Our comprehensive review of regular savings returns to September 30, 2016 for Aggressive KiwiSaver funds

by Craig Simpson

A portfolio of Australasian listed property stocks managed by ANZ continues to outperform more diversified aggressive portfolios.

This has been a recent trend but one that could end shortly as Milford Active Growth Fund is closing in on the top spot.

The funds that have added the most value over the past quarter are the Milford Active Growth (includes Aon Milford) and ANZ OneAnswer's Australasian Share, International Share and Sustainable Growth Funds.

The smallest growth over and above our investors contributions and after accounting for tax and fees, was recorded by ANZ OneAnswer International Property Fund.

A common theme across the funds that added the greatest value was their greater exposure to Cash compared to some of their peers. The Cash holding is effectively reducing the risk in the portfolio and has provided some capital protection during what has been quite a volatile quarter. Exposures to Australasian shares continues to provide schemes with some return pickup.

A recent Melville Jessup Weaver (MJW) report has identified the Milford Active Growth Fund is delivering returns on an after fees, before tax basis, which are superior to a sample peer group and with less risk. (The MJW review is a point-to-point analysis, different to our regular savings approach.) In fact, the annualised volatility numbers are below two of the Balanced funds in the report. This is a unique situation and defies what the text books say should be happening.

Hedging ratios across the category differ greatly and this will be influencing returns also. International Bond and Property portfolios are traditionally fully hedged back to NZ dollars to protect the income stream plus the hedging premium that is present.

QuayStreet NZ Equity Fund (formerly Craigs Investment Partners) is the best overall performer on a since inception of the fund basis. The Fund came to market at the beginning of the prolonged bull market period and has not experienced any of the severe sell-off that existed in 2007/2008.

A dispersion of returns across the various managers exists and those funds appearing at the bottom of the table are likely to remain there for some time as the funds above them are continuing to perform at higher levels.

We have observed the number of funds with three-year returns higher than long-run averages have fallen away. Last quarter approximately half of the main table were ahead on a three year basis, this quarter it is 30%.

   ANZ OneAnswer Australasian Property is awarded our 'best in class' title for this quarter. This award is reserved for schemes which have a three-year track record equal to, or greater than, the long-run returns.

On our regular savings basis, the average of the top five funds would have resulted in you earning $24,872 more than you have contributed; last quarter it was $22,200.

The average annual long-term compound return of the top five aggressive funds' earnings after-tax and after-fees is 12.4% which is 6.4% per annum more than the average of the top five default funds. The top 5 aggressive funds are adding over $14,400 more value to investors than the top 5 default funds.

Our September 2016 reviews of the Default, Conservative, Moderate, Balanced and Growth funds can be found here, here, here, here, and here

Here are the full comparison as at September 30, 2016 for Aggressive Funds.

Aggressive 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 2016      
$
% p.a.
$
                 
  ANZ OneAnswer Australasian Property A A P 28,805 26,472 13.0% 55,276 15.5%
Milford Active Growth A G AE 28,805 25,666 12.7% 54,470 11.9%
Aon Milford A G AE 28,805 25,404 12.6% 54,209 11.8%
ANZ OneAnswer Australasian Share A G AE 28,805 25,235 12.5% 54,040 11.9%
ANZ OneAnswer Int'l Property A A P 28,805 21,585 11.1% 50,389 10.2%
ANZ OneAnswer Growth A G G 28,805 18,549 9.9% 47,354 8.5%
ANZ Growth A G G 28,805 18,319 9.8% 47,123 8.4%
Aon Russell LifePoints 2045 A G A 28,805 17,909 9.6% 46,714 10.3%
ASB Growth A G A 28,805 17,844 9.6% 46,649 10.1%
Mercer High Growth A A A 28,805 17,403 9.4% 46,208 8.7%
Fisher Funds Growth A A A 28,805 17,035 9.2% 45,840 7.7%
ANZ Default Growth A G G 28,805 16,939 9.2% 45,744 8.6%
ANZ OneAnswer Int'l Share A G IE 28,805 16,341 8.9% 45,146 9.4%
Westpac Growth A G G 28,805 15,632 8.6% 44,437 8.4%
Fisher Funds Two Equity A A IE 28,805 13,790 7.7% 42,595 6.8%
AMP Aggressive A A A 28,805 13,297 7.5% 42,102 6.3%
Kiwi Wealth Growth Fund A A A 28,805 13,184 7.4% 41,989 6.2%
AMP Growth A G G 28,805 12,667 7.2% 41,472 6.1%
Booster High Growth A A A 28,805 12,522 7.1% 41,327 7.8%
ANZ OneAnswerSustainable Growth A A IE 28,184 10,375 6.4% 38,559 7.1%
--------------
Column X is inte8.5rest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition

A = Aggressive, AE = Australasian Equities, G = GrowthIE = International Equities, P = Property

Booster was formerly Grosvenor and QuayStreet was formerly Craigs Investment Partners

For those funds that have not been going for the full period (April 2008 to September 2016) the results are shown below. In this group the standout performers are Craigs NZ EquityGenerate Focused Growth and Booster International Share

 

Aggressive 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 2016      
$
% p.a.
$
                 
Booster Geared Growth A A A 24,472 11,670 8.8% 36,142 8.8%
Booster International Share A A IE 23,790 9,234 9.0% 30,643 7.9%
Booster Socially Responsible A A AE 21,410 8,443 8.3% 29,853 7.4%
Booster Trans-Tasman Small Companies A A AE 21,410 6,317 6.2% 27,726 5.5%
QuayStreet NZ Equity A A   21,410 14,509 15.3% 34,110 13.0%
QuayStreet Equity A A   19,601 8,512 6.9% 32,302 5.7%
QuayStreet Australian Equity A A   19,601 6,433 7.4% 26,033 7.5%
Generate Focused Growth A A A 11,856 3,602 9.4% 15,458 7.1%
Amanah KiwiSaver Plan A A   8,551 1,011 0.1% 9,562 n/a
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition

A = Aggressive, AE = Australasian Equities, G = GrowthIE = International Equities, P = Property

Booster was formerly Grosvenor and QuayStreet was formerly Craigs Investment Partners

Observations and return drivers

Stock picking (active management) as opposed to index tracking (passive management) remains the flavour of the day when it comes to producing top ranking funds within KiwiSaver. ASB with a passive strategy is slowly eating away at the lead the active managers have enjoyed to date.

Socially responsible funds have continued to perform below par. This will be disappointing for those wanting a feel-good factor to their investment strategy.

We are continuing to see an overlap between the top end of the Growth category and the bottom of the Aggressive category. MJW noted in their latest report (mentioned above), there is little to be gained from taking on additional risk in KiwiSaver - we concur.

Funds that have hedged global shares have received some considerable gains over and above an unhedged position.

While some funds are holding greater positions in Cash and Fixed Income, the defensive positioning in this category, where the returns are traditionally more volatile, is reducing the impact of under-performing global equity markets.

Milford's Active Growth, Quay Street NZ Equity and ANZ OneAnswer Australasian Share Fund have been reaping the rewards of investing a majority of their funds into NZ shares. The NZ share market has returned over 30% for the last 12-months and if a fund didn't hold an exposure to, or were under-weight NZ shares, their performance has suffered.

Australian shares continue to be a poor cousin to NZ shares.


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

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.

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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