performance rankings explained

Q) I would like to understand the information that you provide on your KiwiSaver Rankings page. My question is about the three year figures. For example, Mercer Conservative has a reported performance figure of 6.2% per annum. Does this mean the total interest for the last three years was 6.2% or would be it be a total of 18.5?

A) Thank you for asking this question as it may help other readers better understand what and how we are reporting this data.

Research house Morningstar also reports on KiwiSaver fund performance and their layout is opposite to ours in that they report on the latest one year performance working back four years. We take the three years (using the most recent year) and work backwards. We will eventually have four year data. If you watch the video, Craig walks you through the process so it might be easier to follow. So for the most recent data we have, which is up to the end of  December 2011, the reported three year result has been annualised.

With reference to Mercer's conservative fund that means we have calculated its performance for the three years going back from last December as 6.2% per year. So we've averaged the performance out over those three years to arrive at that figure. Keep in mind that figure is also less tax (we used a rate of 28%) and less fees. We have attempted to total all the fees that the providers charge to give you a more accurate idea of what you'll be left with at the end of the day. Fees are a complex area and there isn't (at present) any uniformity to how and what providers make public. However, we've done our best to total it for you using the annual membership fee, the investment fee, administration fees and trustee fees.

If you look at the one year performance on the far right of our tables, that relates to the most recent year in KiwiSaver working backwards, not the first year that the fund was started. If you search Mercer Conservative in the find your fund section you'll note that we have the inverse order, one, two and three. Hopefully that won't confuse you. The thinking of doing three, two and one years in our performance ranking was to draw attention to the longer time frame given our view that more weight should be placed on long-term performance than short because KiwiSaver is a long-term investment vehicle.

Your own experience in KiwiSaver will depend on your contributions, when you began, your employer's contribution and the performance. The purpose of our tables is simply to enable you to loosely compare the performance of your fund with similar funds, which is why we have categorised them into default, balanced, moderate, growth and aggressive funds. Generally speaking the fees are higher relative to the risk of your fund, and the more shares in your fund, the higher the risk.

For more on how funds differ and why, see our investment management 101 series by Kevin Mitchelson here. I would suggest starting with the first in the series explaining absolute returns and benchmarking  followed by the difference between active and passive management (which can account to a large degree for the fee differential in KiwiSaver) is also informative.

Do you have a question about KiwiSaver? See our Q&A section here or send us an email.