By Amanda Morrall
New reporting requirements for KiwiSaver providers to be introduced in 2013 will make it easier for members to gauge the relative performance of their fund, how much they're paying in fees and what they are invested in, effectively creating a "democratisation of data,'' according to research house Morningstar.
Chris Douglas, co-head of research for Morningstar New Zealand, said the anticipated changes, announced last week during the 2012 Budget, are being welcomed by the funds management sector and analysts alike as the new framework will allow an apples-with-apples comparison for the first time.
"It's not overly technical, it shouldn't be overly arduous for the typical provider. There will be interesting data points that people can finally get," he said.
Under the new reporting system, providers will be obliged to disclose information on their total expense ratios (this is the sum of all fees and expenses applied to a fund), asset allocation (the types of investments that make up a fund), portfolio managers, fund size, and performance data. It's all great.''
At the moment, there is no consistency in how KiwiSaver providers are calculating fees and expenses, how that information is communicated to investors and also how performance is measured. As a result, some providers have refused to participate in league table comparisons and analysis.
Douglas said the new rules will fill a void in KiwiSaver regulation.
"The other problem we had is that the industry body wasn't actually coming out there and putting forward what they thought was the appropriate methodology and there wasn't enough of the industry going out there and self-regulating themselves. So the regulators needed to put forward the rules and calculations around total expense ratios. And that's what happens globally.''
While the average investor won't likely notice a big change, Douglas said the accessibility and universality of the data will allow for more meaningful and accurate research by analysts, academics and the media.
Douglas said the Ministry of Economic Development's new guidelines will streamline the information for investors so relevant information is presented on a standard template published on a quarterly basis.
The information will also be required to be posted on provider's website as well as the regulator's website.
The on-going debt crisis in Greece and the possibility of the eurozone break-up has dragged superannuation funds down across the Tasman, however here in New Zealand the impact has been muted.
That's because unlike Australia, where default funds are 50-60% exposed to growth assets, default funds here in New Zealand are conservative, with an 80% weighting of cash and fixed-interest.
Douglas said that's spared KiwiSavers from suffering any major losses related to eurozone investment jitters.
As KiwiSaver is a long-term investment, Douglas said members needn't panic or lose their perspective.
"The important thing to remember is we had this conversation three, six, 12 months ago and it's going to keep coming up. Everyone talks about us being a heavily indebted society but that's not going to go away in the short-term. There's going to be a re-rolling of debt that comes into play. It creates great headlines, it creates volatility in the market and scares people to a degree and creates negative returns as well in the short-term. But you have to remember we have had these issues for three years and over that time, growth assets have actually done okay.''
Income vs growth
Douglas said KiwiSaver's regular savings architecture will bode well for investors, many of whom could afford to be in more growth oriented funds.
"We (New Zealanders) love yield, and we love income, and so naturally people are more biassed toward investing in a more moderately balanced portfolio or defensive.
"Very few people with KiwiSaver are investing their full lump sum of retirement assets into the markets. The majority will have 10, 20, 30 years to retirement so they are going to be drip feeding money into their KiwiSaver account. Volatility is brilliant for these people. It goes against our natural instincts to think about it but the fact that we are continuously putting money into the markets and when the markets fall you're buying at these lows and they bounce back again. You can actually get some great returns.
That's why you want to be in the growth assets as well to get the sharp acceleration of the markets and capture the returns when they go up."