Conservative funds running over 7% per year behind aggressive alternatives; big players dominating the top spots; some up and comers to watch

Conservative funds running over 7% per year behind aggressive alternatives; big players dominating the top spots; some up and comers to watch
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.

KiwiSaver's popularity does not seem to be waning with growth in new accounts over the last year still running at approximately 8% and we are close to topping 2.5 million people enrolled in the voluntary scheme.

One trend which has appeared in recent times is those KiwiSavers with the more aggressive or growth oriented strategies are growing their balances rapidly and are well ahead of those more conservative funds which did not suffer as badly through the Global Financial Crisis.

To recap on the inputs for our regular savings model this is 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. Tax is deducted at the appropriate rate and fees which are not normally represented in unit pricing such as the annual member fee have been deducted.

The results from our longer term analysis clearly show that by saving regularly and accepting there will be fluctuations in capital values from month to month, KiwiSavers who stuck to their guns with an aggressive strategy have ended up considerably better off.

The difference between the best performing Aggressive fund and the best performing Conservative or Default fund over the past seven years on an average annual basis is an impressive 7.3% - that is, the best performing Aggressive fund has produced a 14.0% pa after-tax, after-fees return over the whole period whereas the best performing Default fund produced 6.7% pa on the same basis.

The relative strength shown by equity markets over the past five years is directly reflected in the returns of the Aggressive funds. The more conservatively managed strategies are more focused on cash and fixed income investments which have had relatively lower returns. The exception to this has been global bonds hedged back to NZD, where the major global indices have returned between 11%-12% for the past 12 months to December 31.

Our review of all funds also shows a wide variation between the best fund and the average of the bottom five. Based on the strength of equity markets in recent times you would expect the largest gap to be for the Aggressive and Growth fund categories and our analysis confirms this.

One of the surprises coming from our analysis is the strength of the returns from Australasian and International property portfolios run by OneAnswer (ANZ). The returns from the Australasian property portfolio have been so good that OneAnswer has knocked Milford off the top spot, a position Milford have held for a number of quarters.

Within the Moderate fund universe there is very little between the average return of the top and bottom five funds while. There is however more variance in the Balanced to Aggressive sectors between the average returns for the top and bottom five funds meaning choosing the right managers is more critical over the longer term as this will be impacting on your KiwiSaver balance.

Our analysis continues to show some familiar names leading the various categories over the longer term: AON, AMP, ANZ, Mercer & Milford dominate the rankings. Other notable mentions go to KiwiWealth and Fisher Funds Two (foremerly Tower).

Of particular note the KiwiWealth strategies have shown some dramatic improvement in their recent returns and this is filtering through to the longer term numbers.

While familiar names appear at the top of the leaderboard they also happen to be appearing at the other end of the field too. Excluding Cash funds and those which have not been going for the full investment period the most common names we see appearing at the wrong end of the field are Craigs Investment Partners, Grosvenor and SmartKiwi. There are other managers such as AMP, ASB & Mercer who may have funds appear in similar positions however this is not with the same frequency as the aforementioned three managers.

For those funds that have not been going over the full period, but warrant a mention for being funds to watch for the future include: Generate Focused Growth, Grosvenor International Share, Amanah KiwiSaver Plan, Craigs IP NZ Equity, Milford Conservative, Generate Conservative,  Milford Balanced, BNZ Balanced, Generate Growth & BNZ Growth.

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 quoted 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.

Across the various categories we continue to observe there is a wide dispersion in returns between the top five and bottom five managers in each class.

The table below highlights the best funds in each main class and the range of returns between the top and bottom performers.

We also list the top funds as at December 31, 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 analysis period of April 2008 to December 2014.

Category Number of funds Top long-term return
after fees
after tax
The Top 3 Funds Average of Top Five
after fees
after tax
Average of Bottom Five
after fees
after tax
           
Aggressive 26 14.0% ANZ OneAnswerAustralasian Property 13.6% 8.0%
      Milford Active Growth    
      ANZ OneAnswer Int'l Property    
           
Growth 20 10.5% AMP ANZ Default Balanced 10.3% 6.8%
      ANZ OneAnswer Balanced Growth    
      Aon Russell LifePoints Growth    
           
Balanced 14 9.2% ANZ OneAnswer Balanced 9.0% 7.3%
      Aon Russell LifePoints 2025    
      Aon Russell LifePoints Moderate    
           
Moderate 16 8.0% Aon Russell LifePoints 2015 6.3% 5.9%
      Aon Russell LifePoints Conservative    
      ANZ OneAnswer Conservative Balanced    
           
Conservative1 7 6.0% Mercer SuperTrust Fixed Interest 5.2% n/a3
      Kiwi Wealth Conservative    
      ANZ OneAnswer Int'l Fixed Interest    
           
Default2 9 6.7% ANZ Default Conservative 6.1% n/a3
      Mercer Conservative    
      Fisher Funds Two Cash Enhanced    

1. The Conservative Fund data in the table excludes cash and default funds.
2. There are now nine default funds, however only five have been in existence for the full period of our analysis.
3. Insufficient number of funds to provide data.

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 December 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.

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2.5 million members! Excellent. Thank you Craig.  When Bernard bangs on about national super he is missing the big audience.  

The results from our longer term analysis clearly show that by saving regularly and accepting there will be fluctuations in capital values from month to month, KiwiSavers who stuck to their guns with an aggressive strategy have ended up considerably better off.
 
Sycophants riding the global central bank quantitative easing "Risk On" mantra?
 

The objective of the Fed’s extraordinary policy course over the last six years has been to spur risk-taking, asset market reflation, stimulative wealth effects and resulting economic recovery.  Superficially, Federal Reserve monetary inflation appears to have worked.  Yet beneath the facade exist extreme imbalances and maladjustment.  U.S. and global securities markets have been incredibly distorted.  The American and global Credit addiction has only worsened.  Such harsh realities cannot be disregarded forever.

 
Fed policymaking has provided a competitive advantage to financial assets over real economy investment.  Rate, monetization and liquidity policies have afforded competitive advantage to speculation at the expense of savings.  The overall outcome should be of little surprise:  speculative excess, asset Bubbles and financial engineering galore. Read more
 
Relegating one's life savings decisions to an ideology resting on the indiscretions of the Ph.D. class is not a financially shrewd solution for a secure retirement.
 
Jim Grant had this to say:

"My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.
We put the cart of asset prices before the horse of enterprise.
We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.
We actually worked to foster inflation, which we called 'price stability' (this was on the eve of the hyperinflation of 2017).
We seem to have miscalculated.Read more

"KiwiSavers who stuck to their guns with an aggressive strategy have ended up considerably better off."

People who say things like that piss me off.

That's not how risk works.  Telling people things like that is unprofessional and damaging.

Sticking with an aggressive strategy MIGHT mean a higher payout in any single year.
There is a _risk_ that the payoff will be good, or it might be very poor.

To do well in _aggressive_ strategies, the investors have to have the means to weather the poor years and the guts/risk appreciation to try again in hope of a better year next time.  However pulling out early or during a bad year guarantees poor performance, so it is important to be able to hold out for long enough until a high payout year occurs.  And with luck this will be substantial enough to warrant the poorer performance at other times.

Stick to Cash Fund. 
The Share Funds can reverse as fast as they grow. Units = .7 e.g. And your 80k will be 50k overnight.  

KiwiSaver was a masterstroke from the labour government. It enabled  government to free itself, to some extent from its perceived responsibility to ensure its citizens had a reasonable quality of life in their later years. I  am afraid that many of these citizens assume that their Kiwisaver savings are like "money in the bank". Personally I am opting for the conservative type funds. There might be egg on my face but in my view the international financial  situation is the proverbial house of cards at the moment.