KiwiSaver has now been going long enough to clearly show that over a long timeframe, more 'risk' can deliver 'better rewards'

KiwiSaver has now been going long enough to clearly show that over a long timeframe, more 'risk' can deliver 'better rewards'
Regular contributions change the way you should look at your KiwiSaver returns. Image sourced from Shutterstock.com

Our KiwiSaver regular savings methodology has identified the top funds in each risk category, showing clearly who has the best track record since April 2008.

After seven years, KiwiSaver now has over 2.4 million members and approximately $24 billion in funds under management spread across 19 institutions.

Those seven years include turbulent times for fund managers, with lows and highs, but it is long enough for a realistic sorting out among managers.

Our regular savings model based on a 28 year old who started KiwiSaver in April 2008, who earns an average wage, who is contributing the minimum along with their employer, and who receives all the government contributions, could have a balance after accounting for tax and fees of close to three times that member average.

By saving regularly and being willing to accept fluctuations in capital values from month to month, KiwiSavers who stuck with an aggressive strategy in the face of the overwhelming doom and gloom have ended up considerably better off compared to those who chose a more conservative strategy.

The difference between the best performing aggressive fund and the best performing conservative fund over the last six and a half years is an impressive 6.8% p.a.

Our review of all funds also shows a wide variation between the best fund and the average of the bottom five. As you might expect the largest gap is for the aggressive and growth fund categories. Perhaps less expected is that the gap is less but very similar for the other three categories, balanced, moderate and conservative. In these categories the best and worst varies by only about 2%. Your choice of fund is less likely to make a huge difference if you take a more cautious approach than if you chase aggressive returns. For aggressive and growth categories, it is important to choose wisely, and a fund's long term track record is one important aspect of that choice.

Over all categories some managers are performing better over the last six and a half years and there are some who are dragging the chain.

Some names that keep appearing in the top handful of managers across the various categories over the longer term are AON, AMP, ANZ, Mercer & Milford. Other notable mentions go to KiwiWealth and Staples Rodway.

The KiwiWealth portfolios showed some of the best improvements and regular savings returns over the past three years, while the Staples Rodway Balanced Fund is ranked 5th in the growth category, which is highly commendable given the relatively small investment team compared to other fund managers and consulting firms.

While the bouquets go to these select managers, the brickbats go to Craig's Investment Partners (Craig's IP), Grosvenor & SmartKiwi.

With respect to Grosvenor they have recognised they were dragging the chain and had got their strategy wrong. Since March this year the company's asset allocations have changed and moved back towards a more mainstream approach which is not too dis-similar to their competitors.

It is also worth noting that one Craig's fund, the Craig's IP NZ Equity strategy, is currently performing very well - although it has not been invested over the full period so the returns are somewhat embellished compared with funds who have been there from the start. Craig's IP seem very good at picking domestic equities, but no where near as good when it comes to other assets and asset classes. 

Across the various categories we have observed there is a relatively wide range of returns between the top five and bottom five managers in each class. The table below highlights the best fund in each main class and the range of returns between the top and bottom performers. We also list the top fund as at September 30, 2014 based on our regular savings return model. For the purpose of comparison we have only used those managers who have been in existence for the entire six and a half year period.

Category Number of funds Top long-term return
after fees
after tax
The Top Fund Average of Top Five
after fees
after tax
Average of Bottom Five
after fees
after tax
Aggressive 28 13.6% Milford Active Growth 13.0% 7.9%
Growth 23 11.2% Mercer SuperTrust Growth 10.1% 6.5%
Balanced 16 8.6% AON Russell Lifepoints 2025 8.3% 7.1%
Moderate 16 7.6% AON Russell Lifepoints 2015 7.4% 5.7%
Conservative1 11 6.8% Mercer Conservative 6.2% 4.7%
Default2 5 6.8% Mercer Conservative 6.0% n/a

1. The Conservative Fund data in the table excludes cash funds.

2. There are now nine default funds, however only five have been in existence for the full period of our analysis.

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

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, moderate funds here, and conservative 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?

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.

19 Comments

Thankyou interest.co.nz. My ANZ Kiwisaver has an annualised return of 5.19% in the Balanced Growth Fund. Their best performer is 5.56% in the Conservative Balanced Fund.
Needless to say I'll be chaning providers.

...as we get closer and closer to drawing down on these funds it will become evident that there is too much debt in the system for it ever to be repaid. Good luck with cashing it in. 

I'm self employed so pay only the minimum to get the government contributions. My retirement plan is definitely not pegged to Kiwisaver. It'll pay for a nice little round the world trip if I'm lucky. 

...good luck allright.  if you think collapse of the financial sytem will be limited to Kiwisaver then you'll be just fine. 

It's the walking dead I'm worried about...

Where did you get the 5.19% from? I got over 12.0% last year in the same fund...
https://customer.anz.co.nz/kiwisaver/ANZFunds/Pages/ANZPerformance.aspx

Me too - last year. Check out the annualised return since the fund commenced. If we were with Milford Active Growth we would have recieved an average of 13% every year - over double the return of what our ANZ funds have achieved. 

The 12% return is for the year to September 2014 and is before tax and after fund fees but before other out of fund fees which you as an investor will be charged (one way or another) but may not be included in the daily unit price necessarily. The fund manager calculates the return as the change in unit price from point A to point B and does not take into account regular contributions or any other contributions made to your account - in effect you need to account for all the money you put in, your employer and govt put in and then see what value over and above that the manager adds.
In some instances managers will be adding little value and others will be providing considerable value however, this may also be because they are taking on an above average level of risk - or they simply may be pretty good at timing markets and choosing the right allocatios and securities.
It is important when comparing returns to make sure you are doing like with like and also understand what is driving those returns and how much risk the manager is taking to achieve the result.
Craig.
 
 

Investing overseas is so easy.
But a word of caution. Make sure you get your money back. It may be rigged.
Never put all your trust in anyone. Cos you cannot trust, almost everyone, with your money.
http://www.bloomberg.com/news/2014-11-13/forex-investors-may-face-1-bill...
http://www.bloomberg.com/news/2014-11-13/-cartell-chat-room-traders-boas...

But a word of caution. Make sure you get your money back. It may be rigged.
 
Hmmmmm - Aided and abetted by QE, the last three years has seen the MSCI World Index rise by 38% whilst reported profits have risen by just 3%. Read more
Mean reversion corrections have a way of bankrupting the unwary.

Just a question - does "aggressive" mean a tracker fund following the US Federal Reserve printing injections? Graphic evidence
 
 

what makes people think that aggressive funds don't payout returns from new fund deposites alla Burnie Maddoff or closer to home South Canterbury Finance - like who is orditing the returns the institutions themselves?

I have first hand knowledge of the inner workings of one particular KiwiSaver fund and I can tell you that the unit prices and fund are audited regularly and the fund is put under intense scrutiny by the Trustees and Auditors.
In today's environment and from what I have experienced dealing with auditors, trustees and the FMA I have total faith everything within KiwiSaver and the funds management businesses is above board.
I can't comment on individual advisers or adviser groups but I have no reason to believe it is any different. I would not have been so eager to say this 10 years ago mind you and think the industry has come a long way since the wild west days of the late 80's to mid 2000's
Craig.

Bank culture certainly needs the harsh rod of penal reform visited upon those rewarding themselves at other's expense - watch this outburst - but as you say nothing to see here.

Dumb comment Roadhouse.  While some Kiwisaver scheme will sooner or later be run by a Maddoff or Hubbard, it's not helpful to decry it all with the assertion that they all do it.   You need to discriminate a bit more than that.

I had been watching a 

Alayne Fleischmann on JP Morgan - do your homework, they're all the same

My Milford Active Kiwisaver is doing extraordinarily well, and the mounting balance continues to surprise me.    I am very aware of what risk means and what Stephen H points out about  38% / 3% is very pertinent.   It could all go poof very quickly.
Because Kiwisaver has only been going a few years, it forms only part of my setup.   Trouble in the big picture is what ele do you do.  Property, of which I have some, feels fragile as well, although fortunately I have none in Auckland.  That would be really a worry.
I don't follow the predictions of Steven, because his vision is clouded by his great hope it all will go poof.  That idea excites him a bit too much.
And there are others who decry Kiwsaver, because they are so much smarter, but something in what they say indicates they actually are not providing for their future at all.
Overall, the whole thing is uncertain, but that excuse is not an excuse to avoid doing something. Kiwisaver is just great for New Zealanders and New Zealand.    

Hard to knock Mr Gaynor's expertise - hopefully he will extract his lucky followers before any accidents are recorded.

ANZ has submitted the following comment in response to some of the comments above;
The ANZ Growth Fund’s one-year and three-year returns were actually 13.52% and 16.81% at end September. Check out the numbers on Sorted’s fund finder http://fundfinder.sorted.org.nz/must-knows-of-kiwisaver/
 

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