The aggressive KiwiSaver category grew 30% in a year as members chase upsized returns to build their retirement funds over the long run

By David Chaston

As we have noted before, you are in an aggressive KiwiSaver fund to grow your retirement savings the fastest way possible over the long run, and you have a tolerance for risk so you are prepared to ride though the ensuing ups and downs.

Basically you accept there will be ups and downs (especially that ups will follow downs) and the net result will be as it has been over recorded investment history - a superior result by the time retirement comes around and you need these funds.

If you don't accept that premise - that 'risk' means opportunity - maybe this aggressive category is not for you.

More than $11 billion has now been invested in aggressive KiwiSaver schemes - the most of any risk category. That compares with default schemes at $8.8 billion, and growth schemes at $10.2 billion. There are 45 fund options to make this the most crowded of all categories.

The weighted average return since-inception is +8.9% pa after-all-taxes, after-all-fees. Over the past three years, the average return on this same basis is +7.4% pa. So that gives a good benchmark when looking at the track record of all the results in this category.

There is a wide range of track records, as should be expected given this is a range of funds who are aiming for results using aggressive strategies.

The largest aggressive fund is the ANZ Growth fund, one that now has more than $2.5 billion invested. It has achieved results very similar to the category weighted average - it alone is nearly a quarter of all funds invested in this category. If you add the other seven ANZ aggressive funds, ANZ manages (controls) 28% of all funds invested in this risk category. The next largest are ASB at $1.6 billion, Fisher Funds at $1.5 billion, Kiwi Wealth at $1.3 billion and Westpac at $1.0 billion. All of them are growing, so they will now be larger than these last reported levels.

Of these top five, only Kiwi Wealth is reporting returns that are significantly lower than the category weighted averages. The Kiwi Wealth Growth Fund achieved +5.9% in the past three years on our after-all-taxes, after-all-fees basis. It's a slip that may have something to do with its outsized exposure to international equities. See the fund allocation details below.

However, this is a category where you need to select with care, eyes wide open.

Firstly, as the business cycle progresses, some specialist strategies may be more volatile than others.

The top performers in our list below illustrate the point. The top three are all relatively small funds, together holding less than $100 million in investment. But they are at the top of our performance table by being singularly specialised, holding all their investment in just one type of asset group and benefiting from that laser-like focus. However, from here on out, you may wish to ponder whether that type of bull run will continue.

Even though this is the 'aggressive' category, many managers can still build in a range of asset-class diversification. This diversification comes with some amelioration of top returns compared with the best performing single-focus funds. But perhaps not others who have taken a different approach.

Therein lies your choice as an investor. The tables below can give you an idea of asset allocations of each fund and the historic track record. But to be invested here, you also need to make your own decisions about how you want to take these higher risks, and the sort of higher returns you want to chase.

And that means you are honest with yourself as to your tolerance for risk.

Again, remember it's a marathon - you are in KiwiSaver for the best long term outcome. You need confidence in your strategy.

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 June 2018      
$
% p.a.
$
                 
ANZ OneAnswer Australasian Share A G AE 31,926 28,233 11.8 60,158 11.8
ANZ OneAnswer Australasian Property A A P 31,926 23,953 10.6 55,878 8.0
ANZ OneAnswer International Share A G IE 31,926 23,398 10.4 55,324 9.0
ANZ OneAnswer Growth A G G 31,926 19,359 9.1 51,285 7.0
Fisher Funds Growth A A A 31,926 19,143 9.0 51,069 8.4
ANZ Growth A G G 31,926 19,140 9.0 51,066 6.9
Aon Milford A G AE 29,058 21,455 11.6 50,513 9.8
ANZ Default Growth A G G 31,926 17,957 8.6 49,883 7.0
Fisher Funds Two Equity A A IE 31,926 17,517 8.4 49,443 8.8
Mercer High Growth A A A 31,926 17,301 8.3 49,227 8.1
ASB Growth A G A 31,926 17,262 8.3 49,188 7.5
Kiwi Wealth Growth Fund A A A 31,926 17,228 8.3 49,154 5.9
Westpac Growth A G G 31,926 16,823 8.1 48,749 7.0
ANZ OneAnswer International Property A A P 31,926 15,118 7.5 47,044 3.1
ANZ OneAnswer Sustainable Growth A A IE 31,057 15,369 8.0 46,426 6.4
Booster High Growth A A A 31,926 14,451 7.2 46,376 7.2
AMP Aggressive A A A 31,926 14,393 7.2 46,319 6.6
                 
Booster Geared Growth A A A 28,613 15,622 9.5 44,235 9.3
Milford Active Growth A G AE 26,611 17,261 11.7 43,872 9.8
QuayStreet Equity A A   27,723 11,313 7.8 39,037 6.4
QuayStreet NZ Equity A A   23,829 15,033 13.1 38,863 14.0
Booster International Share A A IE 26,380 12,178 9.2 38,558 7.3
Booster Socially Responsible Growth A A AE 26,380 9,693 7.6 36,073 7.4
Booster Trans-Tasman Small Companies A A AE 26,380 8,328 6.7 34,708 9.1
QuayStreet Australian Equity A A   23,829 5,718 6.0 29,548 6.2
Generate Focused Growth A A A 18,975 6,258 10.2 25,233 8.9
Amanah KiwiSaver Plan A A   15,884 1,823 4.8 17,707 3.3
Booster KiwiSaver AC Growth Fund A G A 14,624 2,575 7.7 17,199 7.3
Mercer Shares A A IE 12,704 2,622 10.2

15,326

10.2
--------------
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, 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. It is listed in the same order as the first table above.

Aggressive Funds ------ how allocated, approx. ------
at June 2018 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 6.8 13.2 20.2 47.8 12.1    
Fisher Funds Growth 11.3 13.2 27.9 43.7 0.8 3.1  
ANZ Growth 7.3 13.1 19.8 47.7 12.0    
Aon Milford 10.4 14.6 47.9 21.2 5.5    
ANZ Default Growth 7.4 13.0 20.0 47.8 11.9    
Fisher Funds Two Equity 5.0   36.7 58.3      
Mercer High Growth 5.2 4.4 15.9 56.5 2.3 3.7 12.2
ASB Growth 1.3 18.2 35.8 40.3 4.5    
Kiwi Wealth Growth Fund 9.6 0.8 1.5 80.1 2.2   5.9
Westpac Growth 7.1 14.7 24.1 35.8 10.4   8.0
ANZ OneAnswer International Property       100      
ANZ OneAnswer Sustainable Growth 2.5     97.5      
Booster High Growth 4.4 5.5 19.7 64.2 4.8 1.3  
AMP Aggressive 7.2 3.9 27.8 55.5 7.2   1.4
               
Booster Geared Growth 2.6   24.2 66.7 5.3    
Milford Active Growth 9.6 14.8 48.3 21.3 5.5    
QuayStreet Equity 5.4     94.1      
QuayStreet NZ Equity 15.2   82.3   2.5    
Booster International Share 2.7     97.3      
Booster Socially Responsible Growth 6.4 5.4 19.3 63.4 5.4    
Booster Trans-Tasman Small Companies 5.3   94.8        
QuayStreet Australian Equity 9.8   87.6   2.6    
Generate Focused Growth 11.8   10.9 65.7 11.7    
Amanah KiwiSaver Plan 4.2     95.8      
Booster KiwiSaver AC Growth Fund 1.1 9.0 17 67.9 5    
Mercer Shares 0.7   24.0 75.3      

 


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.

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15 Comments

Urmm contrarian indicator anyone?

I have been in fisher funds growth since 2013 (my effective start date) and not showing anything near these results. I still find it very difficult to understand returns despite the best efforts at clarification by interest.co et al. I have also been threatening myself to jump ship as my one attempt to talk to someone was an exercise in pointlessness. Note to self - do something!

'The Kiwi Wealth Growth Fund achieved +5.9% in the past three years on our after-all-taxes, after-all-fees basis. It's a slip that may have something to do with its outsized exposure to international equities'.

A sudden relativity change in NZs markets - equity or currency - could quickly propel the Kiwi Wealth aggressive fund to top spot. For people with an existing investment bias to NZ, its a diversification option.

It is important that you have stressed "over the long run" in the opening paragraph.
Over the last 10 years post-GFC and money printing (US QE etc), equities have done particularly well. Unfortunately the indicators are there (e.g. slowing NZ economy, many commentators commenting on increased risk such as trade wars etc) indicating that in the medium term we are likely to see equities probably not do as well (and some increased risk of negative returns).
I suspect that the move to aggressive/growth funds is driven in part by comments on a need to shift, but chiefly on the history of high returns over the past decade. In the later case, it is like hearing of a great party going on but sadly by the time many do arrive the party is over - I think that this is the case in the medium future.
I am not suggesting that one should try to beat the market, but as many individual KiwiSaver funds grow in size ($40,00 plus) there is a need of managing that as with any investment and that a dump and leave it in growth funds strategy may not be the ideal.
A great feature of most KiwiSaver funds is that there is no fee to transfer form one risk level to another.
I have a nagging doubt; management fees for growth funds are higher so provide a better return for fund managers and with a vested interest I hope they are not talking up aggressive/funds simply for this reason.

David, does it concern you at all that much of your readership appears to be less financially savvy than the general public?

The evidence suggests that the general public accept that aggressive funds are the way to go unless you are close to retirement. Probably based on professional advice. Many commenters here however believe that an aggressive KiwiSaver fund is a poor decision because of potential short term volatility. The crash is imminent you know. This, despite almost every single expert or professional in the field advising, based on sound evidence and historic trends, that aggressive funds are the correct choice if you are in it for the long run.

David, not only are these people not financially savvy - they are basically financially illiterate. This is surprising for a website that focuses on financial/economic news.

BLSH

You should probably delete that comment when you wake up in the morning...

baaaahhhhhh

Ok so I am an idiot. I must be because your comment makes no sense to me, it is all over the place. Are you trying for sarcasm? Can you try harder please?

I’m not being sarcastic at all. Which bit doesn’t make sense?

It is a near certainty that an aggressive fund will give you the best result in the long run. They are more volatile, but in the long run, short term volatility means nothing. Despite this fact many commentators here claim that you should instead try and “time the market” and not invest in an aggressive fund if you believe a recession is coming because aggressive funds will perform worse in an economic downturn (or some such nonsense). I.e don’t invest in an aggressive fund because of short term volatility.

Hi BuyLowSellHigh
When I am out sailing and I see dark clouds and white horses not too far off, I reduce sail.
I find this a far, far safer and better strategy than not keeping a watch and leaving all the sail up all the time.
When the squall is over - or it doesn't eventuate - I put all the sail up again.
This is called being prudent, not unsavvy.

Your premise " . . . almost every single expert or professional in the field advising, based on sound evidence and historic trends, that aggressive funds are the correct choice if you are in it for the long run" is incorrect. Any financial adviser worth their salt will be reviewing your position and the outlook at least annually and will be advise appropriate action.
Review Adrian Orr's performance when he had the Super Fund; when the sun was out he made good, but was always prepared to take a more conservative approach when needed. He certainly didn't just dump money in one place and then turn his back on it whatever.

Exhibit A.

I’m always keen to hear differing views. That said, advocating a more conservative fund due to risk of upcoming economic decline fly’s in the face of all expert advice on the matter if you are in it for the long term.

Not necessarily a conservative fund; however I wold consider a more balanced fund whenever thee was more risk on.
Careful with the comment "all expert advice". Each year my provider (and most probably others) along with an annual statement provides a review of conditions of the previous year and both an outlook for the future conditions with the intention that will consider that and possibly act on it.

Not necessarily a conservative fund; however I wold consider a more balanced fund whenever there was more risk on.
Careful with the comment "all expert advice". Each year my provider (and most probably others) along with an annual statement provides a review of conditions of the previous year and both an outlook for the future conditions with the intention that will consider that and possibly act on it. This will become more important as individual KS accounts become larger.

I guess what it boils down to is about both level of risk aversion and whether one wants to be an active or a passive investor.

BLSH,

When you write that much of your readership appears to be less financially savvy than the general public-I think you are referring to yourself,given the rubbish that follows.
The evidence suggests exactly the opposite-far too much money in Kiwisaver is in low-risk funds,when it should be in growth funds for long-term appreciation. Financial literacy in NZ is generally woeful and that's sad,both for the individuals and the country as a whole.

Aggressive funds are only more risky in the short term due to their inherent volatility. The risk of an aggressive fund (especially a diversified one) delivering a worse result than a conservative one is, in the very long term, negligible.

I am in an aggressive fund as I know that is the right fund for me for the long term. I am paying my manager fees to pick stocks and bonds to outperform their benchmarks over that period but I am also paying the manager to manage the asset allocation based on the outlook for markets. I am paying them to 'time' the market.

I think the real issue here is how inactive the 'active managers' are with their asset allocations.