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Negative short-term returns common; Default and Conservative funds more volatile in future; different approach, same result; property no longer king

Negative short-term returns common; Default and Conservative funds more volatile in future; different approach, same result; property no longer king

The purple patch for investors could be about to end looking at the results to June 2015, the latest available.

Markets are becoming more volatile and KiwiSaver funds are recording negative returns over the last one to three months.

It is not only the more aggressive end of the risk spectrum that is suffering from the recent spike in volatility and investor nervousness; it is in fact right across the board.

Some funds have provided some stellar results and these can be seen in the Aggressive category where double digit returns over the long term are common and ANZ OneAnswer International Share fund returned over 20% for the last three years based on our regular savings model.

Losing trifecta ticket

Any KiwiSaver investor thinking their money is in a very low risk fund (outside cash of course) is probably in for a rude awakening if the rhetoric coming out of some central banks plays out.

If interest rates rise in the US and Europe those with heavy exposures to bonds could find the value of their portfolio eroding. This because there is an inverse relationship between the yield to maturity on a bond and the actual paper capital value of the investment.

Another complication for bond heavy funds is those with global bonds that are fully hedged back to NZ dollars could find they are also incurring capital losses should interest rates rise and the value of the NZ dollar versus its peers declines further.

Investors in Default, Conservative, Moderate and Balanced funds could be left holding a losing trifecta ticket if interest rates rise, the NZ dollar declines further and equity markets fall heavily. We don't want to sound like complete bears, but this is the reality investors could be facing in a worst case situation.

Cash funds continue to provide pitiful returns and a punter can get a better after tax and fee returns from a bank term deposit.

Return attribution

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.

Other factors contributing to the contracting returns may also have been sector, industry, investment style biases and fund fees. 

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%.

At present KiwiSaver managers are not required to disclose attribution analysis for their funds so we are unable to completely unpick all the returns but these factors will explain a majority of a funds recent performance.

Different strategies, same result

When examining the returns of the Balanced fund category we came across a great example of how significantly different approaches to asset allocation can deliver the same result. The managers concerned are all top performers as at June 30, 2015 and have wildly different asset allocations.

Looking at the headline return number over the long term you could easily be fooled into thinking that these funds were being managed to the same asset allocation albeit for some minor tweaks and preferences here and there to explain a wafer thin difference in long run performance. 

The table below illustrates what we found and highlights there is no one size fits all allocation when it comes to managing an investors capital.

We have rounded the numbers so they may not add up to exactly 100%.

Asset category ANZ Default
AMP Nikko AM
Kiwi Wealth
Cash (or equivalents) 15.7% 5.0% 9.5%
NZ bonds 8.4% 9.6% 15.4%
Global bonds 23.6% 12.5% 21.0%
Australasian shares 11.2% 20.9% 0.0%
Global shares 33.3% 27.1% 51.2%
Listed property 8.0% 5.0% 0.0%
Alternatives (other) 0.00% 19.9% 2.9%

While these funds are all in the Balanced category and have a similar exposure to growth assets, the actual underlying exposures are vastly different.

Winners and losers

Our 'regular savings' assessments continues to reaffirm that investors who have been prepared to take on some risk and expose themselves to listed property and shares are adding significant value to their balances. There is a slight caveat here in that the assets have to be unhedged or majority unhedged to really benefit fully.

At the most conservative end of the risk spectrum the top Default funds are providing investors with a rate of return which is superior to all but one of the Conservative funds. The only Conservative fund to hold its own is the Kiwi Wealth Conservative Fund.

As we progress up the risk profile from Conservative through to Aggressive there continues to be some overlap in returns between the various categories and investors can possibly afford to take slightly less risk and still receive an above average return..

Our model investor

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 such as the annual member fee that are not normally represented in unit pricing, have been deducted.

Property no longer king

Bank and insurance company owned KiwiSaver funds dominate the top spots within the various categories. Mercer are the only best in class manager to break this trend.

ANZ OneAnswer International Fund shunts the ANZ OneAnswer International Property fund off top spot and beats out the Australasian Property fund from the same manager into the lead after some meteoric returns recorded over several months.

Kiwi Wealth's Conservative fund is the only one in the Conservative category to hold its own against the government appointed Default funds. We remain bemused as to why Default funds are generally doing better than Conservative funds.

(During the last quarter Mercer SuperTrust closed their funds and transferred investors to the remaining funds within the Mercer suite.)

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

This is the list the top funds as at June 30, 2015 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 June 2015.

Category Top 3 Funds Average of Top Five
after fees
after tax
Average of Bottom Five
after fees
after tax
# of funds invested for
full period
Top long-term return
after fees
after tax
Aggressive   12.4% 8.1% 21  
ANZ OneAnswer International Share Fund   13.5%
#2 ANZ OneAnswer Australasian Property    
#3 Milford Active Growth    
Growth   10.2% 7.5% 18  
Aon Russell LifePoints Growth   10.7%
#2 ANZ OneAnswer Balanced Growth    
#3 AMP ANZ Default Balanced    
Balanced   9.2% 7.3% 13  
ANZ Default Balanced   9.3%
#2 AMP Nikko AM Balanced    
#3 ANZ Balanced    
Moderate   7.7% 5.9% 14  
Aon Russell LifePoints 2015   8.0%
#2 Aon Russell LifePoints Conservative    
#3 ANZ OneAnswer Conservative Balanced    
Conservative1   4.9% n/a3 7  
Kiwi Wealth Conservative   6.5%
#2 ANZ OneAnswer NZ Fixed Interest    
#3 ANZ OneAnswer Int'l Fixed Interest    
Default2   6.1% n/a3 9  
Mercer Conservative   6.8%
#2 ANZ Default Conservative    
#3 ASB Conservative    

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 June reviews of the Default, Conservative, Moderate, Balanced, Growth and Aggressive funds can be found here, here, here, here, here and here.

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.


A table that doesn't exclude half the offerings would be useful, how about another edition of the table that tracks the last 5 years rolling?

With the comings and goings of funds and fund managers, there will be decreasing utility in only measuring those funds that existed on day one of kiwisaver.


We have chosen to run a model based on long run data that tries to mimic the experience of a KiwiSaver investor rather than focusing solely on short term results.

On our KiwiSaver performance page we provide results based on what the fund managers provide clients based on 1, 2 and 3yr returns if you are looking for short term comparisons.

This other data is pretty meaningless as the data is before tax and not a true reflection of the returns received within KiwiSaver funds.


Our 'regular savings' assessments continues to reaffirm that investors who have been prepared to take on some risk and expose themselves to listed property and shares are adding significant value to their balances. There is a slight caveat here in that the assets have to be unhedged or majority unhedged to really benefit fully.

Hmmmmm - can one call this risk?
Because BB, B, and in some cases CCC rated companies have been able to borrow at less than 5%, a host of zombie and future zombie corporations now roam the real economy. Schumpeter’s “creative destruction” – the supposed heart of capitalistic progress – has been neutered. The old remains in place, and new investment is stifled. And too, because of low interest rates, high quality investment grade corporations have borrowed hundreds of billions of dollars, but instead of deploying the funds into the real economy, they have used the proceeds for stock buybacks. Corporate authorizations to buy back their own stock are running at an annual rate of $1.02 trillion so far in 2015, 18% above 2007’s record total of $863 billion.

Actual risk maybe around the corner.
The BIS emphatically avers that there are substantial medium term costs of “persistent ultra-low interest rates”. Such rates they claim, “sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.” Read more