In part II of our exclusive interview with Gareth Morgan of GMI we look at KiwiSaver performance and benchmark comparisons

In part II of our exclusive interview with Gareth Morgan of GMI we look at KiwiSaver performance and benchmark comparisons

Personal finance editor Amanda Morrall in conservation with Gareth Morgan

(To read/watch part I of our interview click here).

Q) You describe yourself as a dynamic fund manager is that the same thing as an active fund manager?

A) Yes. We use tactical allocation all the time. The most important decision is asset allocation. How much of the dollar you have been given to put into the markets are you prepared to put in.

Q) So how have your funds fared?

A) The benchmark, which is market averages for asset classes, fell by 20% during the '08 period for our balanced fund. We just trucked along. That was because we were only 40-45% invested. Then when the markets picked up again, we were still relatively flat. We were slow to join the party. That was on my part quite deliberate because I didn't believe it. I thought the problems with debt just don't go away in six months. What it meant was that if you joined us a particular time, you either got a flat performance or a lift.  It all depends on the time period in which you join KiwiSaver. Our objective is to open up the gap between our own performance and the benchmark over time.

Q) What's the return on the balanced fund?

A) Over this particular time frame (from Sept.30, 2007 to Aug.31, 2011) it's been -1.4% and the benchmark was down  -11.4%. Per annum it's been -.4% while the market has gone down -3% per annum. (Click here to see GMI's interactive charge detailing performance.)

Q) Are you satisfied with that performance?

A) Hell no. The important thing is you have to grow it over time and five years is a day in the life of share markets. In an upswing in the market everyone comes in wanting growth and I always say to them "Yeah, yeah that's fine but I want to see the whites of your eyes when the markets turn around.''  It's amazing those people who are incredibly bullish in the growth cycle are completely the opposite during a down cycle. And world markets are down below where they were in 2007. We're in a bear market now. For me, as a manager, I want to have a black line (fund performance) that is above the red line (the benchmark). Obviously I like them both to be going up but as a manager if they're both going down and we're not going down as much I'm happy.

Q) And your conservative fund?

A) In this environment it has been the place, by far, to be.

(Eds: The fund, since inception is up 9.2% averaging 2.3% return per annum (after tax, fees and expenses). The benchmark against which GMI measures its has risen 7% from a similar time frame, delivering 1.7% per annum.)

Q) How about growth?

The most stark performance, the worst one for this particular period will be those who want full on growth, the bulls, the greedies we might call them.

(Eds: Since inception in 2007 when KiwiSaver first came into place, the GMI growth fund has fallen -14.4%. Per annum, that's a -3.9%. That compares with a benchmark of -28.8% since inception or -8.3% per annum, after tax, fees and expenses).

Q) Reason to panic?

A) Not if you have time.

Q) GMI has abstained from peer comparison benchmark performance why?

A) We have stayed out of the Morningstar and FundSource surveys. There is a long history behind it. There's quite a love affair between these two houses. I actually wrote a book on it ("After the Panic"). I question their ethics. It's that simple. It goes back to the time when they had a benchmark for performance and had recommended portfolios. They had different recommended portfolios for ING. When I see someone who is questionable I'm into them like a rabid dog.

(EDS: We thought it was only fair to give Morningstar a chance to respond to criticism their research was biased and lacking in objectivity. The following is a comment from Chris Douglas co-head of research for Morningstar NZ:

"It is clear to us that Gareth Morgan does not understand Morningstar’s business. We are a staunchly independent research firm and do not accept payment from fund managers for research reviews – such as KiwiSaver – or our fund awards. We operate a user-pays model. Advisers and investors pay a subscription to access our research and like-wise if a fund manager wishes to promote a research report there is a cost involved here as well. We are a publicly listed company, so anyone can see that and the majority of Morningstar’s revenue comes from areas such as licensed data, investment research and investment software."

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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The Bottom Line with Gareth Morgan Funds is that they have performed very poorly over the last 3 years.

I note that Interest.co.nz --produced a List of Kiwisaver Funds to 31st March 2011,and the Gareth Morgan Funds are not included in that comparison.

Gareth Morgan may say that these finds have a long time to run, but if you only have 10 years to retirement, a poor start does not help, with 3 years of the time available has been lost, and with negative returns making the situation worse.

"The Bottom Line with Gareth Morgan Funds is that they have performed very poorly over the last 3 years." I'm baffled as to your statement? A quick glance at the graph [above] shows the GMI conservative fund to be clearly ahead of the "benchmark" [The fund, since inception is up 9.2% averaging 2.3% return per annum (after tax, fees and expenses). The benchmark against which GMI measures it has risen 7% from a similar time frame, delivering 1.7% per annum.) If you are within 10 years of retirement then, obviously, the conservative fund is the place to be !

When he set up his Kiwisaver fund Gareth promised that he could beat the majority of other funds , and with much less risk . He deliberately took a conservative approach . Somewhat fortuitously as it happens , just prior to the GFC .

.. but over the long haul ( 10 years plus ) ,  his low risk model is unlikely to outperform more aggressive funds , such as Carmel Fisher's . Reward rises as risk does .

I assume from his comments that  jack is not looking at "10 years plus" and i stand by my statement, if you are within 10 years of retirement it is too late to gamble on risk/reward. rather stick to a conservative fund and appreciate the added bonuses via Govt.

Yes , 3 years is hardly a "  long term ". Investors ( myself included ) are usually an impatient lot . Why else do companies in the USA have to file quarterly reports !

.... each to their own , regarding risk / reward . My prefernce is to always own common stock of publicly listed companies , regardless of my age .

Gareth Morgan was quite upfront about his investing style . Which is why I chose not to invest with him .

...  if you've ever been to one of his seminars , he is an immensely entertaining fellow .

Forget  all this kiwisaver rubbish, become your own centeral bank and bet phisical with a bit of bullion, 18% year on year increase for the last ten years running with zero counterparty risk.

And given the status of the worlds currencies the big moves upwards are yet to come.

Get yourselve a stimulas package, buy some gold.