Our comprehensive review of Conservative & Default KiwiSaver fund performance to March 2015, identifying who has the best long-term returns

Our comprehensive review of Conservative & Default KiwiSaver fund performance to March 2015, identifying who has the best long-term returns

Track records are funny things.

Overall, our 'regular savings' assessments confirm that in normal (good) times, the more risk you are prepared to exposure yourself to, the better your returns over the long run. 

And KiwiSaver track records have now been going for more than seven years, which is providing investors with a realistic longer term view of how their funds are performing.

We are seeing the better funds in each risk category (Conservative/Default, Moderate, Balanced, Growth, and Aggressive) are performing well, and higher returns are being earned if you can accept a greater level of risk.

But we are also seeing many funds underperform.

And we need to be aware that when an inevitable correction comes in the business cycle, the return profiles we are currently seeing may get rearranged.

This story is an assessment of Conservative and the Default funds, our quarterly update of this risk category.

Stock markets extended their positive run into the early part of 2015 which in turn has meant many KiwiSaver investors have benefited from the lift in equity performance.

Whether this positive trend continues is anyone's guess.

Returns from the Default funds continue to outperform many of the other Conservative funds, which is a little surprising given that the mainstream Conservative funds have greater flexibility in their mandates. The only Conservative funds holding their own against the Default funds are the Kiwi Wealth Conservative Fund and ANZ OneAnswer International Fixed Interest Fund.

In fact, the difference in returns between the Mercer Conservative (Default) fund and bank Cash funds (ANZ, ASB, Westpac cash funds as examples) is a massive $4,467 or more over the full 'regular savings' profile period.

Cash fund return are dismal and below what our model regular savings investor could receive from a bank term deposit currently. Cash funds may have some appeal if you are close to retirement and are trying to maintain the value of your capital, however if you have a long term horizon and are in a Cash fund you are probably doing yourself a disservice.

Since inception, and on a regular savings basis, the average of the top five funds (Default and Conservative combined) has produced compound annual returns of 6.5% p.a. Over the past three years, that return has been marginally higher at 6.6%, reflecting the continued stock market strength. Contrast this with the lowest five Conservative funds (excluding Cash) which returned an average of 4.3% and 3.7% p.a. respectively.

Assuming you had been invested for the period April 2008 to March 2015, the difference between the average return of the top and bottom five funds in dollar terms is approximately $4,500 ($54 per month).

That's the difference between earning $7,675 or earning $3,530!

Worse, the divide between the top and bottom managers is growing and if you are not already, we would be suggesting investors in the poorer performing KiwiSaver funds ask their managers some hard questions about the underlying strategy and what they are doing to improve their overall performance. If you don't receive a satisfactory answer then you should consider switching to a fund or manager that is going to meet your needs and is aligned to your tolerance to risk over the long term.

The clear 'best in class' performer in this Conservative/Default category in Mercer Conservative over the full period from April 2008 to March 2015. A 7.0% return is very good indeed over this period, and over the more recent last-3-years it has improved on that.

We have included the BNZ data in the Default category table even though this fund has been only going for the past two years. You should not read too much into the performance data as it is over an incredibly short period and is not necessarily reflective of the manager's abilities over the longer term.

There is also insufficient data for Westpac, Kiwi Wealth and Grosvenor Default funds to be included in the performance 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 be the stand-out performers.

Over the shorter three year period all Default funds exceeded their longer term return numbers with the exception of the ASB fund which tracked its longer term performance.

Across other Conservative and Cash funds a majority have under-perfomed their longer term average return. With interest rates having fallen over time it does not surprise us that the cash and NZ fixed interest heavy funds are falling off the pace. International fixed interest investments have generally performed better than domestic bonds as they are fully hedged back to NZ$ and have received a reasonable pick up in returns over time.

Here are the full comparison as at March 31, 2015 for Conservative & Default Funds.

Default 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 March 2015      
$
% p.a.
$
       
 
 
 
 
 
Mercer Conservative C C C
22,899
8,370 7.0% 31,269 7.2%
ANZ Default Conservative C C C
22,899
8,038
6.8%
30,937
7.0%
ASB Conservative C C C
22,899
7,252
6.1%
30,151
6.1%
Fisher Funds Two Cash Enhanced C D C
22,899
7,152
6.0%
30,051
6.2%
AMP Default C C C
22,899
6,634
5.6%
29,534
5.8%
BNZ Conservative C C C
6,507
1,691
7.0%
8,199
n/a
Grosvenor Default Saver C C C          
Kiwi Wealth Default C C C          
Westpac Defensive C C C          
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive

We have only included data for those funds that have been going for at least 12-months.

For most default funds, the last three year's return are on a par with the lifetime returns and the long run returns are proving to be stable with low levels of volatility.

KiwiSaver default funds are only part a broader range of conservative funds available. Many of the 'traditional' Conservative and Cash funds are underperforming the Default funds. Here is the full list:

Conservative 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 March 2015      
$
% p.a.
$
       
 
 
 
 
 
Kiwi Wealth Conservative C C C 22,899 7,563 6.4% 30,463 6.7%
C D FI 22,899 6,990 5.9% 29,889 6.0%
C D FI
22,899
6,482 5.4% 29,381 4.2%
C C  
22,899
5,231 4.3% 28,131 4.6%
C D Ca 22,899 4,203 3.4% 27,102 2.9%
Mercer Cash C D Ca 22,899 4,055 3.2% 26,954 2.7%
C D Ca 22,899 4,021 3.2% 26,920 2.6%
C D Ca 22,899 3,958 3.1% 26,857 2.6%
Fisher Funds Two Preservation C D Ca 22,899 3,936 3.1% 26,836 2.8%
ASB NZ Cash C D Ca 22,899 3,903 3.1% 26,802 2.9%
C D Ca 22,899 3,888 3.0% 26,788 2.8%
C D Ca
22,899
3,798
3.0% 26,698 2.6%
ANZ Cash C D Ca 22,899 3,706 2.9% 26,605 2.6%
Westpac Cash C D Ca 22,899 3,669 2.8% 26,569 2.6%
C D Ca
22,899
3,623 2.8% 26,522 2.5%
C D Ca
22,899
3,604 2.8% 26,503 2.5%
C D Ca 22,899 3,046 2.2% 25,945 2.1%
C D  
17,952
1,259 0.5% 19,212 1.8%
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive, FI = Fixed Income Ca = Cash

# At the time of writing the March data was not in for the Staples Rodway Fund so we have estimated the return for the last month based on the performance of similar funds.

* 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.

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

Conservative 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 March 2015      
$
% p.a.
$
       
 
 
 
 
 
Milford Conservative C C M
7,999
2,575 10.9% 10,574 n/a
BNZ Cash C D Ca 6,507 1,281 2.9% 7,788 n/a
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive, FI = Fixed Income, M = Moderate, Ca = Cash

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 $
contributions
(EE, ER,
Govt)
+ Cum net gains
after all tax, fees
Effective
cum
return
= Ending value
in your account
Effective
last 3 yr
return
% pa
since April 2008 X Y Z
to March 2015       $ % p.a. $
                 
Westpac CP Plan 1 C A Mi 20,867 11,760 11.9% 32,626 14.2%
Westpac CP Plan 2 C A Mi 17,658 8,884 12.2% 26,543 14.2%
Westpac CP Plan 3 C A Mi 14,141 6,991 14.3% 21,132 14.1%
Westpac CP Plan 4 C A Mi 10,740 5,154 16.2% 15,894 n/a
Westpac CP Plan 5 C A Mi 7,603 3,125 16.7% 10,728 n/a
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, A = Aggressive, Mi = Miscellaneous

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

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.

Updated: removed Mercer SuperTrust Fixed Interest Fund as it is now closed

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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