We review regular savings returns to September 30, 2014 for conservative & default KiwiSaver funds

We review regular savings returns to September 30, 2014 for conservative & default KiwiSaver funds
Regular contributions change the way you should look at your KiwiSaver returns. Image sourced from Shutterstock.com

The conservative and default funds are those found down the bottom of the risk spectrum and have greater allocations to fixed income and cash within their strategies.

The returns from this category are not going to shoot the lights out but should be reasonably stable over time and the chances of losing capital in any one year will be low.

The default fund asset allocation is determined to a large degree by a mandate which is similar for all managers and is set by Government and their advisers.

There is a range for each asset class that managers can move within but essentially the differences between all nine default fund asset allocations should be within cooee of each other.

Since our last review four new funds have been granted default status effective from July 2014. The new entrants are BNZ, Westpac, KiwiWealth and Grosvenor. KiwiWealth, Grosvenor and Westpac have established new funds which meet the asset allocation criteria for being a default fund. These funds don't have sufficient return data available to include them in our regular savings table at this time.

Across the default funds not a lot has changed in terms of rankings from the last summary of the category. Mercer and ANZ continue to lead the pack.

The average return across the default funds (excluding new default funds Grosvenor, KiwiWealth and Westpac) has been 6.1% which is above the average of 5.9% for all the funds we have categorised as conservative under KiwiSaver. The last three years returns averaged 6.2%.

Over the shorter three year period a majority of the funds have exceeded their long run returns. Five funds have failed to better their long term numbers over the last three years namely: AON Russell Lifepoints Conservative which is ranked near the top of the table on long run returns; AMP Conservative Fund; Grosvenor Conservative Fund (Grosvenor are a newly appointed default fund manager); ANZ OneAnswer Conservative Fund and Craigs Conservative Fund.

ANZ OneAnswer portfolios have been performing well in almost every category so it is unusual to see them off the pace. The conservative fund has considerably less exposure to equities compared to the conservative balanced fund, but the top 10 investments are basically the same so we can definitely say asset allocation has played a large part in the return variance.

AMP have achieved the same return over the last three years as they have over the long term so at least they are consistent in their approach which is a positive point. Their moderate portfolio has performed better and this contains a greater exposure to equities than the conservative fund which will account for some of the relative under-performance versus their peers.

Grosvenor have been changing their asset allocations to be less defensive as they admitted back in March of this year they got it wrong and investors should expect some improvement from this manager over time, all things being equal of course.

Another observation we have made is the Fisher Funds Two Conservative fund (previously Tower) is out performing the fund run by their new owners Fisher Funds. Looking at the latest disclosure statements as at September 30 we see both funds have wildly different allocations in sectors such as cash, New Zealand fixed interest and property. Over time we would be expecting to see less divergence in returns. Given the Fisher Funds Two portfolio is the better performer maybe we could see Fisher Funds realign their asset allocation to boost returns for investors.

As expected all the cash funds appear at the bottom of the return table. The Staples Rodway Conservative Fund invests solely into cash and short term deposits and hence why this fund is found performing in line with cash funds in this sector.

Here are the full comparison as at September 30, 2014 for Conservative & Default Funds.

Default Funds Cumulative $ Cum net gains Effective = Ending value Effective
since April 2008 contributions after all tax, fees  cum return in your account last 3 yr
to Sept 2014 (EE, ER, Govt) $ % p.a. $ return % pa
           
Mercer 19,862 5,348 6.8% 25,210 6.9%
ANZ Investments 19,862 4,886 6.3% 24,748 6.3%
ASB 19,862 4,544 5.9% 24,406 5.9%
Fisher Funds TWO 19,862 4,442 5.8% 24,304 5.9%
AMP 19,862 4,121 5.4% 23,983 5.8%
           
BNZ Conservative 4,849 257 6.1% 5,107 n/a
Grosvenor Default n/a n/a n/a n/a n/a
KiwiWeath Default n/a n/a n/a n/a n/a
Westpac Default n/a n/a n/a n/a n/a

For most default funds, the last three year's return are on a par with the lifetime returns. We believe this is reflective of the improving global economy and sharemarkets where above average long-run returns in equities have helped.

KiwiSaver default funds are only part a broader range of conservative funds available, some of which have better returns. Here is the full list:

Conservative Funds
Cumulative $
+ Cum net gains
Effective
= Ending value
Effective
since April 2008
contributions
after all tax, fees
cum return
in your account
last 3 yr
to Sept 2014
(EE, ER, Govt)
$
% p.a.
$
return % p.a.
 
 
 
 
 
 
Mercer SuperTrust Fixed Interest 19,862 4,663 6.0% 24,525 2.8%
KiwiWealth Conservative 19,862 4,660 6.0% 24,522 6.4%
ANZ OneAnswer Int'l Fixed Interest 19,862 3,673 4.9% 23,535 4.0%
ANZ OneAnswer NZ Fixed Interest 19,862 3,623 4.8% 23,485 2.9%
Lifestages Capital Stable 19,862 3,179 4.3% 23,041 5.1%
Fidelity Capital Guaranteed 19,862 3,114 4.2% 22,976 4.0%
AMP Cash 19,862 2,572 3.5% 22,434 2.9%
Grosvenor Enhanced Income 19,862 2,507 3.5% 22,369 2.8%
Mercer Cash 19,862 2,467 3.4% 22,328 2.6%
Mercer SuperTrust Cash 19,862 2,427 3.3% 22,289 2.6%
Aon Tyndall NZ Cash 19,862 2,315 3.3% 22,177 2.7%
ASB NZ Cash 19,862 2,288 3.2% 22,150 2.8%
Staples Rodway Conservative 19,862 2,252 3.1% 22,114 2.8%
ANZ Default Cash 19,862 2,232 3.1% 22,094 2.6%
ANZ Cash 19,862 2,149 3.0% 22,011 2.6%
Westpac Cash 19,862 2,134 3.0% 21,996 2.5%
Craigs Fixed Interest 14,858 1,188 3.0% 16,046 1.6%
ANZ OneAnswer Cash 19,862 2,057 2.9% 21,919 2.5%
Aon ANZ Default Cash 19,862 1,654 2.3% 21,516 2.0%

For those funds which have not been in existence for over three years their results are shown in the table below.

Conservative Cumulative $ Cum net gains Effective = Ending value Effective
since April 2008 contributions after all tax, fees  cum return in your account last 3 yr
to Sept 2014 (EE, ER, Govt) $ % p.a. $ return % pa
           
Milford Conservative 5,781 747 11.8% 6,529  
BNZ Conservative [D] 4,849 257 6.8% 5,107  
Fidelity AC Conservative 5,222 220 4.5% 5,442  
BNZ Cash 4,849 134 3.2% 4,983  

In addition, savers interested in risk-protected returns should consider Westpac's capital 'guaranteed' funds.

These funds invest in equities but have a Capital Protection Plan is designed to give you the opportunity to earn the higher returns normally associated with growth assets without the risk of losing your initial contributed capital (other than through the insolvency of the Capital Protection Provider or a "tax change event"). The goal of generating higher returns is implemented by having as much of the CPP Fund as possible invested in growth assets.

However, the manager is also required to preserve the capital value of the Fund. It does this by reducing the amount invested in growth assets if the value of the assets of the CPP Fund falls below certain predetermined levels. Instead, some (or, if there is a very dramatic fall in the value of the growth assets, all) of the assets of the CPP Fund are placed in a form of deposit with the Capital Protection Provider that is designed to recover part of the value of the assets over time, but does not produce a positive investment return (these are sometimes called zero coupon bonds or deposits).

Westpac has five such plans, all starting at different times:

Capital protected Cumulative $ Cum net gains Effective = Ending value Effective
since April 2008 contributions after all tax, fees  cum return in your account last 3 yr
to Sept 2014 (EE, ER, Govt) $ % p.a. $ return % pa
           
Westpac CP Plan No. 1 17,645 7,497 11.2% 25,142 15.4%
Westpac CP Plan No. 2 14,683 5,328 11.7% 20,010 15.3%
Westpac CP Plan No. 3 11,534 3,770 13.5% 15,304 15.1%
Westpac CP Plan No. 4 8,334 2,338 16.2% 10,671  
Westpac CP Plan No. 5 5,595 980 16.1% 6,575  

Don't jump into these types of funds unless you understand fully how they work in good times, and bad.

The following funds have not been going long enough to be included in the above table.

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 September review of Aggressive Funds is here, Growth Funds here, Balanced Funds here and Moderate 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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