Our comprehensive review of Moderate fund regular savings returns as at June 30, 2015, identifying who has the best long-term returns

Our comprehensive review of Moderate fund regular savings returns as at June 30, 2015, identifying who has the best long-term returns

The key theme for this review of the Moderate KiwiSaver category for the period ending June 30 is one of short term return contraction.

One to two month returns for many of the managers covered under this review have turned negative based on changes in unit prices.

Looking at our unit price data, Aon and ANZ funds which dominate the top spots again this quarter have suffered some of the highest one month declines.

Over the past quarter the KiwiSaver schemes with the highest negative one month returns will typically be

  • those with fully or majority hedged positions in international assets (bonds, equities and listed property);
  • have a large exposure to Australian shares;
  • exposed to European assets and particularly those impacted heavily from the Greek tragedy;
  • exposed to Chinese equities either directly or indirectly.

With regards to hedging, some KiwiSaver managers may have a mix of active and passive hedging policies depending on the types of assets and tactically move their positions based on movements in the market and receipt of funds from investors. The scheme prospectus or investment statement will generally outline the managers target hedging range or target.

Hedging is principally used as a risk management tool designed to remove some of the risks associated with fluctuations in currency, it is not used to speculate on currency movements.   

Outside of China where the Shanghai Composite index fell -12.2% in June, some of the largest stock market losses in local currency terms over the quarter were seen in Germany (-8.5%), France (-4.8%) and Australia (-6.6%).

Looking at our unit price data, Aon and ANZ funds which dominate the top spots again this quarter have suffered some of the highest one month declines.

BNZ's Moderate fund was the only fund we monitor in this category which recorded a 3-month decline based on changes in unit prices. (Changes in unit prices unless otherwise stated are normally after fund fees but before tax is deducted.)

Four funds out of the sample group recorded positive returns for all months over the last quarter and they were: Craigs Conservative, Fisher Funds Conservative, Generate Conservative and SmartKiwi Conservative funds.

Please note that the Fisher Funds Conservative fund has not been operating for the entire period and therefore its position in the table may not exactly reflect its comparative performance.

It is too early to say definitively we have seen the end of the good times but there are certainly some decent sized cracks appearing in the framework.

All but two of the funds have achieved returns over the past three years that are equal to or better than their long run numbers.

Our best in class award for this category again goes to Aon Russell LifePoints 2015 which has the best track record for the full period and over the same time has achieved a rate of return over the last three years that equals or exceeds the long run return.

Despite the leaders seeing some contraction in recent returns there still remains a large divide between the top and bottom performers in this category.

You might expect less variation across funds which are principally cash and bonds however it is becoming evident that even the decisions about whether to hold local or offshore bonds is an important one, and so to is the level of hedging for international assets.

Over the full term of our regular savings analysis, Moderate funds compared Default funds, have delivered an extra $2,149 worth of returns on average; that is they have delivered $9,891 in returns over and above the contributions compared with the $7,742 for Default funds.

Since last quarter's survey of regular return performance the Default funds have closed the gap between the two categories.

One fund (our best in class nominee) has managed to deliver an 8% after tax and fee return over the full term. A further three funds delivered in the high 7% range. Over the past three years four funds (1 Aon and 4 ANZ) have achieved returns in the mid 8% range.

Of the cellar-dwellers less than 1% seperates the remaining 9 funds in our peer group. The same funds as last time are firmly bolted to the bottom of the table.

Our performance table below includes funds with names such as Conservative, Conservative Balanced and Moderate.

Across the industry there is currently no consistency on how funds are categorised. We have found that sometimes the fund name can be misleading and it is important to completely understand what drives the funds performance (asset allocation, investment philosophy etc) and be aware of how the underlying portfolio of securities is made up and where the potential variability in monthly or annual returns may come from.

To learn more about how we categorise the various funds click here.

Here is the comparison as at June 2015 for Moderate Funds:

Moderate 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 June 2015      
$
% p.a.
$
                 
Aon Russell LifePoints 2015 M C M
23,747
10,257
8.0%
34,004
8.4%
Aon Russell LifePoints Conserv M C C
23,747
9957
7.7%
33705
7.8%
ANZ OneAnswer Cons. Balanced M B M
23,747
9897
7.7%
33644
8.4%
ANZ Conservative Balanced M B M
23,747
9823
7.7%
33570
8.4%
ANZ Default Conserv. Balanced M B M
23,747
9519
7.4%
33266
8.4%
AMP Moderate M B M
23,747
8284
6.5%
32031
7.3%
ANZ OneAnswer Conservative M C C
23,747
8005
6.3%
31752
6.3%
ANZ Conservative M C C
23,747
7957
6.3%
31705
6.3%
Fisher Funds TWO Conserv M C M
23,747
7926
6.2%
31673
6.2%
Westpac Conservative M C M
23,747
7,845
6.2%
31,593
6.5%
AMP Conservative M C M
23,747
7,680
6.0%
31,428
6.1%
SmartKiwi Conservative M C C
23,747
7,408
5.8%
31,155
6.4%
Grosvenor Conservative M C M
23,747
7,280
5.7%
31,027
5.3%
Craigs Conservative M C  
23,747
7,175
5.6%
30,922
6.0%
Fisher Funds Conservative M C C
19,961
6,952
7.4%
26,913
6.6%

 

Those funds that have recently launched and do not have a long enough track record to be included in the main table above are shown below:

Moderate 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 June 2015      
$
% p.a.
$
                 
BNZ Moderate M B M
7,266
1,821
6.8%
9,087
n/a
Generate Conservative M C M
7,044
1,767
6.7%
8,811
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 your life stage. You should move only with appropriate advice and for a substantial reason.

Our June review of Default and Conservative funds can be found here and 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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