Our comprehensive review of Conservative KiwiSaver fund performance to December 31 2015, identifying who has the best long-term returns

By Craig Simpson

A strong bias towards domestic assets and an average of 20% in growth assets across the various funds in the sector has meant investors in the KiwiSaver Conservative funds have been insulated from the turmoil that played out in markets during the December quarter.

NZ domiciled assets have been some of the best performers globally in what has been a testing quarter and end to the year. Many of the major indices were in negative territory at year end however none of the KiwiSaver funds we monitor recorded negative one year returns.  

For investors in Conservative KiwiSaver funds the impact of sharemarket losses will be reasonably small as in most cases portfolios have less than 30% of their total assets exposed to equities or growth assets.

Many funds within the KiwiSaver universe also have a domestic bias and with local assets outperforming global shares and bonds it is likely many investors in the more conservative funds will not have experienced any erosion in capital.

Our regular return savings model the return from the Kiwi Wealth Conservative Fund has retained its top spot. Compared to last quarters review the main changes in the rankings have been caused through the removal of the Lifestages Capital Stable and Staples Rodway Conservative funds from our analysis as these schemes are no longer available for investment. The only only other change was a positional switch between the Fisher Two Preservation and ASB Cash funds.

Kiwi Wealth Conservative is awarded our best in class honour as having the highest average annual long term and short term returns after tax and all fees. Milford Conservative Fund would be awarded this honour had the fund been going since the inception of our analysis in April 2008. But because the investment periods don't match, their result is not strictly comparable.

Assuming you had been invested for the period April 2008 to December 2015, the difference between the average return of the top and bottom conservative fund (excluding Default and Cash funds) in dollar terms is approximately $3,500. Including cash funds the difference is $4,450 or $44.50 per month since April 2008.

The Staples Rodway KiwiSaver scheme is no longer open to new investment and hence we have removed this fund from our analysis. Likewise the Lifestages Capital Stable KiwiSaver Fund is no longer offered to investors and is replaced by the Lifestages Income Fund. We will commence reporting on the new Lifestages fund in our next review for this sector.

Here are the full comparisons to December 31, 2015 for Conservative Funds.

Conservative Funds
 
 
 
Cumulative$
contributions
(EE,ER,Govt)
=+Cum net gains
after all tax,fees
Effective*
cum return
=Ending Value
in your account
Effective
last 3yr
return%p.a.
Since April 2008
X
Y
Z
to December 2015
 
 
 
$
%p.a.
$
                 
 Kiwi Wealth Conservative C C C
25,648
8,237 5.7% 33,886 5.3%
ANZ OneAnswer NZ Fixed Interest C C FI
25,648
7,379 5.1% 33,027 3.3%
ANZ OneAnswer Int'l Fixed Interest C C FI
25,648
7,120 5.0% 32,769 4.0%
AMP Cash C D Ca
25,648
5,104 3.5% 30,753 2.9%
Mercer Cash C D Ca
25,648
4,923 3.3% 30,571 2.8%
Grosvenor Enhanced Income C D C
25,648
4,882 3.3% 30,530 2.7%
ASB Cash C D Ca 25,648 4,833 3.3% 30,481 3.1%
Fisher Funds Two Preservation C D Ca
25,648
4,793 3.2% 30,441 2.8%
Aon Nikko AM Cash C D Ca
25,648
4,722 3.2% 30,371 2.7%
ANZ Default Cash C D Ca
25,648
4,,612 3.1% 30,260 2.7%
ANZ Cash C D Ca
25,648
4,534 3.0% 30,183 2.7%
Westpac Cash C D Ca
25,648
4,520 3.0% 30,168 2.7%
ANZ OneAnswer Cash C D Ca
25,648
4,388 2.9% 30,037 2.6%
Aon ANZ Default Cash C D Ca
25,648
3,786 2.4% 29,435 2.2%
Craigs fixed Interest C D Ca
20,687
3,632 3.4% 24,319 1.6%
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive, Ca = Cash, FI = Fixed Income

For those funds that have not been in existence for over three years their results are shown in the table below.

Conservative 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 December 2015      
$
% p.a.
$
       
 
 
 
 
 
Milford Conservative C C C 10,670 3,047 8.7% 13,717 7.4%
BNZ Cash C D Ca 9,168 1,510 3.0% 10,677 n/a
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive, FI = Fixed Income, M = Moderate, Ca = Cash

The trend of returns from Default funds outperforming a majority of the Conservative funds continues and has us questioning the worth of having a Conservative category within KiwiSaver as investors are better served at present being in one of the top performing Default funds.

Since inception, and on a regular savings basis, the average of the top five Conservative funds (excluding Default funds) has produced compound annual returns of 4.5% after all fees and taxes. Over the past three years, that return has edged down to an average of 3.6% p.a.

The decline in returns from Conservative funds is principally influenced by movements in the fixed income markets. Returns from cash are also very low globally and funds with high portions of cash in their portfolio will be struggling to generate any noticeable and meaningful returns.

Capital Guaranteed Funds

In addition to the mainstream Conservative KiwiSaver funds, savers interested in risk-protected returns should consider Westpac's capital 'guaranteed' funds.

These funds invest in equities but have a Capital Protection Plan that's designed to give you the opportunity to earn the higher returns normally associated with growth assets without the risk of losing your initial contributed capital (other than through the insolvency of the Capital Protection Provider or a "tax change event"). The goal of generating higher returns is implemented by having as much of the CPP Fund as possible invested in growth assets.

However, the manager is also required to preserve the capital value of the Fund. It does this by reducing the amount invested in growth assets if the value of the assets of the CPP Fund falls below certain predetermined levels. Instead, some (or, if there is a very dramatic fall in the value of the growth assets, all) of the assets of the CPP Fund are placed in a form of deposit with the Capital Protection Provider that is designed to recover part of the value of the assets over time, but does not produce a positive investment return (these are sometimes called zero coupon bonds or deposits).

Westpac has five such plans, all starting at different times:

Capital protected      
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
% pa
since April 2008 X Y Z
to December 2015       $ % p.a. $
                 
Westpac CP Plan 1 C A Mi 23,407 13,655 10.6% 37,062 12.4%
Westpac CP Plan 2 C A Mi 20,185 10,467 10.8% 30,651 12.2%
Westpac CP Plan 3 C A Mi 16,856 8,092 11.5% 24,949 11.9%
Westpac CP Plan 4 C A Mi 13,434 5,981 12.6% 19,414 11.4%
Westpac CP Plan 5 C A Mi 10,272 3,683 11.8% 13,955
6.7%
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, A = Aggressive, Mi = Miscellaneous

Don't jump into these capital protected funds unless you understand fully how they work in good times, and bad.

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 you life stage.

You should move only with appropriate advice and for a substantial reason.

Our December 2015 review of the Default funds 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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4 Comments

How likely is it that a Cash Fund total would go backwards?
Can all the units be revalued downwards? or is it only future investments that are at risk and any total to date is locked in?

The units on the various funds are marked to market daily in most cases and fees, expenses and tax attributed to each unit so if an investor is not contributing then yes it is possible especially if the cash return is low.

Not all cash funds are simply deposits with the local bank, some have fixed income instruments which can lose money if the yield on those securities rises and the capital value falls.

It does require some research to fully understand what is in the various funds.

Don’t forget the default risk, even if a very low probability, deposit takers can fail.

Default risk is an important consideration and as we know from the GFC even AAA rated securities can fail.