Our comprehensive review of regular savings returns to March 31, 2016 for Aggressive KiwiSaver funds, identifying who has the best long-term returns

The worst performers last year were emerging-market equities and commodities, driven by a weaker Chinese growth outlook. Theses sectors didn't fare too well in the first month and a half of 2016 either.

We witnessed a momentum change in the middle of the quarter, almost like someone had flicked a switch and lit a massive fire under these two sectors. They subsequently rallied hard and finished Q1 with gains. The US equity indices were one of the few benchmarks to finish with their head above water at the end of March.

The Federal Reserve (Fed) softened its rate-hiking stance on concerns around the global growth outlook. Interest rates dropped sharply during the first quarter as investors pursued a flight to safety strategy. Bonds outperformed equities across most parts of the market. Many of the funds in this category will have low or zero exposure to fixed income assets so would have bore the brunt of falling equity prices and the spike in volatility.

We have observed some managers are holding what we would term over-weight positions in cash as at the end of the quarter. There had been a deliberate process of reducing equity exposures during the later part of last year and this has provided some downside protection, albeit small.

Those portfolios with a more defensive stance have missed some of the upswing as equities bounced and volatility fell away. The flip side to this is, while the returns might have been a little lower the variability in the returns will have been lower too. It depends if you want to eat well or sleep well as to how you view this scenario.

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. Our regular saving model is showing the benefits of investing a little but often and staying invested and committed to a specific strategy.

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

   ANZ OneAnswer Australasian Property is awarded our best in class title for this quarter. 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.

On our regular savings basis, the average of the top five funds would have resulted in you earning $23,700 more than you have contributed. The top funds have doubled your money (give or take).

The average annual long term compound return of the top five Aggressive funds' earnings after-tax and after-fees is 13.4% which is 7.4% per annum more than the average of the top five Default funds. The top 5 Aggressive Funds are adding over $14,500 more value to investors than the top 5 Default funds.

We would suggest that the additional return offered by the better performing Aggressive funds over and above the Default funds is providing investors with a sufficient risk premia at present. We do have reservations as to whether the Aggressive funds are providing investors with superior risk-adjusted returns given the level of volatility that is occurring from month to month.

Here are the full comparison as at March 31, 2016 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 March 2016					$	% p.a.	$
ANZ OneAnswer Australasian Property	A	A	P	26,471	25,036	13.9%	51,508	14.4%
ANZ OneAnswer Australasian Share	A	A	AE	26,471	24,561	13.7%	51,032	15.4%
Milford Active Growth	A	G	AE	26,471	23,092	13.1%	49,563	12.3%
Aon Milford	A	G	AE	26,471	23,043	13.1%	49,514	11.9%
ANZ OneAnswer Int'l Property	A	A	P	26,471	22,855	13.0%	49,327	12.2%
ANZ OneAnswer Growth	A	G	G	26,471	17,808	10.7%	44,279	10.8%
ANZ Growth	A	G	G	26,471	17,582	10.6%	44,054	10.6%
Aon Russell LifePoints 2045	A	G	A	26,471	17,132	10.4%	43,603	10.9%
ASB Growth	A	G	G	26,471	16,367	10.0%	42,838	11.2%
ANZ Default Growth	A	G	G	26,471	16,229	10.0%	42,700	10.7%
ANZ OneAnswer Int'l Share	A	A	IE	26,471	15,854	9.8%	42,325	11.8%
Fisher Funds Growth	A	A	A	26,471	15,347	9.5%	41,818	9.8%
Westpac Growth	A	G	G	26,471	15,020	9.3%	41,491	10.0%
Mercer High Growth	A	A	A	26,471	14,138	8.9%	40,609	9.3%
Fisher Funds Two Equity	A	A	IE	26,471	12,986	8.3%	39,457	8.9%
Kiwi Wealth Growth Fund	A	A	A	26,471	12,973	8.3%	39,444	9.5%
AMP Growth	A	G	G	26,471	12,048	7.7%	38,519	7.4%
Grosvenor High Growth	A	A	A	26,471	11,712	7.5%	38,183	9.1%
AMP Aggressive	A	A	A	26,471	10,900	7.1%	37,371	6.1%
ANZ OneAnswerSustainable Growth	A	A	IE	25,860	10,789	7.3%	36,648	9.5%
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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 = Growth, IE = 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, Grosvenor Geared 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	22,185	11,082	9.6%	33,267	10.4%
Craigs Equity	A	A	A	21,509	8,367	7.9%	29,876	6.8%
Grosvenor International Share	A	A	IE	19,159	8,572	9.8%	27,731	9.7%
Grosvenor Socially Responsible	A	A	AE	19,159	7,785	9.0%	26,944	7.6%
Grosvenor Trans-Tasman Small Companies	A	A	AE	19,159	5,300	6.0%	24,458	4.5%
Craigs NZ Equity	A	A	AE	17,385	12,795	16.3%	30,180	14.3%
Craigs Australian Equity	A	A	AE	17,385	4,599	6.1%	21,984	3.8%
Generate Focused Growth	A	A	A	9,768	2,638	8.2%	12,406	n/a
Amanah KiwiSaver Plan	A	A		6,522	1,273	3.0%	7,795	n/a
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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 = Growth, IE = International Equities, P = Property

 

Observations and return drivers

Stock picking (active management) as opposed to index tracking (passive management) is providing the greatest return for investors and has done for some time now. 

More of the diversified funds have greater exposures to cash as the managers have positioned the strategies more conservatively and this has dampened some of the returns compared to the single sector funds that are basically fully invested into a specific asset class.

ANZ's suite of products rate highly across many of the sectors and are one of those most consistent performers across a number of sectors.

Some of ANZ's success has centred around having a stable line up of top ranking fund managers across their portfolios and holding an over-weight position to equities compared to what they see as a neutral position as the market transitioned out of the GFC. As markets started to peak and fundamental valuations became stretched the team have started to sell down some of their equity exposure and taken their profits. The current exposure to equities is more neutral at around 80% of the portfolio. The exposure to equities will vary within a range and the positions will be tweaked from time to time depending on their forwarding looking view around markets and economies.

ANZ is one of the few managers that offers single sector and diversified portfolios within KiwiSaver so investors can pick and chose what they want to invest in. Also their portfolios have an exposure to property. Not every manager holds this asset class in their strategies. ANZ have exposure to both global and Australasian property.

Property as an asset class took a battering around the GFC period but has bounced back strongly. Over the past 7 years the global property exposure has increased in value by over 20%. Some of the excess return will also have come from having a fully hedged exposure too.

One thing we have found interesting when analysing the ANZ funds is the manager's use of property. Over time property has proven to be a good proxy for real asset returns. Real assets as a sector or asset class, is broadly speaking, anything that is inflation linked and includes, infrastructure, commodities, natural resources, precious metals, real estate and timber for example. Rather than invest into what are often illiquid investments, the manager uses their exposure to property to generate better risk adjusted returns for investors. ANZ have not used hedge funds or other alternatives as these alternatives tend to be riskier and less liquid than their property exposures.

The two top performing funds in the sector are both Australasian focused and not surprisingly given the strength of the NZ share and property markets are heavily exposed to NZ. The respective benchmarks are in NZ indices so this also has an influence on where the majority of the money will be allocated.

The portfolios themselves are quite concentrated and have some hefty positions to a handful of stocks. The companies ANZ hold in the Australasian Share portfolio for example are all familiar and if the manager is to add value over the market, we would expect them to be taking some larger positions in the companies they believe have superior upside potential. That is after all what investors are paying them to do.

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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 March 2016 reviews of the Default, Conservative, Moderate, Balanced & Growth funds can be found here, here, here, here & here