Our comprehensive review of regular savings returns to September 30, 2015 for Aggressive KiwiSaver funds, identifying who has the best long-term returns

It was certainly a rollercoaster road for equity markets during the September quarter and most of the major indices finished in the red.

A couple of highlights in an otherwise bleak quarter were NZ bonds, unhedged global bonds and equities. Global equities with 50% hedging back to NZ dollars performed marginally better (i.e. less negative) than fully hedged equivalents.

Concerns for investors heading into the end of this year will continue to be the China story, emerging markets and whether the Fed will hike in 2015. The latter is data and China dependent.

A majority of Fed members favour rate hikes, however there are still some headwinds that need to subside before a rate hike is implemented. The International Monetary Fund (IMF) and World Bank have both advised Fed members that this was not the right time to hike interest rates.

The emerging market performance has been awful and the impact of China's economic slow down and stock market fall out are felt in markets where trade with China is dominant. There could be some light at the end of the tunnel for emerging markets if the Fed decides to hike according to Mark Mobius, an emerging market investment guru.

Mobius sees positives for emerging markets, particularly those with export ties that benefit from a strengthening US economy as this would likely bring increased demand for more imported goods.

Also a stronger US dollar relative to other emerging market currencies could put emerging markets in a more favorable trade position. Weaker currencies tend to promote exports and help manufacturers, Mobius notes.

If, as Mobius suggests, the US dollar does strengthen on the back of the Fed hiking rates, we could see the NZ dollar fall even further and this will have an impact on NZ domiciled investors, especially those that are hedged or have a substantial hedging position in play.

Towards the end of September we saw a reduction in global volatility and the Chinese markets were not so prominent in the headlines, which is hinting that things might be calming down in the interim.

Focusing on the longer term, which after all is the focus on KiwiSaver, we are seeing returns for the leaders holding above 11% p.a. as calculated using our regular savings methodology.

A majority of the KiwiSaver schemes in this category are providing returns in the last three years that are equal to or above their long run average return. This reflects the favourable conditions we have experienced until recently. The latest couple of quarter's returns have seen the gap between the three year and long run data close as impacts from falling stock markets and the NZ dollar are flowing through our model.

Milford Active Growth Fund has regained the top spot on the leader board after earlier relinquishing it to ANZ. The Milford Fund, however, does not earn best in class recognition as the three year return is not equal to or greater than its long run data. This is a fundamental requirement to be awarded this honour.

Helping the Milford Active Growth Fund regain top spot has been the relatively large cash holding (33% as at 30 September). Milford's cautious view on markets has meant they have deployed more defensive strategies designed to protect portfolios during a market downturn and preserve investor capital as much as practical. Milford have also used derivatives to short the Australian market and hold elevated levels of US dollars.

Another fund that has shown some excellent results is the ANZ OneAnswer International Share Fund. This fund has a majority of its exposure to the US and Europe with small under-weight positions to Asia and Japan.

The fund invests in principally 4 international fund managers (and some cash) and the fund's performance is, we believe, a reflection of ANZ's asset allocation strategy and skill in blending the underlying managers to achieve the target weights.

On our regular savings basis, the average of the top five funds would have resulted in you earning $17,505 more than you have contributed.

While that may not seem a lot based on an average ending fund value of approximately $43,700, it is significant when you realise that $24,968 is what you, your employer and the Government contributed.

The average of the top five Aggressive funds' earnings after-tax and after-fees is $9,640 (previously $9,223), more than the $7,865 you would have earned from the average of the top five Default funds.

The second table below highlights those funds that have not been going the full distance and they are ranked on the level of contributions made based on our regular savings calculations.

Other notable achievers who have been going for a considerable period are the Craigs IP funds. The Craigs IP NZ Equity Fund has performed considerably better than the benchmark index over the past three years.

Also the Craigs Equity Fund has outperformed its MSCI index benchmark across all time periods. The manager in their latest update reports implementing a 75% hedge against their Euro denominated positions during September. A majority of the assets are exposed to developed markets in the US, Europe and Japan with the balance of 10% held in cash. The biggest holding in the international portfolio is to a core S&P500 ETF which is a passive, low cost (management fee = 7 basis points) diversified exposure to the US stockmarket.

Many of the funds in the second table have achieved returns over the short to medium term that would see them placed in the upper echelons of the main table if we ranked solely on performance.

The SmartKiwi Growth Fund has closed to new investors so we have removed this fund from our performance ranking tables.

Here are the full comparison as at September 30, 2015 for Aggressive Funds.

 
Aggressive 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 September 2015      
$
% p.a.
$
                 
Milford Active Growth A G AE 24,968 18,776 12.5% 43,744 11.9%
Aon Milford A G AE 24,968 18,584 12.4% 43,552 11.8%
ANZ OneAnswerAustralasian Property A A P 24,968 16,982 11.5% 41,950 11.0%
ANZ OneAnswer Int'l Share A A IE 24,968 16,845 11.5% 41,813 16.7%
ANZ OneAnswer Int'l Property A A P 24,968 16,338 11.2% 41,306 10.9%
ANZ OneAnswer Growth A G G 24,968 14,520 10.2% 39,488 11.4%
ANZ Growth A G G 24,968 14,357 10.1% 39,326 11.3%
ANZ OneAnswer Australasian Share A A AE 24,968 13,337 9.5% 38,305 9.5%
Aon Russell LifePoints 2045 A G A 24,968 13,199 9.4% 38,167 10.4%
ANZ Default Growth A G G 24,968 13,175 9.4% 38,143 10.7%
Kiwi Wealth Growth Fund A A A 24,968 12,956 9.2% 37,924 14.4%
ANZ OneAnswerSustainable Growth A A IE 24,357 11,686 9.0% 36,042 13.2%
ASB Growth A G G 24,968 12,481 8.9% 37,449 10.5%
Mercer High Growth A A A 24,968 12,394 8.9% 37,362 9.9%
Fisher Funds Growth A A A 24,968 12,159 8.7% 37,127 9.4%
Staples Rodway Growth A G G 24,968 11,846 8.5% 36,814 12.0%
Westpac Growth A G G 24,968 11,806 8.5% 36,774 9.5%
Grosvenor High Growth A A A 24,968 9,033 6.7% 34,001 9.0%
Fisher Funds Two Equity A A IE 24,968 8,941 6.6% 33,909 8.8%
AMP Aggressive A A A 24,968 8,886 5.6% 33,854 5.0%
AMP Growth A G G 24,968 8,638 5.6% 33,606 4.9%
---------------
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
A = Aggressive, AE = Australasian Equities, G = GrowthIE = International Equities, P = Property

For those funds that have not been going for the full period (April 2008 to September 2015) the results are shown below. In this group Amanah KiwiSaver Plan has been the standout performer followed by Craigs IP NZ Equity Fund and Grosvenor International Share fund.

Aggressive 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 September 2015      
$
% p.a.
$
                 
Grosvenor Geared Growth A A A 20,682 8,046 8.3% 28,728 9.3%
Craigs Equity A A A 20,006 9,647 10.3% 29,653 11.6%
Lifestages Growth A A   19,123 5,440 6.3% 24,563 7.2%
Grosvenor International Share A A IE 17,656 7692 10.4% 25347 11.8%
Grosvenor Socially Responsible A A AE 17,656 5645 7.6% 23301 6.6%
Grosvenor Trans-Tasman Small Companies A A AE 17,656 1,746 1.4% 19,402 -0.1%
Craigs NZ Equity A A AE 15,882 6,865 11.1% 22,747 8.2%
Craigs Australian Equity A A AE 15,882 2,972 4.2% 18,854 2.9%
Generate Focused Growth A A A 8,265 2,301 7.0% 10,566 n/a
Amanah KiwiSaver Plan A A   5,033 1,948 15.7% 6,981 n/a
---------------                
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
A = Aggressive, AE = Australasian Equities, G = GrowthIE = International Equities, P = Property

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.

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 your life stage. You should move only with appropriate advice and for a substantial reason.

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

*Craig Simpson is an investment strategist for AmanahNZ KiwiSaver.

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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5 Comments

Exciting stuff and interesting about Milfords cash holding. It's a tricky time.
Thanks for the analysis Craig.

Looks like Milford has 38% cash and bonds; that would be pretty defensive for them.Maybe everybody should be a bit risk off??(although shorting the ASX and playing with derivatives seems fraught)

The Milford team have been taking a more conservative position of late which is reflective of the state in markets and the manager's view for the near future. It will be worth watching their next couple of monthly reports to see if this cash position deepens. 

Shorting any market can be dangerous if you don't know what you are doing or have prudent risk management systems in place to minimise the loss. You would have to say that shorting the Aussie market has been quite an easy call given the links and influence the Chinese economy has on Aussie. Derivative use is often for risk management and not speculation so is not always dangerous.

Still better borrowing 90% , putting in 10% and buying a rental property.
You can receive 20% tax free capital gain, a tax free rental return of 5% and claim interest on the 90% borrowed.
You cannot loose as houses and rents in Auckland will always go up.
I do not know why people would bother with investing in any sort of managed fund, especially after the fees have been deducted.

Is the situation described above still going to be favourable for those having to put up 30% deposit on investment property?

You can leverage into equities and some funds but the amount you can borrow is generally a max of 65% - 70% of the value and is basically on those liquid stocks on NZX/ASX. Leveraged investing came unstuck in Aussie in a big way during GFC.