Our comprehensive review of KiwiSaver Growth funds to June 30, 2015 identifies the top performers, but raises questions of whether the reward is worth the risk

Our comprehensive review of KiwiSaver Growth funds to June 30, 2015 identifies the top performers, but raises questions of whether the reward is worth the risk

Five out of eighteen funds within the Growth fund universe have achieved a long run return above 10% which is not a lot when you consider these portfolios have considerable exposure to growth assets and we have been in a five year plus environment which has been favourable.

The latest quarter has seen themes such as return compression compared to the last few quarters, declining stock market returns in Europe and China, a spike in interest rates due to uncertainty around Greece, the sudden weakening of the NZ dollar, the importance of asset allocation and to a lesser degree stock selection emerge as drivers behind returns.

For funds that are approximately 65% to 80% exposed to growth assets the drivers behind the returns are generally going to be more focussed towards global stock market performance, specific country or regional exposures within the various funds and hedging policies. Recently having what we call a home bias, that is favouring domestic assets over foreign has paid dividends for some managers as the NZ bond and equity markets have been strong performers.

The rapid decline in the value of the NZ dollar has meant those funds with unhedged or very low levels of hedging across their international assets have received a boost in returns.

We can't over-state the impact hedging has had on returns over the last quarter. For example the broad Australian stock market was -6.6% in AUD terms but +4.3% in NZ dollar terms and the MSCI World index in NZD and 100% hedged returned 0.2% compared to the unhedged version which was +11.2%.

Funds with greater exposures to Europe and Asia compared to the US will invariably have underperformed. The ongoing Greek tragedy and sudden plunge in Chinese shares will have dampened returns in June and taken some of the cream off the top.

Fewer funds have achieved a 9% plus return compared to the past review however all the funds exceeded their long run returns over the past three years. Over the shorter term the Aon Russell Lifepoints Growth fund returned an impressive 14.7%.

The Aon Russell Lifepoints Growth fund is also the best over the longer term and is a worthy recipient of our best in class award.

On our regular savings basis, investing in the top funds you would have earned an average of $13,694 more than you have contributed. Previously this figure was $12,911.

While that may not seem a lot based on an average ending fund value of $37,442 it is very significant when you realise that $23,747 is what you, your employer and the Government contributed. The average Growth fund earnings after-tax and after-fees is $5,670 more than the $8,025 you would have earned in a Default fund.

AMP, ANZ, Aon and Staples Rodway continue their dominance of this category and are extending their lead on the rest of the pack with some above average three-year return numbers.

Of the new generation of funds to enter into the market, Generate's Growth fund is head and shoulders above the pack. Enthusiasm for the new kids on the block must be tempered somewhat as they have not shown any form during a bear market period which generally sorts out the wheat from the chaff so to speak.

Here are the full comparison as at June 30, 2015 for Growth Funds.

Growth 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 Growth G G G
23,747
14,390
10.7%
38,137
14.7%
ANZ OneAnswer Balanced Growth G G G
23,747
13,708
10.3%
37,455
12.5%
AMP ANZ Default Balanced G B G
23,747
13,668
10.2%
37,416
12.8%
Aon Russell LifePoints 2035 G G G
23,747
13,362
10.0%
37,109
13.4%
Staples Rodway Balanced G B G
23,747
13,343
10.0%
37,090
11.8%
Aon Russell LifePoints Balanced G B B
23,747
13,093
9.9%
36,841
12.7%
ANZ Balanced Growth G G G
23,747
12,731
9.6%
36,478
11.6%
ANZ Default Balanced Growth G G G
23,747
12,579
9.5%
36,326
11.3%
Aon ANZ Default Balanced G B B
23,747
11,891
9.1%
35,638
10.6%
ASB Balanced G B B
23,747
11,810
9.0%
35,558
11.2%
Mercer Balanced G G G
23,747
11,258
8.7%
35,005
10.1%
Craigs Growth G G  
23,747
11,065
8.5%
34,813
11.4%
Westpac Balanced G B B
23,747
10,731
8.3%
34,478
10.6%
Fisher Funds Two Growth G G G
23,747
10,688
8.3%
34,435
10.7%
Craigs Balanced G B  
23,747
10,077
7.8%
33,824
9.9%
AMP Balanced G B B
23,747
9,622
7.5%
33,369
9.3%
Craigs Balanced SRI G B  
23,747
8,991
7.0%
32,738
9.4%
SmartKiwi Balanced G B B
23,747
8,590
6.7%
32,337
9.1%
-------------------        
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
G = 'Growth', B = 'Balanced', A = 'Aggressive'

The following Growth funds have not been going long enough to be included in the above table.

 

Growth 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 X Y Z
to June 2015      
$
% p.a.
$
                 
Grosvenor Balanced Growth G G G
17,025
6,228
8.6%
23,253
10.0%
BNZ Growth G G G
7,266
2,078
8.8%
9,344
n/a
Generate Growth G G G
7,044
2,516
12.6%
9,560
n/a
-------------------        
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
G = Growth, B = Balanced, A = Aggressive

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

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.

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 reviews of the Default, Conservative, Moderate and Balanced funds can be found here, here, 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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3 Comments

Why isn't the Kiwibank Kiwiwealth Growth fund on this table? They seem to have had great returns the last few years. I'm currently with the Westpac Balanced fund (which is on the table) but when I compare it to Kiwibank Growth on the sorted website Kiwibank seems the better option. To move funds or not?? any advice?

The Kiwi Wealth Growth Fund appears in the Aggressive fund category based on our assessment of the most appropriate fit.

You are not comparing apples with apples when talking about these two funds as they are different in a number of areas.

We are not permitted to provide specific advice on whether you should shift providers or jump across different risk profiles but you do need to consider:

1) your long term objectives and investment time horizon

2) your tolerance to risk

3) the people, process, philosophy & performance of the various funds - track record is one thing but you need to appreciate all the things behind the scenes that make a manager tick

4) fees and costs associated with your investment as this will detract from performance over the long term - cheaper fees does not always result in better performance mind you.

Our aggressive fund category review will be posted shortly.

Thanks very much.