We review the overall performance of the KiwiSaver funds industry, one that will reach $50 bln invested in 2018. Results have been good overall but there is a wide divergence between managers

By David Chaston

In 2017 KiwiSaver members contributed almost $3.2 billion to their funds, their employers tipped in another $1.9 bln, and the Government added $763 mln mainly for the member tax credit. All up, that totaled $5.9 bln in new contributions to all these schemes.

These growing contributions, which now total $40.5 bln), plus fund earnings took the total value of all KiwiSaver funds to a massive $47 bln by the end of 2017.

Barring a big market correction, the value of all KiwiSaver funds will exceed $50 bln some time in 2018.

KiwiSaver investments grew +19% in 2017. Most of that was the rising tide of contributions ($5.9 bln) but 'earnings' (or the growth in the fund values over and above the contributions) touched almost +$2.4 bln in the year.

Who shared in these after-tax, after-all-fees gains varies widely. Much depended on the risk you were prepared to accept.

And within the various risk categories, the long term track record of the various fund managers is becoming clearer.

Track record isn't everything (they are no guarantee of future results), but they are something that members can inspect and should be aware of. Long-run poor track records are noteworthy just as long-run above average performance is noteworthy.

Now that KiwiSaver has been going more than ten years, these long run trends can be inspected.

There are many ways to do that, but for investors (KiwiSaver members) the key metric should be after-all-fees and after-all-taxes.

(Many funds industry measures are before taxes, some only include some fees. And others think that fee levels alone indicate who will give the best long-term results. We think these approaches are inadequate in the New Zealand environment).

The tables below show the best performers in each category. The chart indicates the range within each risk category over all funds, although this time we have limited that view to only those funds who have been active and available over the full 10 year business cycle.

Overall, returns over the long term remain strong across the leaders. Members and managers with KiwiSaver funds in the bottom quartile will not be so happy as their returns continue to lag. The longer time goes on, the more clearly the track record is revealed. The gap between the top and bottom in each sector is still wider than you would expect from a competitive market. This is shown graphically in the chart below, all up to December 2017:

Among the Default fund managers, Mercer has extended its lead over the others, even those that are close to its performance. Mercer have held this advantage for some time and it will be reassuring for its members that its relative performance is improving.

Our December 2017 reviews of the Default, Balanced Growth and Aggressive funds can be found here, here and here. Our September 2017 reviews of the Default, Moderate, and Growth funds can be found here, here and here.

Top of the list

We award our special 'star' when the fund returns in the past three years top their long term returns. It is a tough standard but declining recent returns are perhaps an indicator that the fund manager is resting on its longer-term laurels.

There are only two funds that are both best-in-class on an all time basis, and over the past three years. That is one more than we found in September.

This is the list of the top funds at December 31, 2017, based on our regular savings return model. For comparative purposes, we have only used those managers who have been in existence for the entire analysis period of April 2008 to December 2017.

Category Top 3 Funds
as at Dec, 2017
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
Top 3yr return
after fees
after tax
             
Aggressive   10.6% 8.2% 16    
#1 OneAnswer KiwiSaver Scheme Australasian Share Fund   11.7% 11.4%
#2 OneAnswer KiwiSaver Scheme Australasian Property Fund   11.2% 10.0%
#3 OneAnswer KiwiSaver Scheme International Share Fund   10.6% 11.4%
             
Growth   8.8% 6.2% 18    
Aon KiwiSaver Russell LifePoints Growth Portfolio   9.7% 9.7%
#2 Aon KiwiSaver Russell LifePoints 2035 Portfolio   8.8% 8.3%
#3 Aon KiwiSaver Russell LifePoints Balanced Portfolio   8.7% 8.4%
             
Balanced   7.5% 6.1% 12    
AMP KiwiSaver Nikko AM Balanced Fund   7.7% 8.3%
#2 Aon KiwiSaver Nikko Asset Management Balanced Fund   7.7% 8.4%
#3 Aon KiwiSaver Russell LifePoints 2025 Portfolio   7.5% 6.5%
             
Moderate   5.9% 4.4% 13    
#1 Aon KiwiSaver Russell LifePoints 2015 Portfolio   6.2% 4.8%
#2 Aon KiwiSaver Russell LifePoints Conservative Portfolio   6.0% 4.7%
#3 OneAnswer KiwiSaver Scheme Conservative Balanced Fund   5.9% 5.0%
             
Conservative1   3.3% 1.8% 14    
#1 Kiwi Wealth Kiwisaver Scheme Conservative Fund   4.2% 3.7%
#2 Lifestages Capital Stable Portfolio   3.6% 3.6%
#3 OneAnswer KiwiSaver Scheme New Zealand Fixed Interest   3.5% 3.2%
             
Default2   4.5% n/a3 5    
#1 Mercer KiwiSaver Conservative Fund   4.8% 4.5%
#2 ANZ Default KiwiSaver Scheme Conservative Fund   4.6% 3.9%
#3 ASB KiwiSaver Conservative Fund   4.5% 4.3%

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.

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 after receiving appropriate advice and for a substantive 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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2 Comments

“Barring a big market correction, the value of all KiwiSaver funds will exceed $50 bln some time in 2018.”
Here comes that correction David,

Dow returned nearly 30%, s&p over 20%. Top kiwisaver funds only around 10%. Does hedging really takes half the gain? Why such a massive difference?