By Amanda Morrall
Growth assets may have out performed income delivering assets in the fourth quarter of 2011 however four-year average annual returns put default and conservative funds at the head of the pack, according to Morningstar's latest KiwiSaver results.
Defaults and conservative funds, over the past four years, have averaged returns of 4.5% and 4.6% per annum, respectively, while those funds most heavily exposed to the equities market (growth and aggressive) have average returns of 0.1% and -1.6% per annum.
Turmoil in financial markets caused by the sovereign debt crisis, Eurozone woes, the U.S. debt ceiling debacle and environment disasters may have hit share-weighted funds heavily and blessed the bond markets but not all funds suffered equally. Milford Asset Management's Active Growth fund for example, has delivered early investors after-fee returns of 8.1% per annum over the past four years making it the best performing KiwiSaver fund overall.
Other highlights of Morningstar's December 2011 quarter performance results are as follows:
- A very strong October resulted in growth assets largely outperforming income assets over the December quarter, although only marginally.
- Fidelity KiwiSaver, ASB KiwiSaver, and FC KiwiSaver Tracker were among the best-performing KiwiSaver providers during the fourth quarter of 2011. This was a reversal from the September 2011 quarter, when they were among the worst.
- The OnePath, SIL KiwiSaver, and Aon KiwiSaver options deserve mention for consistency in returns across the various multi-sector categories over the past four years. Milford's Active Growth (previously known as Milford Aggressive) remains the best-performing single-sector KiwiSaver option over the past four years, and the best-performing KiwiSaver fund overall.
Chris Douglas, co-head of research, said while 2011 will be remembered for significant market volatility, KiwiSavers have been relatively unscathed.
"Despite these dramatic events, most investment markets either posted gains or were down only marginally over the year. This means that many KiwiSaver investors will have finished the year in more than reasonable shape."
For KiwiSavers invested in default funds, that news might come as a relief given recent criticism of default funds.
Many within the industry, including ANZ Wealth, point to the risks of young investors shortchanging themselves on potentially higher returns to be made from funds with a higher exposure to shares.
According to ANZ's projections, a 25-year-old KiwiSaver who remains in a default fund could be NZ$72,000 worse off by the time they retire at 65. Traditional investment theory holds that over longer time frames, equities will out-perform other asset classes. (See Amanda Morrall article here on ANZ Wealth's push to convert default funds into life-stages funds).
Douglas, like many others in the industry, stresses the fact that KiwiSaver is not a one-size fits all retirement investment. The type of fund you are invested in should take into account numerous factors including age, risk profile, time horizon along with other considerations such as fees, performance, fund manager track record and investment style.
Here's a snapshot from Morningstar's report showing how the default funds have performed over the past year, three years and four years respectively, along with their estimated fees, and growth asset exposure. Full survey results naming individual fund performance will be available on their website next week.
|Option||1-year p.a.||3-year p.a.||4-year p.a.||Est. total fee||Growth assets|
|Peer group averages||1 year p.a.||3-year p.a.||4 year p.a.||Est. total fee||Member fee|