a New Zealand investors' perspective may be higher or lower depending on the individual circumstances.

Within KiwiSaver we would suggest that on an after tax and fees basis if an investor achieved a return above 7.3% per annum on average they should be pretty satisfied. Anyone receiving a return below 7.3% over the long run should be questioning their manager and strategy.

Milford's Balanced Fund continues to deliver returns above 10% over both the shorter and longer time periods but their returns have tailed off in the last two quarters as markets have retreated.

Over the shorter last-three-year period, the top funds have a larger dispersion in returns. This suggests to us there are some vastly different views and strategies in play across the top managers and it will be interesting to see how these strategies play out over the longer term.

Only a small number of funds that have been going for our full 'regular savings' period have achieved returns in the short term that are equal to or exceed their longer-term performance. The last two quarters have seen some return contraction across all of the main sectors and this is starting to bite at returns in the short term.

AMP Nikko AM Balanced is the top performer in this category but is not able to be awarded our ‘best-in-class’ title as the short term returns are not equal to or higher than the longer term performance.

Over the full period, Balanced funds have delivered an extra $3,590 in return on average compared to the Default funds; that is they have delivered $11,455 in returns over and above the contributions compared with the $7,865 for Default funds. The extra return delivered has shrunk compared to last quarter's summary for this peer group.

These numbers are based on the average cumulative gain after tax and fees for the top five contributors in each sector.

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

Balanced 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.
$
                 
  AMP Nikko AM Balanced B G G 24,968 11,763 8.5% 36,731 9.3%
ANZ OneAnswer Balanced B B B 24,968 11,571 8.4% 36,539 8.7%
ANZ Balanced B B B 24,968 11,434 8.3% 36,402 8.6%
Aon Russell LifePoints 2025 B B B 24,968 11,387 8.2% 36,355 8.1%
Aon Russell LifePoints Moderate
B
B
M
24,968 11,118 8.1% 36,086 7.6%
Kiwi Wealth Balanced Fund B B B 24,968 10,960 8.0% 35,928 10.4%
Aon Nikko AM Balanced B G G 24,968 10,838 7.9% 35,806 8.9%
ANZ Default Balanced B B B 24,968 10,785 7.8% 35,753 8.2%
AMP Fisher Funds Two Balanced
B
B
B
24,968 9,692 7.1% 34,660 6.4%
ASB Moderate B B M 24,968 9,641 7.1% 34,609 7.2%
Fisher Funds Two Balanced
B
B
B
24,968 9,192 6.8% 34,160 6.2%
Grosvenor Balanced B B B 24,968 8,175 6.1% 33,143 6.3%
AMP Moderate Balanced
B
B
B
24,968 8,032 5.5% 33,000 4.6%

The following balanced funds have not been going long enough to be included in the above table.

Balanced 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
to September 2015
 
 
 
 
% p.a.
 
 
 
 
 
         
Milford Balanced
B
B
B
18,160 8,680 11.0% 26,840 10.4%
BNZ Balanced
B
B
B
8,487 1,747 5.2% 10,234 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 September reviews of the Default, Conservative, and Moderate funds can be found here, 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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1 Comments

Thank you Craig. Excellent to be able to see this info.