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Forsyth Barr's KiwiSaver results show the exposure to global equities is not performing and is hurting portfolios

Forsyth Barr's KiwiSaver results show the exposure to global equities is not performing and is hurting portfolios

The latest data released for KiwiSaver performance as at March 31, 2013 is from Forsyth Barr. Our story covering the returns to December 31, 2012 can be found here.

From 1 April, the Manager increased the monthly account fee from $2.50 per month to $3 per month ($36 per annum). While investors don't like fee increases, the annual account fee is now in line with what other KiwiSaver managers charge.

Forsyth Barr offers investors the opportunity to select their own asset allocation and invest their funds into a selection of up to eight portfolios. The only restriction is the minimum exposure to any one of the Personal Choice portfolios is 5%.

The beauty of this approach is it allows investors a greater degree of flexibility over their investment choices. Investors' funds are invested into other Forsyth Barr managed investment portfolios.

Forsyth Barr are one of a very select group of KiwiSaver providers who openly offer this facility (SuperLife and Craig's IP are the others).

The two portfolios Forsyth Barr offer (Balanced and Growth) which have no investor input have provider investors with returns roughly in line with their benchmarks over the past 12-months. However over the longer term they lag by approximately 1.5% per annum which is substantial given the manager actively monitors and selects the underlying securities in a large portion of the investment portfolios.

The manager in its commentary to investors notes strong performance from the New Zealand, Australian and property equity investments have all been strong contributors to performance over the last quarter while, global equities, although positive, have not delivered the returns expected.

The soft commodity prices have been a negative influence on Emerging Market companies and these make up over one-third of the international equity portfolio. The manager cites the poor performance of the Indian and Chinese markets as being of concern.

During the March quarter Forsyth Barr added two new UK listed investment trusts (JP Morgan Fleming American and Scottish Mortgage Trust) to their international portfolio. Apart from increasing diversification within the international equity portfolio, another driver behind the decision to use UK listed vehicles was to take advantage of the historically high NZ dollar/British Pound Sterling cross rate.

Investors who have been in the Forsyth Barr Global Equity portfolio will be disappointed with how their investment has performed since inception of the fund (-5.9% per annum) especially when some of their competitors who offer exposure to this sector have experienced considerably higher (i.e. either positive or less negative) returns since inception. The managers asset allocation, selection of international sub-managers and hedging policy will be the main contributors for the long-term poor performance.

Forsyth Barr comment that over coming months they may look to reduce the exposure to emerging markets as the very reflationary central bank policies of the US, Japan and UK make these markets more attractive over those economies with more austere policies.

Within the NZ Equities portfolio Forsyth Barr noted it was the companies they did not hold in their portfolios (e.g. Xero) that caused the portfolio to lag the NZX 50 gross Index). Over the longer term Forsyth Barr's portfolio is out-performing the benchmark by approximately 2.6% per annum which positively reflects on their ability to pick companies with strong long-term growth potential.

During the quarter the manager also added listed property stocks to the portfolio for their defensive and income qualities and this could be a signal they are expecting the NZ market to cool down and flatten off.

The Australian Equity portfolio had a very strong quarter outperforming the ASX 200 Accumulation Index by just under 3%. Over the past 12-months the portfolio suffered due to the exposure to resource stocks and the subsequent softening of commodity prices. The portfolio benefited from exposure to financials. ANZ and National Australia Bank (NAB) made up 15.1% of the portfolio at the end of the quarter.

This portfolio also invests into the NZ dual listed stocks (Auckland Airport, Kathmandu and Sky TV) and these companies assisted in ensuring the portfolio out-performed the benchmark during March.  

Forsyth Barr's three fixed income portfolios have provided investors with in-excess of 7% return per annum since inception which investors will be very satisfied with especially in the low interest rate environment. The main highlight from the fixed income portfolios is the Premium Yield Portfolio. This strategy has added 2.9% per annum over the NZX 90-day Bank Bill Index since inception. 

For those investors looking to diversify away from the residential property market Forsyth Barr offer a diversified exposure to commercial property via the Listed Property Fund.

This fund invests heavily into the top five companies (Property for Industry, Argosy, Kiwi Income, Goodman and DNZ).

The companies in the fund offer attractive dividend yields and there is an expectation from the manager of rental and valuations improvements. The fund has largely tracked the benchmark but has lagged recently as some of the heavy weight companies in the index have been impacted by factors such as Christchurch earthquake strengthening costs (Kiwi Income) and large underdeveloped land holdings (Goodman).

The Property fund also has a holding in Australian company Lend Lease which was a positive contributor over the last quarter. CDI was added to the portfolio since we last wrote and this provides exposure to residential developments in NZ.

The Socially Responsible Fund available to investors performed in line with its benchmark over the past 12-months. Since inception the fund is adding over 3% per annum above benchmark and remains highly concentrated in a handful of shares. Holdings in Roche, Glaxo, Reckitt and Google make up over 50% of the portfolio. Wells Fargo, Fedex and Microsoft are the other high profile names held by the manager inside the top 10 holdings.

In summary while the manager is able to add significant value in some portfolios (on a before fees basis) through their stock picking, there are still many strategies where they are lagging both the portfolios benchmark and their competitors.

On an after fees basis the returns do not look that good across the portfolios compared to other managers we have reviewed recently.

Below is a table of the longer term performance of the Forsyth Barr funds. The return data is before tax and after fees and is as published by the managers. (No adjustments have been made to take into account those additional fees which scheme providers may charge and which are not included in calculating the fund performance. We do make such adjustments, but they will not be included until the full benchmarking is published.)

Forsyth Barr KiwiSaver Scheme
(31 March 2013)
1 year
(p.a.)
5 year*
(p.a.)
Since inception (26 June 2008)
(p.a.)
Balanced Fund 10.8% n/a 3.5%
Growth Fund 12.7% n/a 2.1%
Premium Yield Fund 4.9% n/a 7.0%
Local Authority Fund 5.0% n/a 6.3%
Fixed Interest Fund 6.8% n/a 7.6%
NZ Equities Fund 21.6% n/a 7.6%
Australian Equities Fund 13.1% n/a 0.0%
Global Equities Fund 5.6% n/a -5.9%
Listed Property Fund 18.9% n/a 4.8%
Socially Responsible Investment Fund 7.0% n/a 1.8%

 

 

 

 

 

 

 

 

 

 

 

* 5 year returns are not available as the funds were established in June 2008.

More detailed performance reporting can be found here ».

 

Forsyth Barr KiwiSaver
(31 March 2013)

Cash
(%)
NZ Bonds (%) Global Bonds
(%)
Property    (%) Global Property
(%)
NZ & AU  Shares
(%)
Global  Shares
(%)
Balanced 5.4 25.7   12.5   34.2 22.1
Growth 2.1 13.1   11.8   48.4 24.5
Cash Management 100.0            
Premium Yield 13.6 86.4          
NZ Fixed Interest 2.1 97.9          
Local Authority 6.8 93.2          
NZ Property 8.8     91.2      
NZ Equities 5.9       94.1    
Australian Equities 2.7       97.3    
Global Equities 4.8         4.8 90.4
Socially Responsible 2.5           97.5

 

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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Days to the General Election: 37
See Party Policies here. Party Lists here.