Our comprehensive review of regular savings returns to December 31, 2015 for Aggressive KiwiSaver funds, identifying who has the best long-term returns

The roller coaster ride of the September quarter continued to twist, roll, drop and spin into the final quarter of 2015. By year end investors were probably wishing they could have got off the ride at the last stop.

It is said that investing amid volatility is one of the most rewarding opportunities occasionally presented to investors, however investors often shy away as it probably seems like an incredibly risky thing to do.

Investors in aggressive funds, and with long term time horizons should be advised to stay invested and stick to their strategy. For regular investors, drops in security values allows more units to be purchased and over time as asset prices recover your wealth grows faster. Well that is the theory at least.

Even though major equity indices were below the water line for the year, based on changes in unit values none of the funds in the Aggressive KiwiSaver category recorded a negative return for the last twelve months on an after fees but before tax basis.

Many of the shorter term returns have settled at lower levels but are still positive. Return expectations for the coming year will probably have to be revised downward.

There is a distinct bearish sentiment sweeping across equity markets and unless we see infinitely better economic data and an improvement in the situation in China and commodities this trend could continue for at least the next quarter..

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.

The funds with the largest differential between their three year and long run returns are ANZ OneAnswer Int'l Share, Kiwi Wealth Growth Fund & ANZ OneAnswerSustainable Growth.

  Milford Active Growth Fund is awarded our best in class title for this quarter and has regained the top spot in the ranking table from ANZ. Our best in class award is reserved for those funds that have a three year track record that is equal to or greater than the long run returns. Milford's returns before rounding are almost identical over both time periods as measured under our regular savings methodology.

On our regular savings basis, the average of the top five funds would have resulted in you earning $20,200 more than you have contributed.

The average annual long term compound return of the top five Aggressive funds' earnings after-tax and after-fees is 12.5% which is 6.7% per annum more than the average of the top five Default funds.

The Staples Rodway Growth Fund has been removed from our ranking table as this fund is no longer available to the public and is going to be transferred to the Lifestages scheme.

Here are the full comparison as at December 31, 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 December 2015      
$
% p.a.
$
                 
  Milford Active Growth A G AE 25,648 22,005 13.3% 47,653 13.2%
Aon Milford A G AE 25,648 21,812 13.2% 47,461 13.1%
ANZ OneAnswerAustralasian Property A A P 25,648 21,059 12.9% 46,708 13.9%
ANZ OneAnswer Int'l Property A A P 25,648 18,550 11.7% 44,198 10.2%
ANZ OneAnswer Australasian Share A A AE 25,648 17,942 11.4% 43,590 12.3%
ANZ OneAnswer Growth A G G 25,648 16,190 10.5% 41,839 11.1%
ANZ OneAnswer Int'l Share A A IE 25,648 16,176 10.5% 41,824 13.5%
ANZ Growth A G G 25,648 16,004 10.4% 41,652 11.0%
Aon Russell LifePoints 2045 A G A 25,648 15,128 9.9% 40,776 11.0%
ANZ Default Growth A G G 25,648 14,754 9.7% 40,403 11.1%
Mercer High Growth A A A 25,648 14,238 9.4% 39,886 10.6%
ASB Growth A G G 25,648 14,062 9.3% 39,710 10.6%
Fisher Funds Growth A A A 25,648 13,944 9.3% 39,593 9.4%
Kiwi Wealth Growth Fund A A A 25,648 13,728 9.2% 39,377 12.5%
Westpac Growth A G G 25,648 13,231 8.9% 38,880 9.8%
ANZ OneAnswerSustainable Growth A A IE 25,037 11,219 8.0% 36,202 11.1%
Fisher Funds Two Equity A A IE 25,648 11,326 7.7% 36,975 9.5%
AMP Aggressive A A A 25,648 10,553 7.3% 36,256 7.2%
Grosvenor High Growth A A A 25,648 10,128 7.0% 35,776 8.7%
AMP Growth A G G 25,648 10,045 6.9% 35,693 6.7%
--------------
Column X is inte8.5rest.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 December 2015) the results are shown below. In this group the standout performers are Craigs NZ Equity, Generate Focused Growth  and Grosvenor International Share.

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 December 2015      
$
% p.a.
$
                 
Grosvenor Geared Growth A A A 21,363 9,324 8.7% 30,687 9.5%
Craigs Equity A A A 20,687 8,917 9.0% 29,604 8.5%
Grosvenor International Share A A IE 18,336 8,151 10.1% 26,487 10.6%
Grosvenor Socially Responsible A A AE 18,336 6,700 8.4% 25,036 7.0%
Grosvenor Trans-Tasman Small Companies A A AE 18,336 3,111 3.4% 21,447 1.0%
Craigs NZ Equity A A AE 16,562 9,466 13.7% 26,028 11.8%
Craigs Australian Equity A A AE 16,562 4,999 7.3% 21,562 4.9%
Generate Focused Growth A A A 8,945 2,751 10.2% 11,696 n/a
Amanah KiwiSaver Plan A A   5,699 1,579 7.7% 7,278 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

 

What's driving the short term return premium

What has caught our eye this quarter is there are funds with outstanding short term performance that is approximately 3% above the respective long term returns. It may take some time for the better short term performance to filter through to the longer term numbers.

Using the most up-to-date disclosure statements we are able to see what the funds top 10 holdings are and the type of underlying funds the various managers are using to achieve their desired portfolio composition or benchmark allocation.

The table below highlights the top 10 holdings in the three funds which are making the biggest gains in the short term and the top fund in the category. These better short term performers are ANZ OneAnswer Int'l ShareKiwi Wealth Growth Fund & ANZ OneAnswerSustainable Growth.

The disclosure of the holdings will provide readers with an insight into the types of companies and funds these funds are accessing on KiwiSavers behalf. What the information won't necessarily tell you is what style, regional , sector or industry bias the manager has as there is not quite enough detail to make those assumptions or conclusions.

You have to dig deep into the Annual Product Disclosure Statements to find a detailed summary of the exact holdings as at 31 March each year. For a December year end review, this additional information is pretty useless as it is so far our of date and hence why we have not referred to these documents as part of our analysis.

Milford Active Growth Fund

Milford Active Growth ANZ OneAnswer Int'l Share Fund Kiwi Wealth Growth ANZ OneAnswer Sustainable Int'l Fund
Holding and percentage weight in brackets
Cash Deposit NZD (7.33%) Cash Deposit USD (5.10%) Cash Deposit NZD (5.99%) NN (L) Global Sustainable Equity (96.78%)*
Cash Deposit AUD (5.95%) Visa (1.98%) GMO Systematic Global Macro (2.67%) Cash Deposit NZD (3.30%)
Fletcher Building (5.06%) Reckitt Benckiser (1.93%) Guggenheim S&P 500 Pure Growth ETF (2.22%)  
Air New Zealand (2.66%) Nestle SA (1.52%) Baring Europe Select  (2.06%)  
Tourism Holdings (2.42%) Roche Holdings  (1.44%) Platinum Asia (1.76%)  
Delegat Group (1.73%) Thermo Fisher Scientific (1.14%) Kroger (1.60%)  
BNZ Term Deposit (1.61%) Honeywell Int'l (1.05%) Teva Pharmaceutical (1.51%)  
ANZ Term Deposit (1.61%) Vontobel India Fund (1.04%) iShares S&P Small Cap 600 ETF (1.50%)  
Fisher & Paykel Healthcare (1.60%) Accenture (1.02%) Alphabet Inc (previously Google) (1.41%)  
Wynyard Group (1.40%) Bayer AG (1.02%) Republic Services (1.28%)  

We can clearly see that all of the managers have widely different approaches to achieving their long term objectives.

Milford has considerable Cash and NZ share exposure across the top 10 investments, while the other funds have more of an international flavour to their top 10 holdings.

The cash and domestic bias in the Milford portfolio has provided some positive upside for investors.

Three of the managers have exposure to other managed fund investments or exchange traded funds in order to achieve their investment goals and objectives.

Kiwi Wealth provides investors with a mix of direct exposures, passive investments via ETF's and actively managed funds (or alternative strategies) via iShares, Guggenheim, Baring, Platinum and GMO's Systematic Global Macro Trust. Based on the top 10 exposures Kiwi Wealth's portfolio appears to be the most diverse of the four funds we have highlighted.

OneAnswer's International Share fund has a dedicated exposure to India via the Vontobel Fund, whereas Kiwi Wealth's exposure is indirectly via the Platinum Asia Fund. At 31 December, Platinum Asia had a net 18% exposure to India. OneAnswer have the flexibility to switch in an out of this exposure directly, the process for Kiwi Wealth to exit their India exposure via the Platinum investment is more complicated. The same would also apply for any China exposure which the Platinum Asia fund has. 

* The ANZ OneAnswer Sustainable International Fund invests via a Luxembourg domiciled investment vehicle. The Sustainable International Share Fund invests mainly into a diversified portfolio of share assets and/or transferable securities
issued by companies with a sustainable development policy. This policy combines respect for social principles (such as human rights, non-discrimination and the issue of child labour) and environmental principles with good financial prospects. The Fund may also invest in cash assets. The NN (L) Global Sustainable Equity Fund (formerly known as the ING (L) Invest Sustainable Equity Fund).

At 30 September 2015 the top holdings in the NN (L) Global Sustainable Equity Fund include:

Liquidity - EUR 2.35%
Alphabet Inc 3.46 %
Apple 3.41 %
Microsoft 2.71 %
CVS 2.10 %
Gilead Sciences 2.10 %
Visa Inc 1.89 %
SYSCO 1.82 %
Stericycle 1.71 %
Novartis 1.61 %

On the surface there does not appear to be much in common across the four funds in terms of individual company, fund or ETF exposures. However if you dig deeper into each of the ETF's and funds you discover there are quite a few common holdings across a majority of the managers.

Milford with its NZ equity bias and small exposure to global shares (circa 12%) is somewhat of an outlier in this snapshot of four equity heavy funds. Their sizeable cash and fixed income exposure and bias to domestic equities has proven to be the right call (for now) and it will be interesting to see if other managers migrate to holding more cash or fixed income in the portfolios if the uncertainty in markets continues.

It is important to also understand that some managers may not have the flexibility in their mandates to be more defensive and extend their cash or fixed income exposures. In this case if markets continue to sell off, investors could see some rapid erosion in the value of their investments on an after tax and fees basis.

----------

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 December reviews of Default,  Conservative, Moderate, Balanced & Growth funds can be found here, 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?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.

1 Comments

I do love that Milford. But it might be bumpy for the next year or two.