We review regular savings returns to December 31, 2014 for Balanced KiwiSaver funds, identifying who has the best long-term returns. There are some standouts

We review regular savings returns to December 31, 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, hedging policies and management styles, all of which are factors impacting on returns.

From the managers that have been in our universe of funds since April 2008, ANZ, AON and Kiwi Wealth are the managers that stand out. There is very little between the leaders, with less than 0.4% separating the first four funds. The average return since April 2008 for the top five funds is 9% p.a. on a compound and after tax and fees basis. Over the past three years the average compound return for the leaders jumps to 10.5% p.a which is comparable with some of the Growth Funds.

Although the focus is on those managers with a long-term track record, one manager who blitzes the field over the past three years is Milford. Although the Milford fund has not been going for the full term their track record to date suggests they are the pre-eminent manager in this sector. There is a caveat to this statement however, as many of our readers will know, Milford is currently being investigated by the Financial Markets Authority (FMA) for possible market manipulation on some historical share trades.

At this time there is no evidence to suggest the returns from the Milford Balanced Fund are not accurate or need to be altered. We will keep abreast of this issue and make any necessary amendments to our return data and calculations once the FMA's investigation is complete and the findings made public.

For those funds that have been invested for the full period the spread between first and last place is approximately 2.7%. Last quarter the differential was 2.3%. This return differential is significant and will over time have a distinct impact on investor balances (assuming that gap remains of course).

Having covered the 'winners' we now turn to the laggards in the sector. The bottom five funds averaged 7.3% p.a. on a compound and after tax and fees basis. This is approximately 1.7% p.a. below the leaders. The last three-year's data is more promising, with returns averaging 8.2%, but still well below the 10.5% of the top funds.

On our regular savings basis, investing in the top funds you would be better off by $3,914*. While that may not seem a lot based on your ending fund value of $32,374* it is very significant when you realise that $22,818 is what you, your employer and the Government contributed. The average Balanced fund earnings after-tax and after-fees is $3,914 more than the $6,242 you would have earned in a Default fund*. That's nearly 40% more!

Here are the full comparison as at December 31, 2014 for Balanced Funds.

Balanced Funds      
Cumulative
contributions
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
Effective
cum return
= Ending value
in your account
Effective
last 3 yr
return % p.a.
since April 2008
X
Y
Z
to December 2014
 
 
 
$
% p.a.
$
 
 
 
 
         
ANZ OneAnswer Balanced
B
B
B
22,218
10,379
9.2%
32,597
10.8%
Aon Russell LifePoints 2025
B
B
B
22,218
10,304
9.1%
32,522
10.2%
Aon Russell LifePoints Moderate
B
B
M
22,218
10,075
8.9%
32,293
9.6%
Kiwi Wealth Balanced Fund
B
B
B
22,218
10,027
8.9%
32,245
11.7%
ANZ Balanced
B
B
B
22,218
9,994
8.8%
32,212
10.4%
AMP Nikko AM Balanced
B
G
G
22,218
9,864
8.7%
32,082
10.7%
ANZ Default Balanced
B
B
B
22,218
9,648
8.6%
31,866
10.0%
AMP Fisher Funds Two Balanced
B
B
B
22,218
9,268
8.3%
31,486
9.6%
Aon Nikko AM Balanced
B
G
G
22,218
8,928
8.0%
31,145
9.8%
Fisher Funds Two Balanced
B
B
B
22,218
8,788
7.9%
31,006
9.0%
Mercer SuperTrust Moderate
B
B
B
22,218
8,540
7.7%
30,758
8.5%
ASB Moderate
B
B
M
22,218
8,316
7.5%
30,534
8.1%
AMP Moderate Balanced
B
B
B
22,218
7,890
7.1%
30,108
7.7%
Grosvenor Balanced
B
B
B
22,218
7,250
6.5%
29,468
7.7%

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

Balanced Funds      
Cumulative
contributions
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
Effective
cum return
= Ending value
in your account
Effective
last 3 yr
return % p.a.
since April 2008
X
Y
Z
to December 2014
 
 
 
$
% p.a.
$
 
 
 
 
         
Milford Balanced
B
B
B
16,094
6,938
13.7%
23,032
13.7%
BNZ Balanced
B
B
B
6,217
1,405
9.3%
7,622
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.

The December review of Moderate funds can be found here and Conservative & Default Funds here.

---------------------------------

* These numbers are the average of the top five funds

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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