By David Chaston
A year ago, the 'best' moderate KiwiSaver funds were outperforming the default funds benchmark.
But in the year to September 2018 that advantage seems to have disappeared. Performance between all the funds in this category has tightened up.
You may have got less variability in these returns, but that has come at a cost that you are no better off for the extra risk - small though it is - by being in this fund category.
Essentially managers of these funds can't deliver returns that are 'worth it'.
True, some of the weaker performers have shored up their results, but they are still weaker. The 'best' managers haven't seen their advantages improve at all.
You might like to reassess why you are in this risk category in the first place, especially if you have a long investment horizon ahead of you.
Getting in to yield-based funds when yields are already low is problematic. Asset (fund) prices are the inverse of yields. When yields are low, asset prices are high. But if yields rise, the underlying price of the assets backing your fund will fall. And if that happens, the overall value of your fund will fall (that is, you will take losses). It won't alter the income stream, but your fund value will be lower.
As an investor you need to have a view about future interest rates. If you decide they will likely stay low, then your asset backing will likely hold. But if you judge that interest rates will likely rise in the future, you may be in for a period of asset price losses. (The third option is that interest rates fall further than their already record low rates, even go 'negative'. In that case the asset prices will rise and you will profit from that rise).
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
= Ending value
in your account
last 3 yr
return % p.a.
|since April 2008||X||Y||Z|
|to September 2018||
|ANZ OneAnswer Conservative Balanced||M||B||M||33,253||10,909||5.5||44,161||4.6|
|ANZ Conservative Balanced||M||B||M||33,253||10,854||5.5||44,107||4.6|
|Aon Russell LifePoints Conservative||M||C||C||33,253||10,578||5.4||43,831||4.1|
|ANZ Default Conservative Balanced||M||B||M||33,253||10,503||5.3||43,756||4.6|
|Fisher Funds Two Conservative||M||C||M||33,253||8,852||4.6||42,104||4.5|
|ANZ OneAnswer Conservative||M||C||C||33,253||7,933||4.2||41,186||3.3|
|Fisher Funds Conservative||M||C||C||30,163||6,569||4.4||36,732||4.0|
|Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition|
|B = Balanced, C = Conservative, M = Moderate|
Both the tables on this page are split into two sections. The first section is for funds that have been in our review from the beginning (April 2008). They are all reviewed consistently over the same business cycle. The second set started later and have hit the business cycle in a different way, so a strict comparison with the first set is not truly fair.
But it is notable that there are only a tiny handful of moderate funds that outperform in both the lifetime (since 2008) and the past three year analysis, and that includes the BNZ Moderate fund which seems unique in being able to consistently deliver after-all-fees, afetr-all-taxes long run returns well above 5% and more recent results above 6%.
For a fuller discussion of the risks, rewards and strategies of moderate KiwiSaver funds, our review of a year ago is one place to start.
Here are the asset allocations for the funds we class as "moderate":
|Moderate Funds||------ how allocated, approx. ------|
|to September 2018||Cash||NZ fixed
|ANZ OneAnswer Conservative Balanced||20||14||31||29||6|
|ANZ Conservative Balanced||20||14||31||29||6|
|Aon Russell LifePoints Conservative||16||64||20|
|ANZ Default Conservative Balanced||20||14||31||29||6|
|Fisher Funds Two Conservative||21||35||19||18||7|
|ANZ OneAnswer Conservative||22||18||40||17||3|
|Fisher Funds Conservative||24||33||25||15||3|
Across the industry there is currently no consistency on how funds are categorised so readers will see funds with different risk descriptors (i.e. conservative, conservative balanced & moderate) appearing in the performance table. To learn more about how we categorise the various funds click 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.