We review the regular savings returns as at September 30, 2014 for moderate funds, identifying who has the best long-term returns

We review the regular savings returns as at September 30, 2014 for moderate funds, identifying who has the best long-term returns
Regular contributions change the way you should look at your KiwiSaver returns. Image sourced from Shutterstock.com

Moderate funds are delivering good consistent returns with only modest risk and our review of the performance of these funds to September confirms this.

While no single fund in the moderate category has achieved a double digit return either over the long term or the last three years, these funds do deliver consistent results much better than bank term deposits and with much less risk than aggressive and growth funds.

Lower returns are hardly surprising as the investment strategies will have much less than half of the total fund invested into growth assets (shares) with the balance spread across more defensive holdings such as cash and fixed interest.

With Moderate funds investors can make a loss in the capital value of their investment during times of extreme volatility or when interest rates rise which may lead to capital value losses on the fixed income investments.

It is reasonable to expect to see your capital grow steadily over time but with the possibility of a few small hiccups along the way. You can see how we classify funds here.

From the data we see Aon, ANZ and Mercer dominate the top spots. This is a fairly consistent theme across many of the strategies we have reviewed so far and is we believe a reflection of the institutions skills in either managing the money themselves or selecting those managers with superior track records. The manager's asset allocation strategy will also play a part in generating superior returns.

In our previous review of this category three months ago the BNZ Moderate fund had been at the top of the rankings although this fund had then only been going for a little over 12 months and the returns were distorted somewhat against funds who have been in the sample group for the full six and a half years. The BNZ Moderate fund has now slipped back to mid-pack, one of the few to do that.

Consistency in returns each year is something investors should expect to see within this category given the higher exposure to assets carrying lower levels of volatility (risk).

There is some dispersion in terms of returns from the best to worst performing funds over the longer time horizon, however comparing the last three year's returns the top performing funds have been able to eek out better returns which have enabled them to retain their places at the top of the table.

Many of the funds in this category have achieved returns in the past three years above the average achieved over the last six and a half years. The notable exceptions are the Aon Russell Lifepoints Conservative Fund, AMP Conservative Fund (matched long run return), ANZ OneAnswer Conservative Fund, Grosvenor Conservative Fund and Craig's Conservative Fund. The lowest three year return was from 5.1% from the Grosvenor Conservative Fund. 

The underperformance from the Grosvenor funds in general has been acknowledged by the manager and the asset allocations reviewed and brought more in line with the market. As a result we would be expecting some improvement in the overall performance of this fund or at worst for it to be similar to a large number of their competitors.

Here is the comparison as at September 2014 for Moderate Funds.

Moderate Funds      
Cumulative $
contributions
+ Cum net gains
after all tax, fees
Effective*
cum return
= Ending value
in your account
Effective
last 3 yr return
since April 2008 X Y Z
to Sept 2014      
(EE, ER, Govt)
$
% p.a.
$
% p.a.
       
 
 
 
 
 
Aon Russell LifePoints 2015 M C M 19,862 6,077 7.6% 25,939 8.0%
ANZ OneAnswer Conserv Bal M B M 19,862 5,941 7.5% 25,803 8.5%
ANZ Conservative Balanced M B M 19,862 5,866 7.4% 25,728 8.4%
Aon Russell LifePoints Cons M C C 19,862 5,822 7.3% 25,684 7.2%
Mercer SuperTrust Conservative M C M 19,862 5,670 7.2% 25,532 7.7%
ANZ Default Conserv Bal M B M 19,862 5,594 7.1% 25,456 7.7%
AMP Moderate M B M 19,862 5,219 6.7% 25,081 7.5%
Fisher Funds TWO Conserv M C M 19,862 4,973 6.4% 24,835 6.7%
Westpac Conservative M C M 19,862 4,771 6.2% 24,633 6.5%
AMP Conservative M C M 19,862 4,737 6.1% 24,599 6.1%
ANZ OneAnswer Conservative M C C 19,862 4,708 6.1% 24,570 6.3%
Fidelity Conservative M C M 19,862 4,704 6.1% 24,566 6.6%
ANZ Conservative M C C 19,862 4,657 6.0% 24,519 6.2%
Fisher Funds Conservative M C M 16,600 3,624 5.7% 19,864 6.6%
Grosvenor Conservative M C M 19,862 4,178 5.5% 24,040 5.1%
SmartKiwi Conservative M C C 19,862 4,171 5.5% 24,033 6.0%
Craigs Conservative M C   19,862 3,979 5.3% 23,841 5.2%
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
B = Balanced, C = ConservativeG = GrowthM = Moderate      

For those funds which have not been going for a considerable period of time we have separated these funds and included them in the table below.

Moderate Funds      
Cumulative $
contributions
+ Cum net gains
after all tax, fees
Effective*
cum return
= Ending value
in your account
Effective
last 3 yr return
since April 2008 X Y Z
to Sept 2014      
(EE, ER, Govt)
$
% p.a.
$
% p.a.
       
 
 
 
 
 
BNZ Moderate M B   4,849 299 7.0% 5,149 n/a
Generate Conservative C C M 4,663 203 5.2% 4,866 n/a
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
B = Balanced, C = Conservative, M = Moderate      

The right fund type for you will depend on your tolerance for risk and importantly on you life stage. You should move only with appropriate advice and for a substantial reason.

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

There are wide variances in returns since April 2008, and even in the past three years, and these should cause investors to review their KiwiSaver accounts especially if their funds are in the bottom third of the table.

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.

Our next review will look at September returns in Conservative and Default funds as part of our updated monitoring of regular savings KiwiSaver returns. The September review of Aggressive Funds is here, Growth Funds is here and Balanced Funds here.

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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