2017 was great for KiwiSaver members who chose balanced-growth funds, but only if your fund was managed well. Nine of 14 funds shone, for others the results were dim

By David Chaston

Depending on your tolerance for risk, a growth-balanced fund might be a worthwhile alternative to your default KiwiSaver.

The best Balanced KiwiSaver fund has returned 75% more than the best performing Default fund since 2008. That is a gain of almost $6,000 since inception for our benchmark member - after all taxes and after all fees. In the past three years, that advantage has been more than 40% more. It demands your consideration.

This is an assessment of how Balanced KiwiSaver funds are performing and their track record since inception. (It is not an assessment of how they will do in the future.)

Balanced funds involve taking more risk than Conservative, Default, or Moderate funds.

The 'balance' referred to is a balance of growth allocations.

KiwiSaver fund managers for this category are doing well.

In fact, 2017 returns have been far above those we have seen in previous years, even outshining the past few years.

The market benchmark based on the category allocations / mandates (see second table below), sets a 2017 return standard of +11.4% net of all taxes and all fees. There are fourteen funds in the category and nine of them exceeded that, one equalled it, but two couldn't meet it. The two that failed were the ASB Moderate Fund and the Booster KiwiSaver SRI Balanced fund. Barely matching the standard was the AMP Moderate Balanced fund. All the rest outshone the base standard and some quite impressively.

This category has mandates that average 26% in fixed income exposures and 74% in equity exposures.

The best two performing funds in this category, the Nikko Asset Management managed funds at Aon and AMP, generated handsome 2017 returns over +18%, and they also shine in both our since-inception and last-three-years metrics.

For Balanced or Balanced-Growth type funds there is more volatility in returns as they traditionally have higher exposures to equities or property than the more conservative funds. Sometimes, some types of bond funds deserve a higher risk assessment too. Although the losses in capital may be experienced more frequently, over the long run your capital value should grow more quickly than conservative funds.

In assigning our risk categories to the full range of KiwiSaver funds, we took these things into consideration:

- the target asset allocation (that is, where the manager plans to invest the funds),
- the current asset allocation,
- the exposure to smaller or mid sized companies,
- liquidity of the underlying investments,
- exposures to derivatives or alternative assets and
- potential for wide variability in monthly and annual returns.

We are not using the fund manager's label or naming of the fund type in this 'Balanced' category; we are using our own independent assessment.

Balanced Funds      
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
cum return
= Ending value
in your account
last 3 yr
return % p.a.
since April 2008 X Y Z
to December 2017      
% p.a.
AMP Nikko AM Balanced B G G 30,328 13,844 7.7 44,172 8.3
Aon Nikko AM Balanced B G G 30,328 13,831 7.7 44,159 8.4
Aon Russell LifePoints Moderate B B M 30,328 13,224 7.4 43,551 6.6
ANZ OneAnswer Balanced B B B 30,328 12,782 7.2 43,109 6.4
ANZ Balanced B B B 30,328 12,607 7.1 42,935 6.3
ANZ Default Balanced B B B 30,328 11,885 6.8 42,212 6.3
Fisher Funds Two Balanced B B B 30,328 11,539 6.6 41,867 6.7
AMP Fisher Funds Two Balanced B B B 30,328 11,525 6.6 41,853 6.7
ASB Moderate B B M 30,328 10,152 6.0 40,480 5.9
Booster Balanced B B B 30,328 10,085 5.9 40,413 6.4
AMP Moderate Balanced B B B 30,328 9,065 5.4 39,393 5.3
Milford Balanced B B B 25,013 11,081 9.4 36,094 8.3
BNZ Balanced B B B 17,770 3,805 7.6 21,574 7.2
Booster KiwiSaver SRI Balanced B B B 13,026 1,715 6.8 14,741 6.6
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
B = Balanced, G = Growth, M = Moderate

This better performance is essentially down to the skill of the manager to select specific investments that outperform the benchmarks established for this category. Clearly some managers do better than others over the long run. And it is not only the specific investments, it is how they structure their overall allocations.

Here is a review of the current allocation structures, in the same order as the table above.

 Balanced Funds
------ how allocated, approx. ------
at December 2017
NZ fixed
Intl fixed
Equities Property Other
  % % % % % %
AMP Nikko AM Balanced   14 14 48 5 20
Aon Nikko AM Balanced   14 14 48 5 20
Aon Russell LifePoints Moderate   12 48 40    
ANZ OneAnswer Balanced 14 12 25 42 8  
ANZ Balanced 14 11 25 42 8  
ANZ Default Balanced 14 11 25 42 8  
Fisher Funds Two Balanced 14 25 11 42   10
AMP Fisher Funds Two Balanced 18 16 23 44   12
ASB Moderate 11 30 22 32 4  
Booster Balanced 9 18 19 48 5  
AMP Moderate Balanced 21 18 15 45 3 1
Milford Balanced 16 6 24 43 10 1
BNZ Balanced 5 11 34 40    
Booster KiwiSaver SRI Balanced 10 18 20 48 5  

For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and 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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