By David Chaston
We last looked at the performance of KiwiSaver growth funds six months ago and thought we sensed a time when these returns were topping out.
From September 2017 to March 2018 there was a sag in high returns across all funds and managers.
But six months on, to their credit, and perhaps more due to extended growth in all the major economies, these returns have picked back up. And more managers are scoring improved returns.
For the three years to September 2017, the best five funds in this category achieved an annual after-all-fees, after-all taxes average return of 7.8% pa. To March 2018, that had slipped markedly to 6.2%.
To September 2018 however, the recovery is solid, rising on that basis back to 8.1% and the best we have ever seen it for growth funds. Some managers, and BNZ, Generate and Fisher Funds stand out here, have seen their investment allocations pay off handsomely, really moving the needle for last-three-year returns. Check their allocations below because each is different. Clearly these managers have been making good choices on specific investments within these broad assignments.
At some point, the run will come to an end, even if it still looks unlikely now. We are now into the ninth year after the bottom of the previous cycle and that means the current growth period is longer than many other previous business upswings.
But the point is, you are well advised not to switch out of a growth fund even in the face of expectations a correction, or worse, might be coming. The key point is that you won't be able to pick when it happens, and further, any downturn is likely to be relatively short (a few years?) and you won't be able to pick when the upswing happens. Being there for the upswing is where the turbocharged returns happen. Be a long term investor.
The growth fund with the best 10 year track record in our analysis now reports a +9.3% pa cumulative gain. The next best reports +8.2% pa average. More than half of the KiwiSaver funds we track in this growth category have delivered since inception gains exceeding +7% after-all-fees and after-all-taxes. All of the growth funds we track that started later than April 2008 are in this better-than-7% category as well.
If more default savers had listened to the standard advice from investment professionals they would now have substantially larger portfolios than they actually have by channeling the fear.
By March 2018, our standardised investor who started in April 2008 as a 28 year-old on a median income has almost $55,000 in their growth account if they were with the fund with the top track record. That is more than +$12,500 in gains over staying in the best default fund - where the member contributions are identical. $12,500 is the cost of being conservative in the past decade, and cannot be won back by switching now.
Actually, it is more dramatic than that. The best growth fund has earned $21,225 after-all-fees, after-all-taxes. The best default fund has earned $8,613 on the same basis over that siince-inception period. No kidding. That is real money and the difference means it is worth your time and effort to ensure you are in the right category, and in a fund in that risk category where you have confidence in the manager.
Unless you are close to needing the funds for retirement living purposes, even with the recent market questions, good growth funds continue to impress from an investment point of view.
Here is the track record of KiwiSaver growth funds using our unique regular savings analysis. Click on any fund name to get even more detail on its performance, ranking, and allocation.
(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||
|Aon Russell LifePoints Growth||G||G||G||33,253||21,225||9.3||54,478||9.3|
|Aon Russell LifePoints Balanced||G||B||B||33,253||18,139||8.2||51,392||8.0|
|ANZ OneAnswer Balanced Growth||G||G||G||33,253||17,430||8.0||50,683||7.3|
|ANZ Balanced Growth||G||G||G||33,253||17,278||7.9||50,531||7.2|
|Fisher Funds Two Growth||G||G||G||33,253||17,156||7.9||50,409||8.9|
|AMP ANZ Default Balanced Growth||G||B||G||33,253||16,583||7.7||49,836||7.1|
|ANZ Default Balanced Growth||G||G||G||33,253||16,266||7.6||49,519||7.3|
|Aon ANZ Default Balanced||G||B||B||33,253||14,840||7.1||48,093||6.2|
|Kiwi Wealth Balanced Fund||G||B||B||33,253||13,568||6.6||46,821||6.0|
|QuayStreet Balanced SRI||G||B||33,253||10,589||5.4||43,842||5.0|
|Booster Balanced Growth||G||G||G||27,939||10,524||7.6||38,463||8.2|
|Generate Focused Growth||G||G||G||20,302||6,291||10.5||26,593||10.1|
|Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition|
G = 'Growth', B = 'Balanced', A = 'Aggressive'
Booster was formerly Grosvenor and QuayStreet was formerly Craigs Investment Partners
But there is a downside, one we have highlighted in a previous review. And that is a third of the funds in this category seem to underperform - well they have to date. But that group is shrinking with only nine of 22 now holding after-all-fees, after-all-taxes returns under 7% in the last three years.
Growth funds should out-perform balanced growth, moderate, default and conservative fund returns. But the stark fact is some of these growth funds haven't managed to do that against the best of those lesser-risk funds in the past 10 years.
Choosing wisely is important.
Here is where these funds are invested. Fixed income elements will be bonds with less than top credit ratings (although most will still be 'investment grade'). Equity investments are the bulk of these portfolios, although there will be more capital-gain plays than dividend-yield plays. And property funds and alternative assets get a reasonable allocation here too.
|Growth Funds||------ how allocated, approx. ------|
|as at September 2018||Cash||NZ fixed
|Aon Russell LifePoints Growth||5||20||75|
|Aon Russell LifePoints Balanced||8||32||20||40|
|ANZ OneAnswer Balanced Growth||10||8||16||55||10|
|ANZ Balanced Growth||10||8||16||55||10|
|Fisher Funds Two Growth||13||13||4||63||6|
|AMP ANZ Default Balanced Growth||10||8||16||55||10|
|ANZ Default Balanced Growth||10||8||16||55||10|
|Aon ANZ Default Balanced||4||10||25||41||10||9|
|Kiwi Wealth Balanced Fund||12||10||23||49||1||4|
|QuayStreet Balanced SRI||22||15||10||53|
|Booster Balanced Growth||6||9||8||69||8|
|Generate Focused Growth||12||76||12|
At this end of the risk spectrum, historical track record is a little less important than understanding the strategy for the future. But that is hard for an individual fund participant and requires dedicated work and a background to understand what the manager is really trying to achieve. To a large extent, you are trusting the manager, and that is where the historical track record is usually fallen back on. That is an understandable reaction by fund investors even if it can't be rigorously justified.
The more risk you want to take on to get access to superior returns, the more work and knowledge you need to have to choose the right growth fund. If you don't have that sort of background, at least engage an experienced, qualified adviser you trust.
Across the industry there is currently no consistency on how funds are categorised. We have found that sometimes the fund name can be misleading and it is important to completely understand what drives the funds performance (asset allocation, investment philosophy etc) and be aware of how the underlying portfolio of securities is made up and where the potential variability in monthly or annual returns may come from.
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.