KiwiSaver long term returns retreat although Brexit vote had little impact overall; excess cash and defensive positioning hurting some funds

By Craig Simpson

The fallout from the British vote to leave the European Union created an enormous amount of volatility in its immediate aftermath, but there was little impact on fund returns overall once the dust settled.

We saw some returns retrace with some defensive positioning and increased cash portions largely to blame.

Underweight exposures to New Zealand shares or offshore bonds would not have helped some funds keep pace with their peers either.

This quarter's reviews, which can be found in the links below, all show some reshuffling in the long run and three year performance pecking order. We do expect some switching of places from time to time especially if there are extended periods of volatility as some of the schemes have completely different asset allocations. Over time this can influence returns one way or another.

Security selection and asset allocation has played a part in the last few quarter's returns and funds with exposures to global sovereign bonds, property and higher weights to US and NZ equities have been some of the better performers.

We are continuing to see some dispersion between the top tier and bottom tier funds over the long-term.

To illustrate this we have constructed the following scatter plot chart. This chart plots the returns for the funds included in our main tables within each category review (see links below for stories and data).

The long run returns are shown as blue points and the three year return is shown in orange. The top blue and orange point may not correspond to the same fund.

If your fund is earning a rate of return below the top default fund over the long term, you may want to consider seeking some financial advice on the most appropriate option for you.

Some familiar names continue to be anchored to the bottom of the table on a long term return basis. We don't see any radical change to this over the coming months.

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

Best of the best

The funds to be awarded our special 'best in class' badge across all the various categories are listed below. These funds are the best-of-the-best as at the end of June 2016 in our opinion. The funds that have adopted an active management style have performed better over the long term compared to those such as the ASB suite which are passive in their investment approach. It must be said however, that the defensive positioning from some of the funds has meant that the ASB funds in some sectors are catching up as they are fully invested into the various markets and have received a boost from the rebound in equities post-Brexit, and the continued decline in global bond yields.

Default: Mercer Conservative

Conservative: ANZ OneAnswer Int'l Fixed Interest

Moderate: Aon Russell LifePoints Conservative

Balanced: Aon Russell LifePoints 2025

Growth: ANZ OneAnswer Balanced Growth

Aggressive: ANZ OneAnswer Australasian Property

The table below highlights the best funds in each main class, and the range of returns between the top and bottom performers.

This is the list of the top funds at June 30, 2016 based on our regular savings return model. For the purpose of comparison we have only used those managers who have been in existence for the entire analysis period of April 2008 to June 2016.

Category	Top 3 Funds	Average of Top Five after fees after tax	Average of Bottom Five after fees after tax	# of funds invested for full period	Top long-term return after fees after tax
Aggressive		12.0%	6.5%	19
	ANZ OneAnswer Australasian Property				12.8%
#2	ANZ OneAnswer Int'l Property
#3	Milford Active Growth
Growth		8.6%	6.2%	15
	ANZ OneAnswer Balanced Growth				8.8%
#2	ANZ Balanced Growth
#3	Aon Russell LifePoints Growth
Balanced		8.0%	6.4%	14
	Aon Russell LifePoints 2025				8.2%
#2	ANZ OneAnswer Balanced
#3	Aon Russell LifePoints Moderate
Moderate		7.0%	5.8%	13
	Aon Russell LifePoints Conservative				7.6%
#2	ANZ OneAnswer Cons. Balanced
#3	ANZ Conservative Balanced
Conservative1		4.8%	n/a3	7
	ANZ OneAnswer Int'l Fixed Interest				6.3%
#2	ANZ OneAnswer NZ Fixed Interest
#3	Kiwi Wealth Conservative
Default2		6.0%	n/a3	9
	Mercer Conservative				6.7%
#2	ANZ Default Conservative
#3	ASB Conservative

1. The Conservative Fund data in the table excludes cash and default funds.
2. There are now nine default funds, however only five have been in existence for the full period of our analysis.
3. Insufficient number of funds to provide data.

If your fund is not in this list, you can find it in our full reviews (links below). If your fund is in the bottom third of our full lists you should think long and hard about why you are still in that fund. Get advice before you move however.

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