Our comprehensive review of KiwiSaver Growth funds to March 31, 2016 identifies the top performers

Our comprehensive review of KiwiSaver Growth funds to March 31, 2016 identifies the top performers

Growth fund returns have proven to be incredibly resilient in what has been another testing quarter.

A majority of the KiwiSaver funds in this category have posted positive returns based on changes in their unit pricing (measured on a before tax and after fund fees basis), despite many global equity benchmarks being down over 5% over the past three months.

Within the asset mix, funds with a heavier weighting towards NZ shares, US shares and government bonds (domestic and global) have been the better performing funds over the past three and twelve months.

We had previously written that the days or achieving 10% returns were over, and for a majority of this sector that remains correct.

We had anticipated the spike in volatility would substantially impact returns. And for most of the category that is what has happened; returns are below 10% p.a. But there has been one exception, the Aon Russell Growth Fund. This fund achieved a stellar 10.7% p.a. three year return based on a regular savings model return methodology. The three year return is head and shoulders above its nearest competitors.

A large number of the funds in this category were able to achieve returns in the short term (i.e last three years) that were equal to or in excess of the funds long term returns (i.e. since April 2008).

Our regular savings model suggest investing in the top five funds in this category would have yielded $16,000 more than our sample investor contributed since inception of our analysis.

The average Growth fund earnings after-tax and after-fees is $6,870 more than what was earned in the average of the top five Default funds. The average Growth fund earnings have risen almost $1,000 compared to the previous quarter's results.

  Aon Russell LifePoints Growth takes out the best in class award as it is the top performer over the long run and has also produced a three year return that is either equal to or greater than its long run return. This fund retakes the top position in our ranking table after previously being knocked down to number two.

Here are the full comparison as at March 31, 2016 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 March 2016      
$
% p.a.
$
                 
  Aon Russell LifePoints Growth G G G 26,471 16,870 10.3% 43,341 10.7%
AMP ANZ Default Balanced G B G 26,471 16,089 9.9% 42,560 9.7%
ANZ OneAnswer Balanced Growth G G G 26,471 15,846 9.8% 42,317 9.6%
Aon Russell LifePoints 2035 G G G 26,471 15,754 9.7% 42,225 9.8%
ANZ Balanced Growth G G G 26,471 15,637 9.7% 42,108 9.5%
Aon Russell LifePoints Balanced G B B 26,471 15,546 9.6% 42,017 9.7%
ANZ Default Balanced Growth G G G 26,471 14,591 9.1% 41,062 9.5%
ASB Balanced G B B 26,471 14,398 9.0% 40,869 9.6%
Aon ANZ Default Balanced G B B 26,471 14,269 9.0% 40,740 8.2%
Fisher Funds Two Growth G G G 26,471 13,192 8.4% 39,663 8.1%
Westpac Balanced G B B 26,471 12,879 8.2% 39,350 8.5%
AMP Balanced G B B 26,471 11,254 7.3% 37,725 6.7%
Craigs Growth G G   26,471 10,938 7.1% 37,409 7.1%
Craigs Balanced G B   26,471 10,441 6.8% 36,912 6.7%
Craigs Balanced SRI G B   26,471 9,425 6.2% 35,896 5.8%
Grosvenor Balanced Growth G G G 19,749 7,343 8.0% 27,091 7.9%
BNZ Growth G G G 9,990 2,951 9.3% 12,941 8.2%
-------------------        
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 March 2016      
$
% p.a.
$
                 
Generate Growth G G G 9,768 2,762 8.8% 12,530
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

Observations and return drivers

From the funds we cover in this category, only three KiwiSaver managers experienced negative for the three months ending March 31 (Craigs IP Growth, Craigs IP Balanced SRI & Generate Growth) and no manager recorded a negative change in https://www.interest.co.nz/kiwisaver/80977/our-comprehensive-review-default-kiwisaver-fund-performance-march-2016-identifyingunit price over either the last six months or one year period.

Higher exposures to NZ shares, good quality corporate and government bonds and holdings smaller amounts of cash have been some of the key drivers behind the better performing funds

The Craig's IP funds which feature at the bottom of our regular savings performance table were actually some of the better performing funds over the past twelve months on a change in unit price basis. This bounce in performance has not translated into markedly better longer term performance according to our regular savings model and analysis. Each of the Craig's IP funds in the universe had over 20% cash at the end of the quarter and appear to be defensively positioned compared to some of their peers.

The manager has the ability has the ability to move the exposure to growth and income assets up and down within some fairly wide ranges and in each instance the share (growth) exposure is near the bottom of the range. These funds also have a bias towards cash over fixed income assets which on the one hand will be reducing the level of volatility in the funds, but on the other is turning out to be a drag on returns.

With regards to the Generate Growth Fund, the last quarter saw the funds drop into negative territory but over the past twelve months it has been one of the best performers in this category. Generate's portfolio has some significant positions in some NZ companies which performed very well over the last 12-months and these results help push up the 12-month returns. The exposure to listed property is higher than a lot of their peers and provides the portfolio with both income by way of dividends and capital growth. The portfolio overall is fairly conservatively positioned for a Growth fund and our calculation of the variablility of monthly returns (standard deviation) supports this view.

After having done a number of these reviews now, we have observed that Aon Russell KiwiSaver products keep appearing near the top of most of the KiwiSaver categories. If you were to break the individual Russell funds out of the portfolio and compare them to other similar funds the performance of the Russell funds is solid and consistent, but not spectacular. The manager, in our opinion, is displaying a fair amount of skill to be able to take a series of funds which on in their own right are solid and stable performers, but when blended correctly become pack leaders.

The long term performance has benefited from the fact that Aon Russells global equities were fully hedged up to mid-2013. This led to very strong performance coming out of the GFC at a time when most peers were at least partially hedged. In mid-2013 the funds moved to a 50% hedge. Having a "bob each way" and not trying to tactically manage the currency positions the manager has been able to deliver a consistent level of performance for investors.

The returns in the past few months have benefitted from the manager holding a relative underweight position to growth assets compared to many other managers in the same category.

Aon's funds are also heavily skewed to global fixed income securities within the total fixed income allocation. The longer term returns from global bonds that are fully hedged back to NZD, have provided the fund with solid gains over NZ bonds and this has been a contributor to the funds long term performance.

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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 March 2016 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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