Our comprehensive review of Aggressive KiwiSaver fund returns to December 31, 2017, identifies who has the best long-term results. But it shows managers for a quarter of these funds aren't up to scratch

By David Chaston

You are in an aggressive KiwiSaver fund to grow your retirement savings the fastest way possible and you are prepared to ride though the risks of longer term ups and downs.

For some 'risk' means opportunity. For most however, if you choose this strategy you will need to have a longer term investment horizon, perhaps over two full business cycles (25 years ?) to ensure you come out on top in the end.

In the meantime, it is hard to know whether current returns 'now' should be used to assess such long-term strategy and progress.

But you can benchmark your fund against other similar aggressive funds. To be satisfied, you would want confidence your fund manager was performing well on this benchmark.

And as these funds have been going almost ten years, that long term assessment can now start to be made.

The tables below rank the results since April 2008 on the basis that you are saving regularly into these funds and the fund managers are earning a tax-paid and all-fees-paid basis.

The variations are surprisingly wide. The table is ordered by the total amount in the fund since inception. But not all have been going for the full term, which is where a comparison based on the effective per annum cumulative return will help. And for funds that started later, remember they have hit the business cycle in a different way, so strict comparison with those that started in April 2008 is not truly 'fair'.

But despite all that, the variations are still surprisingly wide.

To understand that, you need to look at the second table, which gives a broad perspective of how each manager has invested the Fund. Mandates and portfolio component choices play a big role in the resulting returns. Managing this structure is the key skill you are paying for when you hire an investment manager by investing in their fund.

Some will get lucky in the way the investment cycle plays out; they will say it isn't luck but superior analysis and judgement about how markets will evolve in the future. And to be fair, you should expect them to be right about this - that is what you are paying for.

In our Default KiwiSaver fund review we set out a benchmark for the past year based on the really good investing conditions that have applied. We can use that same process to set a minimum for what these aggressive funds would have earned as a minimum in 2017*. That is 14.1% after-tax and after-all-fees. It is a bit academic for these funds because you won't be chopping and changing, but it will help understand the minimum a good fund manager should have been able to achieve. The good news is that most of them achieved this minimum (which is a gain of +$4,024 from investing activity in 2017 for funds that have been going since April 2008). But seven didn't. Seven; that's almost a quarter of funds with managers or strategies that couldn't meet a passive market benchmark in 2017.

The risks for being in an aggressive fund are real. A business cycle downturn can wreak havoc with your strategy, especially if you are the worrying kind and start thinking short term and feel you need to abandon your long-term strategy.

Still, think of it like this: If a major correction came now (and you have been in KiwiSaver since April 2008 and have had an income profile similar to our median benchmark), you could suffer a -25% drop in value and still be better off than being in a default fund - if it didn't suffer. (Of course, an economic correction could well reduce the value of a default fund too).

So the risk you might like to prioritise is how long it is until your retirement. If it is less than one business cycle (say 12 or so years), you should think twice about using an aggressive fund. As you get near the end of your income earning years, you won't have the same ability to start over if something untoward befalls your life.

Of course, if you won't need your KiwiSaver funds exactly on retirement, your calculations might be different again. Remember, you are likely to be a long time retired - possibly 20 years or more - so that fact too may affect your thinking.

Anyway, here is the track record of the KiwiSaver funds, which are in the highest risk category there is.

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 2017      
$
% p.a.
$
                 
ANZ OneAnswer Australasian Share A G AE 30,328 24,480 11.7 54,807 11.4
ANZ OneAnswer Australasian Property A A P 30,328 22,928 11.2 53,256 10.0
ANZ OneAnswer International Share A G IE 30,328 21,352 10.6 51,679 11.4
ANZ OneAnswer Growth A G G 30,328 18,506 9.6 48,834 8.9
ANZ Growth A G G 30,328 18,276 9.5 48,604 8.8
Fisher Funds Growth A A A 30,328 17,257 9.1 47,584 9.1
ANZ Default Growth A G G 30,328 17,120 9.0 47,448 8.7
Kiwi Wealth Growth Fund A A A 30,328 17,057 9.0 47,384 8.7
Mercer High Growth A A A 30,328 16,693 8.9 47,021 9.9
ASB Growth A G A 30,328 16,625 8.8 46,952 9.3
Aon Milford A G AE 27,460 18,946 11.8 46,407 10.3
Fisher Funds Two Equity A A IE 30,328 15,949 8.6 46,277 9.9
Westpac Growth A G G 30,328 15,840 8.5 46,167 8.4
ANZ OneAnswer International Property A A P 30,328 15,740 8.5 46,067 5.4
AMP Aggressive A A A 30,328 13,916 7.7 44,244 8.0
Booster High Growth A A A 30,328 13,668 7.6 43,995 8.8
                 
ANZ OneAnswer Sustainable Growth A A IE 29,459 13,779 8.1 43,238 8.6
Booster Geared Growth A A A 27,015 14,696 10.1 41,711 11.7
Milford Active Growth A G AE 25,013 15,142 11.9 40,155 10.4
Booster International Share A A IE 24,782 11,742 10.0 36,524 9.7
QuayStreet Equity A A   26,126 10,294 8.1 36,419 8.8
QuayStreet NZ Equity A A   22,232 13,001 13.3 35,232 13.7
Booster Socially Responsible Growth A A AE 24,782 9,058 8.1 33,840 9.4
Booster Trans-Tasman Small Companies A A AE 24,782 6,897 6.5 31,679 10.6
QuayStreet Australian Equity A A   22,232 4,809 5.9 27,041 6.6
Generate Focused Growth A A A 17,377 4,741 9.6 22,118 9.6
Amanah KiwiSaver Plan A A   14,287 1,668 5.5 15,954 4.6
Booster KiwiSaver AC Growth Fund A G A 13,026 2,559 9.7 15,585 10.1
Booster KiwiSaver Options A A Mi 13,026 1,376 5.5 14,402 5.8
Mercer Shares A A IE 11,106 2,399 12.6 13,505 ...
--------------
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, MI = Miscellaneous. Booster was formerly Grosvenor and QuayStreet was formerly Craigs Investment Partners

Some readers will be interested to note that there are aggressive funds returning quite low returns. Their investment strategy clearly hasn't worked - so far at least. There are even some returning less than default or conservative funds.

And here is where your contributions will be allocated, by fund.

Aggressive Funds ------ how allocated, approx. ------
at December 2017 Cash Fixed
Interest
NZ / AU
Equities
Intl
Equities
Listed
Prop
Unlisted
Prop
Other
(in the same order as the table above)              
ANZ OneAnswer Australasian Share     100        
ANZ OneAnswer Australasian Property         100    
ANZ OneAnswer International Share       100      
ANZ OneAnswer Growth 7 16 19 49 12    
ANZ Growth 7 14 19 48 12    
Fisher Funds Growth 12 15 26 41 4   3
ANZ Default Growth 7 13 19 48 12    
Kiwi Wealth Growth Fund 8 1   85     7
Mercer High Growth 5 4 16 56 2 4 12
ASB Growth 1 17 35 41 5    
Aon Milford 26 5 51 13 4   1
Fisher Funds Two Equity 11   33 56      
Westpac Growth 9 15 24 36 9   8
ANZ OneAnswer International Property         100    
AMP Aggressive 9 1 24 58 7   1
Booster High Growth 6 11 22 55 6    
ANZ OneAnswer Sustainable Growth 3     97      
Booster Geared Growth 3   32 57 9    
Milford Active Growth 26 5 51 13 4   1
Booster International Share 3     97      
QuayStreet Equity 5     95      
QuayStreet NZ Equity 12   86   2    
Booster Socially Responsible Growth 6 11 21 55 6    
Booster Trans-Tasman Small Companies 4   96        
QuayStreet Australian Equity 6   87   7    
Generate Focused Growth 10   16 60 14    
Amanah KiwiSaver Plan 12     88      
Booster KiwiSaver AC Growth Fund 1 13 16 64 5    
Booster KiwiSaver Options 1           99
Mercer Shares 3   23 73      

 


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.

* None of the calculations in this paragraph are in the tables below, but the data in the tables was used to set the passive earnings benchmark. And by the way, the fund with the fastest growth in 2017 was the ANZ OneAnswer International Share fund. It was the one-year stand-out performer even though it is only #3 lifetime, and third equal over the past three years. Still, be sceptical of single year results. The fund managers will shout their achievement but what matters most is long-term results - or more accurately, consistent long term results.

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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10 Comments

Terrible performance. According to Morningstar, the NZX50 ETF has returned 12.8% pa over P3Y.

https://www.morningstar.com.au/ETFs/PerformanceTable

But those Morningstar results are all before tax and before any fees. You need to compare on the same basis.

Thanks for the confirmation David. I expected as such, but I am subjectively looking at aggressive funds vs a broad index.

Hi David,

I was looking at the smartshares NZ Top 50 (FNZ) fund and its 3 year annualised return is 14.08% after fees and tax. Do you know the difference for comparison here?

It is not really fair to compare a share ETF with a managed fund. Most managed funds have a risk-weighted mandate that includes a deliberate portion of cash or fixed income - and even these aggressive funds have some of that (see the allocation table above).

So comparing them to an individual stock, or a class ETF, is not really appropriate. Investors buy into a managed fund for the risk-hedging and professional allocation management. This is usually done when a long-term strategy is adopted. Anyone has the option to go direct and unhedged and try to do the strategy and selection thing themselves. Just choosing one 'alternative' is not why people invest in managed funds.

This type of article has come up before, and it missed the point then as it does now. Unfortunately this requires far more analysis than a simple chart as above.
The point that is missed here is that not all funds are specifically designed for kiwisaver (are any?). Funds are available to be invested into, and are also available to invest in via kiwisaver.
This seems obvious but is a key point to understand why this article misses the point.

Funds can have specific purposes. Take for example the ANZ OneAnswer International Property Fund which only returned 5.4% over the last 3 years. This fund is aimed at people who want that very specific exposure. This could be someone that has a share portfolio of direct shares, but has no exposure to int'l property, so wants to just invest in this fund to get that exposure. This provides that person with more diversification over his/her entire portfolio.

It is very unlikely that anybody would choose this very specific fund to be their chosen fund for Kiwisaver, although this doesn't mean that ANZ makes it unavailable for Kiwisaver. The choice is still there.

So comparing this fund to a diversified fund (one that has exposure to all asset classes), whether it be conservative, moderate, or aggressive, is missing the point entirely.

Funds can have specific purposes. Take for example the ANZ OneAnswer International Property Fund which only returned 5.4% over the last 3 years. This fund is aimed at people who want that very specific exposure. This could be someone that has a share portfolio of direct shares, but has no exposure to int'l property, so wants to just invest in this fund to get that exposure. This provides that person with more diversification over his/her entire portfolio.

OK. So an aggressive property fund has a sub-par performance, relative to many asset classes. Why would that be? Is it the composition of or management of the fund perhaps?

. The choice is still there.So comparing this fund to a diversified fund (one that has exposure to all asset classes), whether it be conservative, moderate, or aggressive, is missing the point entirely.

Rubbish. Comparing a managed fund to an index fund, regardless of the objectives of and composition of the fund is simply using a benchmark. We expect aggressive funds to outperform in times like these and we would also be able to gauge the ROE and trade-offs for selecting these funds by using a broader benchmark.

It's called diversification. If you have no other assets, it's advisable to invest your savings into a diversified fund. Property may be up one year, freight/logistics down, and then vice versa the next year. Diversification is simply not having all eggs in one basket. To compare one sector with another is fine but not in the context of this article which purports to compare aggressive funds against an index.

So yes, comparing a managed fund against an index is great, so can you please tell me which index this article compared the Property fund against? It should be compared against an index of property assets, not against an index which includes safe assets like bonds. That would be what you call rubbish.

People use benchmarks to understand relative performance, whether it be an aggregate of funds sharing common classification elements or even a passive index. If an aggressive fund focused on international property under-performs a benchmark, it gives a sense of relativity. Furthermore, I simply made the comment that "aggressive funds" of all stripes have under-performed or barely matched the NZX50 (which can be invested in passively) over the P3Y in arguably a global environment where many asset prices are increasing.

JC, if you want to compare an international property fund against the NZX50 to see the relative performance then that is fine. But don't then conclude that one is better than the other, or even more silly, that the management of one is better than the other. That would be missing the point, as this article does.