We review regular savings returns to September 30, 2014 for balanced KiwiSaver funds, identifying who has the best long-term returns. There are some standouts

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

If you have chosen a KiwiSaver fund in the balanced category, you are investing in a-bit-of-everything portfolio and getting a reasonable return well above a term deposit, for an average level of risk.

Don't be fooled into thinking all balanced funds have an equal mix of income and growth assets.

As our regular return analysis highlights (see table below) not all balanced funds are the same.

Balanced funds are those that will generally have an even split between income and growth assets with most asset classes represented within the mix. Although the losses in capital may be experienced more frequently, over the long run your capital value should grow more quickly than the more conservative funds. You can see how we classify funds here.

Digging into the underlying data we note there are differences in asset allocations, heding policies and management styles, all of which are factors impacting on returns.

One manager, Milford, stands head and shoulders above the pack. Although the Milford fund has not been going for the full six and a half year period and the returns may be slightly distorted because of this, we believe given what they have achieved to date even if they had been going for the full period they would continue to lead the pack. Excluding Milford, the spread between second place and last place in our main table is over 2.3% which is fairly significant and will over time have a distinct impact on investor balances over time (assuming that gap remains of course).

One notable mover up the table has been the AMP Tyndall Balanced Fund. Just over 18% of this particular fund (as at September 30) is invested into alternative strategies which includes exposure to a JP Morgan Multi-Strategy II fund (a hedge fund). Hedge funds have the ability to generate returns regardless of a markets direction and can produce some spectacular results, they also have the chance of blowing up as we saw following the GFC.

The laggards in the sector are Fidelity, Grosvenor (who own Fidelity and who have recently been appointed a default fund provider) and AMP's Moderate Fund continue to lag their competitors. Earlier in the year Grosvenor acknowledged publicly that they had to change their asset allocation as it had been too defensive. We expect over time the positive changes being made in the background will flow through to their returns.

We are also expecting that changes will be made to the Fidelity suite of funds given Grosvenor now owns them. It would not surprise us if Grosvenor soon move to wind up/merge the Fidelity funds into the Grosvenor suite and we have noticed Grosvenor have started to add some new funds to their offering which look similar to the existing Fidelity ones - watch this space.

There is little differentiating the funds in the middle of the pack over the long term with a return spread of around 0.4% covering half a dozen funds. Having said this over the last three years the return from the KiwiWealth Balanced Fund stands out and is only second to Milford. The KiwiWealth range does not have any exposure to NZ shares or Australian shares in the portfolio (as at September 30) which sets them apart from many of their competitors.

The KiwiWealth Balanced Fund includes alternative assets, sector and style specific investments in it, something many investors will not be seeing in other funds. We are not surprised to see the KiwiWealth team achieving above peer returns in this sector given we highlighted in our aggressive fund analysis their Growth Fund returned over 17% for the last three years based on our return methodology.

Here are the full comparison as at September 30, 2014 for Balanced Funds.

Balanced Funds      
Cumulative $
=+ Cum
net gains
Effective*
= Ending
Value
Effective
Since April 2008 X Y Z
contributions
after all
tax, fees
cum
return
in your
account
last 3yr
to September 2014      
(EE,ER,Govt)
$
% p.a.
$
return %
p.a.
Milford Balanced B B B
$13,632
$5,228
13.14%
$18,861
13.51%
Aon Russell LifePoints 2025 B B B
$19,862
$7,073
8.63%
$26,935
10.19%
ANZ OneAnswer Balanced B B B
$19,862
$7,056
8.61%
$26,918
10.58%
AMP Tyndall Balanced B G G
$19,862
$7,004
8.56%
$26,866
10.76%
ANZ Balanced B B B
$19,862
$6,988
8.55%
$26,850
10.52%
Aon Russell LifePoints Mod B B M
$19,862
$6,812
8.37%
$26,674
9.35%
Mercer SuperTrust Mod B B B
$19,862
$6,602
8.23%
$26,464
9.47%
Kiwi Wealth Balanced Fund B B B
$19,862
$6,646
8.19%
$26,508
12.01%
Aon Tyndall Balanced B G G
$19,862
$6,624
8.17%
$26,486
10.43%
Fidelity Ethical B B B
$19,862
$6,591
8.14%
$26,453
10.16%
ANZ Default Balanced B B B
$19,862
$6,465
8.01%
$26,327
9.35%
AMP Fisher Funds TWO Bal B B B
$19,862
$6,101
7.63%
$25,963
9.17%
Fisher Funds TWO Balanced B B B
$19,862
$6,031
7.55%
$25,893
9.51%
ASB Moderate B B M
$19,862
$5,833
7.34%
$25,695
8.50%
AMP Moderate Balanced B B B
$19,862
$5,653
7.15%
$25,515
8.71%
Fidelity Balanced B B B
$19,862
$5,580
7.07%
$25,442
9.23%
Grosvenor Balanced B B B
$19,862
$4,911
6.33%
$24,773
7.66%
-------------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition  
G = Growth, B = Balanced, A = Aggressive                

The following balanced fund has not been going long enough to be included in the above table.

Balanced Funds      
Cumulative $
=+ Cum
net gains
Effective*
= Ending
Value
Effective
Since April 2008 X Y Z
contributions
after all
tax, fees
cum
return
in your
account
last 3yr
to September 2014      
(EE,ER,Govt)
$
% p.a.
$
return %
p.a.
BNZ Balanced B B   4849 340 8.0 5189 n/a

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 you life stage. You should move only with appropriate advice and for a substantial reason.

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

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

2 Comments

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Highlight new comments in the last hr(s).

Useful table, but you should review your risk rating of the SmartKiwi funds.
As they are passive index funds they make a good benchmark and theoretically should be mid-table. But your ratings put them at the bottom of higher risk categories.

Hi Austin
thanks for your comments.
The logic behind the classification is based on the underlying asset allocation rather than just looking at how the fund manager or provider classifies their fund. The only fund classification which we vary from more mainstream classifications is in the balanced fund category.
The classification process is very subjective and is open to debate. Here is the logic behind the classification of the balanced fund in the growth category rather than in the balanced one.
For the balanced fund the asset allocation is 60/40 in favour of growth over income. You could argue this is what a balanced fund may or should look like. However, if you drill down and look at the asset allocation breakdown the fund invests into mid-cap Australian shares and Large Cap NZ shares.
My view is that there is more risk involved in the SmartKiwi Balanced fund as there is a concentration into Aussie mid cap stocks and NZ shares which are small compared to other companies globally. Plus you have to take into account the NZ market is not as liquid as others and therefore you need to add a risk premium for this (in my opinion).
If we move the Smart Kiwi balanced fund from growth to balanced in our tables the fund would still be languishing at the rear of the field.
I think the poor performance of the SmartKiwi funds is more a reflection of their investment strategy, asset allocation and the underlying investments as opposed to anything else - they should have a leg up on their competition as their fee structure is competitive but this is not showing through to their performance data.
regards
Craig
 
 

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