Our comprehensive review of regular savings returns to June 30, 2016 for aggressive KiwiSaver funds shows the top 5 are adding over $12,400 more value to investors than the top 5 default funds

Our comprehensive review of regular savings returns to June 30, 2016 for aggressive KiwiSaver funds shows the top 5 are adding over $12,400 more value to investors than the top 5 default funds

Property funds once again grace the top of the Aggressive KiwiSaver category. Listed property funds with offshore investments are normally fully hedged back to NZ dollars.

Hedging property investments not only reduces currency risk but also helps protect the income stream which is the main return component from these types of investments. There may also be a return enhancement if the hedging position works in your favour, which it invariably has during the past quarter as the NZ dollar climbed against many of the major currencies.

We have previously observed some managers had already taken a more defensive stance with their portfolios in anticipation of increased volatility and uncertainty during the year. These managers experienced some downside protection as the markets fell out of bed in the immediate aftermath of the Brexit vote. Our unit price data shows the average return for the aggressive funds in June was -2.56% (before tax). There were some outliers in the sample worth noting. The only fund to return a positive return for the one month period ending June was the ANZ OneAnswer International Property Fund (+3.5%). The biggest falls were recorded by ANZ OneAnswer International Share Fund (-6.4%) and ANZ OneAnswer Sustainable Growth Fund (-7.9%).

The average return across the aggressive funds for the quarter was +0.9% and the last twelve months +2.9% - both returns are before tax and based on unit price changes.

Massive dispersion

We have also observed there is a massive dispersion in returns for the 12-months ending June. Again looking at the unit price changes, the highest change in value is for the Craigs Investment Partners NZ Equity Fund (+21.3%), and the worst return was posted by the ANZ OneAnswer Sustainable Growth Fund (-10.5%). Even though the Craig's Investment Partners NZ Equity Fund has not been going as long as its peers, we have noticed it's posting some pretty impressive returns on an after tax and fees basis. This particular fund is what we would call the flagship fund out of all the KiwiSaver funds Craig's offers. The other funds in the Craig's suite are generally found languishing near the bottom of the leaderboard.

Approximately half of all the funds in this sample group are providing returns over the last three years that are equal to or above their long run average return. This is a reduction from the last quarter where we observed that a majority of the funds had superior short term performance. There are many contributing factors to why the returns have tapered off.

   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 $22,200 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 12.0% which is 6.0% per annum more than the average of the top five default funds. The top 5 aggressive funds are adding over $12,400 more value to investors than the top 5 default funds.

Here are the full comparison as at June 30, 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 June 2016      
$
% p.a.
$
                 
  ANZ OneAnswer Australasian Property A A P 27,378 24,259 12.8% 51,637 14.9%
ANZ OneAnswer Int'l Property A A P 27,378 22,963 12.3% 50,341 13.3%
Milford Active Growth A G AE 27,378 21,705 11.8% 49,083 10.7%
Aon Milford A G AE 27,378 21,470 11.7% 48,848 10.6%
ANZ OneAnswer Australasian Share A A AE 27,378 21,030 11.5% 48,408 12.7%
ANZ OneAnswer Growth A G G 27,378 16,189 9.4% 43,567 9.3%
ANZ Growth A G G 27,378 15,972 9.3% 43,350 9.2%
ASB Growth A G G 27,378 15,626 9.1% 43,004 9.6%
Aon Russell LifePoints 2045 A G A 27,378 14,983 8.8% 42,361 8.5%
ANZ Default Growth A G G 27,378 14,687 8.6% 42,065 8.9%
Mercer High Growth A A A 27,378 14,586 8.6% 41,964 9.6%
Fisher Funds Growth A A A 27,378 14,221 8.4% 41,599 7.3%
Westpac Growth A G G 27,378 13,117 7.8% 40,495 8.3%
ANZ OneAnswer Int'l Share A A IE 27,378 12,187 7.3% 39,565 6.4%
Kiwi Wealth Growth Fund A A A 27,378 11,159 6.8% 38,537 7.0%
AMP Aggressive A A A 27,378 10,806 6.6% 38,184 7.0%
AMP Growth A G G 27,378 10,530 6.4% 37,908 6.8%
Fisher Funds Two Equity A A IE 27,378 10,330 6.3% 37,708 7.3%
Grosvenor High Growth A A A 27,378 10,224 6.3% 37,602 7.2%
ANZ OneAnswerSustainable Growth A A IE 26,762 6,451 4.1% 33,214 2.9%
--------------
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 June 2016) the results are shown below. In this group the standout performers are Craigs NZ EquityGrosvenor Geared Growth and Grosvenor International Share.

The worst performer from the list has been the Amanah KiwiSaver Plan which has held large cash positions and the international portfolio is totally unhedged, which has probably been one of the biggest influences on the returns since the fund launched back in 2014. The large cash positions have resulted from a mix of proceeds from takeovers of companies previously held in the portfolio, forced sales of companies that are no longer Shari'ah compliant (as per the strict investment mandate) and regular contributions from exisitng members. 

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 June 2016      
$
% p.a.
$
                 
Grosvenor Geared Growth A A A 23,067 8,797 7.5% 31,865 7.1%
Craigs Equity A A A 22,386 6,308 5.5% 28,694 4.1%
Grosvenor International Share A A IE 20,015 7,264 7.7% 27,279 6.3%
Grosvenor Socially Responsible A A AE 20,015 6,491 6.9% 26,506 6.0%
Grosvenor Trans-Tasman Small Companies A A AE 20,015 3,355 3.2% 23,370 5.6%
Craigs NZ Equity A A AE 18,221 11,411 13.6% 29,632 11.9%
Craigs Australian Equity A A AE 18,221 5,118 6.3% 23,339 6.7%
Generate Focused Growth A A A 10,493 2,385 6.1% 12,877 5.4%
Amanah KiwiSaver Plan A A   7,189 1,032 0.3% 8,221 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

Our June 2016 reviews of the default, conservative, moderate, balanced & growth funds can be found here, here, here, here & here.  

Observations and return drivers

Stock picking (active management) as opposed to index tracking (passive management) remains the flavour of the day when it comes to producing top ranking funds within KiwiSaver. ASB with a passive strategy is slowly eating away at the lead the active managers have enjoyed to date.

ASB's returns are a direct result of being fully invested and staying to a strategic position. They are not trying to be too cute with their allocations and are benefitting from bounces in the market. Some of the more active managers are seeing their returns eroded from being a bit more tactical with their weightings and this is working against them. This situation could change in a heart beat if markets tumble.

Milford Active Growth, despite its sizeable cash and bond positions, continues to perform well by virtue of having a 60% exposure to Australasian Shares. At the end of June, Milford disclosed that 7.5% of the Active Growth Fund was invested in Fletcher Building shares, which is also one of the best performing companies on the NZX over the past 12 months. Milford's stock picking ability is highly regarded and they continue to deliver results for their investors.

Kiwi Wealth, on the other hand, has no exposure to NZ equities and its performance has tailed off. The fund is well diversified across offshore markets and positioned to take advantage of the next upswing in global equity markets.

Socially responsible funds within the aggressive category have continued to perfom below par, which is disappointing for those who want an ethical investment strategy and are trying to maximise their retirement savings. There are a few funds to choose from in the equity only space but little else available in the other more conservative risk profiles.

Very little separates the AMP Aggressive and Growth Fund returns which is intriguing given the variances in their respective asset allocaitons. The Growth Fund is delivering investors with superior performance over 1, 2, 3, 6 and 12-month time frames -based on unit price movements. Both funds in their March fund updates recorded the same risk indicator score of number 4 which on a scale of 1 (low risk) to 7 (high risk) is on the upper side of medium risk.

The Growth Fund has a lower monthly and annualised standard deviation based on our calculations using reported monthly unit price data over the period September 2007 to June 2016. This leaves us to conclude that while both funds have the same risk indicator score, based on the long run regular savings return and volatility differences investors are better of in the AMP Growth Fund compared to the Aggressive Fund at this point in time.

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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.

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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3 Comments

Quite interesting looking at the different asset mixes of managed funds; I guess they all think they are right...

It is interesting seeing the rationale and thought processes that goes into some of the asset allocation decisions. The assumptions and inputs can sometimes appear a little left field and it makes you wonder what the analysts are seeing or believing that you're not.

Please to see both of my kiwi saver schemes in the top two positions long may it continue. My choice to invest in property funds as opposed to shares and cash is paying off rather nicely. Thank you for the updates I do look forward to them.