Mercer's KiwiSaver results show portfolios hit by recent market turmoil but hold up over the longer term

Mercer's KiwiSaver results show portfolios hit by recent market turmoil but hold up over the longer term

By Craig Simpson

The latest data released for KiwiSaver performance as at June 30, 2013 is from Mercer and MercerSuperTrust. (Our story covering the results to March 31, 2013 can be found here.)

Like many of the other managers, Mercer's results were varied with returns for the past month ranging from +0.25% (NZ Cash) to -3.30% (Global Shares).

Mercer's Fixed Interest Fund showed it is possible to lose money in fixed income investments.

This fund fell victim to the recent global sell-off in bond markets following both the US Fed announcements regarding tapering back their quantitative easing (QE) program and reports China was potentially heading for its own financial crisis.

KiwiSaver managers with large exposures to both domestic and global bonds will have seen their returns impacted by these events during the months of May and June.

Mercer continues to grow its funds under management (FUM) by virtue of being one of the six default providers and via their track record as a solid performer.

Currently total FUM is approximately $865 mln with close to 80% of this being held in the default fund (Conservative Fund).

Despite being a default provider Mercer has 9 of its 15 funds under KiwiSaver with FUM of less than $10 mln.

We suspect the concentration of FUM in the default fund is due to people being automatically enrolled and not bothering to shift or not seeking advice on what is the most appropriate investment strategy for them to be in to help meet their retirement goals.

The general theme of the past few qaurters has been growth portfolio out-performing those dominated by fixed income assets and this has continued to show through in the last results.

The return differential between the most aggressive and conservative strategies for the last 12-months is over 30%.

Australian and New Zealand shares (Trans-Tasman Fund) which is currently 99% invested into NZ shares has been Mercer's shining light over the past one and three years.

The NZ stock market has been one of the best performing markets over the past 12-months or so and this is reflected in Mercer's asset allocation to domestic equities as opposed to Australian companies.

This strategy is not without specific risks mind you and the returns can be volatile as can be seen by the divergence between the June returns (-1.1%) compared to the last 12-month (+31.9%) and three year (+14.1%) returns.

Across the diversified portfolios over the last 12-months, Mercer's High Growth portfolio has been the best performer at +17.5%. Again this return reflects the higher exposure to asset such as shares and property and highlights the relative strength of these markets at this point in time.

Looking further out, over the past five years to June 30, Mercer has again proven to be one of the leading performers in the more 'conservative' KiwiSaver categories of Default, Conservative, Cash and Fixed Income and this comes despite recent events and the down turn in fixed income markets.

All of Mercer's 15 KiwiSaver funds have returned positive results in the five-years to June 30. The Trans-Tasman fund has produced the best result over this period with an average return of +8.6% p.a. over the past five-years. Of the core mult-sector strategies the best performers continue to be the more conservative funds and those with high allocations to fixed income assets.

Interestingly the return from the Trans-Tasman Share Fund is only about 1.5% higher per annum than the Fixed Interest Fund. Normally investors would be expecting to see a return difference of at least 4% higher (i.e.risk premium) to compensate them for the additional risks of investing in shares over fixed income.

Readers should expect to see some variance in the returns between the Mercer and Mercer SuperTrust portfolios as the underlying asset allocation is marginally different. This is point is illustrated in more detail in the asset allocation table which follows directly after the performance data below.

Below is a table of the longer term performance of the Mercer and Mercer SuperTrust funds. The return data is before tax and after fees and is as published by the managers and using historical return data to calculate 5-year returns. (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.)

Mercer KiwiSaver Scheme
(30 June 2013)
1 year
(p.a.)
5 year
(p.a.)
Since inception* (Oct 2007)
(p.a.)
Conservative Fund (default) 7.1% 6.0% 5.3%
Balanced Fund 12.6% 5.0% 2.7%
High Growth Fund 17.3% 4.0% 0.8%
Cash Fund 3.0% 4.1% 4.6%

 

 

 

 

 

 

 

Mercer SuperTrust KiwiSaver Scheme
(30 June 2013)
1 year
(p.a.)
5 year
(p.a.)
Since inception* (Oct 2007)
(p.a.)
Conservative Fund 7.1% 5.1% 4.1%
Moderate Fund 10.8% 5.8% 3.3%
Active Balanced Fund 12.6% 4.9% 2.6%
Growth Fund 14.6% 4.5% 1.8%
High Growth Fund 17.4% 4.0% 0.7%
Cash Fund 3.0% 4.1% 4.5%
Fixed Interest Fund 3.4% 7.0% 7.0%
Real Assets Fund 11.2% 2.8% -0.9%
Trans-Tasman Fund 31.5% 8.6% 2.6%
Shares Fund 23.2% 3.7% 0.0%
Global Shares Fund 19.6% 1.3% -1.4%

 

 

 

 

 

 

 

 

 

 

 

* Mercer has not reported the return since inception for the various funds. We have calculated the since inception return using monthly returns provided directly by the manager.

More detailed performance reporting can be found here ».

The table below outlines the assset allocation for each of the Mercer and Mercer SuperTrust KiwiSaver portfolios

Mercer KiwiSaver
30 June 2013

Cash
(%)
NZ Bonds (%) Global Bonds
(%)
Property    (%) Global Property
(%)
NZ & AU  Shares
(%)
Global  Shares
(%)
Other
(%)
NZ Cash 100              
SuperTrust NZ Cash 100              
Conservative 38.9 14 27.3 2.4   5.0 10.2 2.5
SuperTrust Conservative 37.9 13.2 18.7 3.8   4.6 13.2 8.7
SuperTrust Moderate 21.2 10.6 15.7 6.0   9.1 24.6 12.8
Balanced 15.0 8.8 12.8 7.1   11.5 30.7 14.3
SuperTrust Balanced 12.9 9.1 12.9 7.5   11.7 31.4 14.4
SuperTrust Growth 8.7 6.8 9.3 8.0   14.0 38.0 15.2
High Growth 4.7 2.2 2.4 8.3   18.3 45.8 18.3
SuperTrust High Growth 2.6 2.2 2.6 8.4   18.7 47.2 18.2
SuperTrust Fixed Interest 12.8 29.7 57.5          
SuperTrust Shares 1.4         29.9 68.7  
SuperTrust Trans-Tasman 1.0         99.0    
SuperTrust Global Shares 1.1           98.9  
SuperTrust Real Assets 1.7     40.8       57.4

 

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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2 Comments

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Interestingly the return from the Trans-Tasman Share Fund is only about 1.5% higher per annum than the Fixed Interest Fund. Normally investors would be expecting to see a return difference of at least 4% higher (i.e.risk premium) to compensate them for the additional risks of investing in shares over fixed income.
 
A predisposition to employ historical axioms have to be revisited - it is impossible to compare returns in any asset class after the introduction of sophisticated hedging instruments (exchange traded options, futures and similar OTC products).
 
Fed moral hazard (QE) has introduced another factor that distorts comparing returns since 2008 with those of a prior period. 
 
Notably, companies like Microsoft continually wrote puts (off balance sheet) against the stock price to enhance bottom line returns when conditions permitted - it has been noted that the premium captured from this activity was greater than other sources of income for many firms leading up to 2008 and thereafter.
 
The financialisation of society demands we revise our benchmark risk profiles now cental bank intervention and the consequent cost of continuously lifting and resetting  hedges impacts unequally and sometimes negatively upon asset returns in ways that remain not well understood or at least acknowledged.
 

Stephen
You raise a valid point re-visiting benchmark risk profiles.
What sort of risk premia would you suggest an equity investor should be looking for over a reasonably secure corporate portfolio in the new post GFC world?