KiwiSaver funds under management rose by more than $11 billion in the June quarter, according to research firm Morningstar, rebounding from an almost $5 billion decline in the March quarter.
KiwiSaver funds ended the June quarter at $147.7 billion, jumping $11.3 billion from the prior quarter due to a rally in global financial markets, and investors looking through geopolitical shock caused by war in the Middle East and the subsequent oil shock.
Morningstar data director Greg Bunkall told Interest.co.nz the June quarter results showed the importance of “sticking with the kind of risk profile that you've chosen” instead of changing funds during periods of market volatility.
He said while tensions in the Middle East had remained elevated for much of the quarter, the signing of a temporary ceasefire agreement and the gradual reopening of shipping through the Strait of Hormuz saw inflation fears begin to unwind and energy markets start to stabilise.
“Oil prices, which had spiked on concerns over supply disruptions, retraced much of their gains by quarter-end, helping restore confidence across equity and fixed-income markets,” Bunkall said.
“The quarter also highlighted that while geopolitical events can trigger sharp market moves, their long-term impact is often determined less by the initial shock than by whether they materially alter economic growth or corporate profitability.”
Aggressive KiwiSaver categories bounce higher
The report found average multisector category returns for the June quarter ranged between 3.3% for the conservative category and 11.9% for the aggressive category.
Default fund options returned an average of 8.2% in the three months to June.
Across a 10-year benchmark, Morningstar’s preferred long-term performance measurement, the aggressive category average gave investors an annualised return of 10.3%.
The growth category gave an average return of 9.2% in the June quarter and 8.9% over 10 years. This was followed by the balanced category with a 7.6% return in the three months to June and a 7.2% return over 10 years.
The moderate category reported a 4.8% return in the June quarter and a 5% return across a 10-year benchmark, and the conservative category reported a 3.3% return in the three months to June and a 4.1% return over 10 years.
Morningstar said the higher-risk funds accounted for the largest returns this quarter and over longer periods, higher-risk funds have rewarded investors with higher returns.
Bunkall said the June quarter results were in “stark contrast” to what the firm had seen during the early days of the pandemic when many KiwiSaver members pulled their money from higher-risk funds and went down a more conservative route.
“So when that happened, I think we saw like a billion dollars flow from balanced, growth, and aggressive into conservative and moderate categories,” he said.
“Whereas in this case, we didn't see those flows happening. I think people are starting to stay the course a little bit more.”
On an individual fund performance level across the June quarter, Generate Conservative Fund was the best-performing fund, up 5.5%.
Generate Moderate was up 7.1% in the moderate category and Generate Balanced Fund was up the most in the balanced category at 9.9%.
In the growth category, the MAS Growth fund had the best performance and was up 12.5% across the June quarter.
The MAS Aggressive fund jumped 14.4% and was the top-performing fund in the aggressive category.
Competitors are ‘nipping away’ at the big banks
ANZ is still on top when it comes to KiwiSaver market share, led with 16.3% and $24 billion in assets under management at the end of the quarter. ASB was in second place with a market share of 14.7% and $21.7 billion in assets.
Fisher Funds, Milford Asset Management and Westpac rounded out the top five largest providers in the June quarter. Fisher Funds had a 12.6% market share with $18.6 billion in assets, while Milford’s market share was 10.8% and its assets totalled $15.8 billion. Westpac came in at 9.2% market share and $135.6 billion in assets.
The five largest KiwiSaver providers account for approximately 63.5% of assets in Morningstar’s database.
Bunkall told Interest.co.nz that New Zealand’s banks are losing market share in the KiwiSaver market and smaller providers like Generate, Milford and Fisher Funds are currently “nipping away” at the heels of the big banks.
In December 2013, banks held a 60% KiwiSaver market share across their schemes. Now, Bunkall said they hold only 45% of the market.
He noted that ANZ’s KiwiSaver market share alone had declined from 27% at the end of 2013 to 23% in 2020 following the pandemic. ANZ has lost an additional 6.7% market share to date.
Annual fees in $1 billion territory
Morningstar’s latest quarterly KiwiSaver survey has estimated KiwiSaver providers will charge members more than $1.2 billion in fees over the next 12 months.
According to the research firm, this is an average fee of around 0.81 cents for every dollar invested.
Bunkall said the average fee has floated between 0.8, 0.79 and 0.81 and described them as being “static” for some time.
“If you look at KiwiSaver fees side by side and not taking into account the money in them, I think they'd be a little bit lower than they were, say, five years ago or 10 years ago,” he said, adding that more of the fees are being allocated towards higher growth risk profiles.
“People have been moving up risk profiles appropriately, and then more money grows in those risk profiles.”
Higher-risk funds tend to have higher fees attached to them than conservative funds.
Morningstar's June quarter report described KiwiSaver fees as the one constant that will always “eat away” at KiwiSaver returns and said people should look closely at the cost of their KiwiSaver scheme on their returns.
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