Our comprehensive review of KiwiSaver Growth funds to June 30, 2016 identifies the top performers

Our comprehensive review of KiwiSaver Growth funds to June 30, 2016 identifies the top performers

The vote for the UK to leave the EU (Brexit) caught many naive investors flat footed. The bond market and smart money had already been signalling that the British exit was a distinct possibility for most of 2016.

Bond yields in the major safe haven countries of Japan, Germany and US hit all time lows as investors braced themselves for a bumpy ride. In some instances yields went negative (or even more negative) as punters poured into sovereign bonds.

Market conditions remain uncertain and we would expect the defensive positioning adopted by some of the managers in this ctegory to remain in place for some time. If markets can shrug off the apparent headwinds and the managers don't adapt then we will see returns pull back.

The Growth funds continue to provide investors which are in the mid to high 8 percent range at the top. The stragglers in the sector are in the six percent range, which on an after tax and fees basis is tolerable as a headline number but when you consider where these funds sit on the risk spectrum they become less than adequate.

Returns in the 10% plus range have now disappeared.

Our regular savings model suggest investing in the top five funds in this category would have yielded $14,600 more than our sample investor contributed since inception of our analysis.

The average Growth fund earnings after-tax and after-fees is $4,833 more than what was earned in the average of the top five Default funds. But this return is $2,000 lower than at the end of the last quarter.

  ANZ OneAnswer Balanced Growth Fund has overtaken the Aon Russell LifePoints Growth Fund to take out our best in class award. The ANZ OneAnswer fund 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.

Here are the full comparison as at June 30, 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 June 2016      
$
% p.a.
$
                 
  ANZ OneAnswer Balanced Growth G G G 27,378 14,939 8.8% 42,317 8.8%
ANZ Balanced Growth G G G 27,378 14,772 8.7% 42,150 8.8%
Aon Russell LifePoints Growth G G G 27,378 14,754 8.7% 42,133 8.4%
AMP ANZ Default Balanced G B G 27,378 14,443 8.5% 41,821 8.3%
Aon Russell LifePoints 2035 G G G 27,378 14,432 8.5% 41,811 8.3%
ASB Balanced G B B 27,378 14,216 8.4% 41,594 8.9%
Aon Russell LifePoints Balanced G B B 27,378 14,213 8.4% 41,591 8.2%
ANZ Default Balanced Growth G G G 27,378 13,720 8.2% 41,098 8.5%
Aon ANZ Default Balanced G B B 27,378 13,590 8.1% 40,968 8.1%
Westpac Balanced G B B 27,378 11,750 7.1% 39,129 7.6%
Fisher Funds Two Growth G G G 27,378 11,741 7.1% 39,119 7.5%
AMP Balanced G B B 27,378 10,377 6.3% 37,755 6.5%
Craigs Balanced G B   27,378 9,807 6.0% 37,185 6.0%
Craigs Growth G G   27,378 9,700 6.0% 37,078 5.9%
Craigs Balanced SRI G B   27,378 8,703 5.4% 36,081 4.8%
Grosvenor Balanced Growth G G G 20,612 6,546 6.6% 27,157 6.6%
BNZ Growth G G G 10,720 2,495 6.3% 13,215 5.7%
Generate Growth G G G 10,493 2,292 7.9% 13,341 7.3%
-------------------        
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'

Our June 2016 reviews of the Default, Conservative, Moderate, & Balanced funds can be found here, here, here & here.  

Observations and return drivers

From the funds we cover in this category, no manager experienced negative for the three months or 12-months ending June 30 which is an impressive statistic considering the volatility that has swept across markets this year.

There was a fair amount of carnage across this sector in the month of June following the Brexit vote. No single Growth category manager recorded a positive change in unit price in June. The fund that got closest was the ASB Balanced Fund.

Craig's Investment Partners Growth Fund was the worst performer over the past six and 12-months, and is second to worst performer over three months. This fund is heavy on cash and equities but light on exposure to US shares which have been a relative safe haven lately. The manager in their fund update notes their performance while being down 3.1% for the month was ahead of their benchmark which returned -3.8%. This fund has a track record of outperforming the internal benchmark over the past five years on a before tax basis. once tax is deducted they are below the waterline. The benchmark the manager measures themselves against is a blend of MSCI World Index in NZD (55%), NZX 50 (12.5%) ASX200 (12.5%) NZX Investment Grade Bond Index (15%) and NZ 90 day bank bills (5%). If you compare the current asset allocation against the benchmark the fund is underweight global shares, overweight NZ & Australian shares and overweight Cash. The continued underperformance from the diversified Craig's IP portfolios against their peers is concerning.

The better performing funds across all the categories reviewed to date all have a common theme of having international assets hedged or majority hedged, exposure to global sovereign bonds and over-weight exposures to NZ shares.

ANZ's various portfolio have been some of the stronger performing funds across many of the sectors. The managers appear to have their strategy on point at present and the underlying managers and hedging positions are adding value. ANZ are one of the more consistent managers in our regular surveys. The Balanced Growth portfolios are under-weight equities, overweight cash, slightly underweight bond and on benchmark for their property exposures. The more defensive positioning has worked a treat as volatility has increased.

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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Updated: There was an error in the original unit price data used for the Generate Growth fund and this has been corrected and the returns recalculated.

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.

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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7 Comments

Thanks Craig.

Less seriously. Of the listed funds names more than half start with capital "A" , all the rest are "G" or less. Except for the single spoiler "W" .

no Milford??

Milford is in the next instalment which includes Aggressive Funds

Milford 10.5 % for the year ending June

Is that after tax and all fees or just after fund fees?

After fees & before tax