Bottom of the heap KiwiSaver funds

Investing

Past performance may be no indication of future returns, but still it makes you wonder.

16th May 11, 4:20pm by Amanda Morrall

<p> A closer look at KiwiSaver</p>

By Amanda Morrall email

Warning: the following performance rankings on the worst performing KiwiSaver funds over three years comes with the following blanket caveat:

Past performance is no guarantee of future returns. It's a standard industry disclaimer but one that is widely ignored in the face of eye popping double digit quarterly returns that provoke KiwiSaver provider envy or bitterness.

As KiwiSaver is a long-term investment vehicle, it still has a long way to run and fund manager track records are still being established.

Opinion varies but many suggest a meaningful gauge of fund performance takes at least five years to establish underscoring another well worn investment that it's time in the market, not market timing.

Depending on your enrolment date in KiwiSaver and the fund you're invested it, the optics shift considerably.

Here's an example:

If you invested NZ$5,000 in OnePath's SIL International Property fund three years ago, your KiwiSaver account would have shrunk to NZ$4,535, whereas if you'd invested two years ago, it would more than have doubled, and one year's time would have grown to NZ$6,010.

The wildly different outcomes underscore both market volatility and the dangers of relying on the latest quarterly statement as a gauge of fund performance.

With that in mind, it is still interesting to see the fluctuations and to get a sense of where one's KiwiSaver fund sits relative to its peers.

For interest sake, we reverse ranked after-fee performance among the spectrum of funds to see find out which finished last on a three year annualised basis. For a complete reverse ranking listing scroll to the end of the page and find your fund by category.

To see interest.co.n'zs previous performance ranking KiwiSaver article in ascending order click here.

This is what we found. (For more on after fee performance calculation click here.)

Aggressive Funds	Ranking	1 year	2 year	3 year
One PathSIL International Property	29	20.2	47.4	-3.2
Mercer Super Trust Real Assets	28	5.0	31.1	-2.9
Mercer Super Trust Global Shares	27	8.9	22.1	-1.6

Growth Funds	Ranking	1 year	2 year	3 year
AMP Growth	31	5.8	11.1	0.0
Credit Union Balanced	30	5.2	n/a	0.9
Tower Growth	29	5.4	17.3	1.6

Balanced Funds	Ranking	1 year	2 year	3 year
AMP Tyndall Balanced	16	5.7	12.0	2.4
AMP Tower Balanced	15	5.2	10.8	2.9
AMP Moderate Balanced	13	4.9	6.8	3.5

Moderate Funds	Ranking	1 year	2 year	3 year
AMP Moderate	27	5.2	8.3	2.5
Credit Union Conservative	26	4.3	n/a	3.2
Smartshares Conservative	25	3.7	5.2	3.4

Conservative Funds	Ranking	1 year	2 year	3 year
Staples Rodway Conserative	16	3.2	2.7	3.6
Tower Preservation	9	2.8	2.8	4.1
Grosvenor Enhanced Income	6	2.9	2.8	4.6

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25 Comments

by Ms de Meanour | 16th May 11, 6:00pm 1305525604

Thank you, but it would be more informative to see how these compare with the worst-performing non-KS managed funds (and perhaps some in Australia also?) to understand whether this is a commentary on KiwiSaver in particular or NZ fund managers in general.

by Amanda Morrall | 18th May 11, 8:44am 1305665087

Ms D.M,

We pulled some performance figures on Aussie super from APRA website. You might find it of interest. You can see them on the bottom of the double shot interview story with Carmel Fisher.

Cheers,

by Amanda Morrall | 16th May 11, 6:24pm 1305527040

That's a great idea! We're not a research house so this would be tricky and time consuming for us to obtain but agree it would be very interesting comparison. Plan to bring in some NZ fund managers to get their view on this. Carmel Fisher is our featured guest tomorrow, so I'll be sure to ask her thoughts on Benchmarking outside of the KiwiSaver peer group.

Cheers,

Amanda

by JD | 17th May 11, 5:21am 1305566483

Great! Because I've been thinking exactly the same thing. I was just comparing my kiwisaver fund against my other managed fund yesterday!

by JB | 17th May 11, 8:07am 1305576467

Given anyone could simply buy high quality NZ Bonds such as Mighty River, Vector, Contact, AK Airport Fletcher Building with very low risk, hold them to maturity and earn ~ 8 % pre tax these are appalling returns and illustrate and industry stuffed with costs and incompetence.

by Wolly | 17th May 11, 8:11am 1305576709

Go easy JB...Mr Cost and Mr Incompetence have every right to collect fat fees for achieiving eff all...especially in NZ....if Kiwi Kev is dumb enough to sign on...who are we to give a hoot.

by yet another account | 17th May 11, 9:47am 1305582422

Not disagreeing with your main point, but if you were to invest right now, you wouldn't get 8%. Current yields are around 4-6% for those bonds.

by JB | 17th May 11, 3:33pm 1305603201

Of course not - you buy them on the run.

Genesis just last month was offering 8.5 % so I stand by my thesis - you can get 8 % pre-tax at very low levels of risk. Not zero - just very low and way less than equity owners.

by JD | 17th May 11, 4:43pm 1305607400

Where do I read about bonds (ie. who is offering, the interest rate) and how do you buy them?

by Amanda Morrall | 17th May 11, 5:21pm 1305609672

Hi,

Check out our bond section for a comparison on rates for starters.

http://www.interest.co.nz/saving/moneymarket

Also, received this from a DIY couple on bonds this morning:

We are retired folk and supplement the NZ Super by having Bonds in Fonterra, Rabo Bank, Contact and Mighty River Power. That is spreading the risk over all. However unlessyou obtain these in the I.P.O. then Broker fees are an inhibiting factor on the market to buy in at a later date. Bonds have been a good investment and cost free to the holder.

Amanda

by JB | 17th May 11, 7:36pm 1305617787

Amanda,

Are you sure the buy yield is correct on your debt listings ?

What is the basis of this calculation ?

Hard to see how an 8% coupon translates to 5.50 % at 1.069.

Contact Energy BBB 15 May 2014 10,000 8.00 1.0693 5.50

by yet another account | 17th May 11, 11:52pm 1305633137

Bond prices are a bit counterintuitive. They are usually quoted as yield-to-maturity. This means you can easily compare bonds that have different details (e.g. different coupon rates or payment schedules), but it makes the process of calculating the actual price you pay more complicated.

In the case above, let's assume you want to buy 100 bonds which were originally issued at $1 face value each. Someone is willing to sell you those bonds on the secondary market for $1.0693 per bond, or $106.93 in total. Then you receive 8% coupon on 100 bonds, i.e. $8/year, and finally you receive $100 at maturity.

The yield-to-maturity is the discount rate that makes the NPV of all of those cashflows equal zero. In this case, the discount rate works out at 5.50%. The NPV calculation accounts for things such as: you might be buying the bond part-way through an interest period, so you might receive a complete half-yearly payment after only holding the bond for 2 weeks; you will receive less than what you paid ($100 vs $106.93) on maturity; and you are receiving 8% interest on the face value ($100), not on the price you paid ($106.93).

A 5.50% yield effectively says "If you buy the bonds now and hold them to maturity, the total return on the price you paid is 5.50%pa". The details of coupon rate, etc, are largely irrelevant - all you really care about is "what is the effective yield on the price I paid?". Under the covers, a higher yield implies a lower price, and vice versa.

You might want to experiment with a bond price calculator - e.g. Direct Broking has one here: http://www.directbroking.co.nz/directtrade/dynamic/bondcalc.aspx?QQSC=CEN010&QQE=NZSE. (It agrees with the prices quoted for the Contact bonds)

by JD | 18th May 11, 5:25am 1305653141

Thanks everybody!

by JB | 18th May 11, 6:22am 1305656537

Thanks for the detailed explanation.

My at a glance view was it seemed wrong to pay a 7 % premium yet lose over 30 % on the YTM.

by JB | 18th May 11, 6:22am 1305656538

Thanks for the detailed explanation.

My at a glance view was it seemed wrong to pay a 7 % premium yet lose over 30 % on the YTM.

by Amanda Morrall | 18th May 11, 8:37am 1305664679

I'll ask someone to double check here....

Cheers,

Amanda

by yet another account | 17th May 11, 11:26pm 1305631586

IIRC the Genesis issue was effectively structured as equity, not debt.

by me | 17th May 11, 10:30am 1305585024

Yes, and the government didn't give you $1045 annually like it did for Kiwisaver- will need now see what the Kiwisaver changes mooted will be

by Amanda Morrall | 17th May 11, 10:58am 1305586712

For anyone who is interested, here's a link to Mercer's KiwiSaver quarterly results going back to December 2010:

http://www.mercer.co.nz/press-releases/1406950

Also, I'm looking for a few good volunteers to come to our Herne Bay office and test out our KiwiSaver section. Will buy coffee in return and Bernard will sign autographs. Just joking, about the last part.

Any takers, contact me directly please at amanda.morrall@interest.co.nz

Cheers,

by Kate | 17th May 11, 3:26pm 1305602761

Hopefully the league table exposure will put a fire under these bottom dwellers.

(Yes, my account is with AMP) lol.

by JD | 17th May 11, 4:27pm 1305606442

Key reckons kiwis won't be bothered to pull out of kiwisaver. He thinks intertia is his best mate despite Standard and Poor being concerned changes will result in less savings. Shows what he thinks of us!

Edit to add forgotten link: http://www.stuff.co.nz/business/money/5013887/Kiwisaver-changes-to-boos…

by Ms de Meanour | 17th May 11, 4:46pm 1305607609

The S & P chap needs to think a bit harder.

Even if the Budget does result in less private money going into KiwiSaver, that won't necessarily mean less private money being saved. Depending on what exactly the new terms are, the financially competent may divert money away from KiwiSaver and into more profitable savings vehicles, so no change in their saving rate; the financially incompetent probably won't bother, so no change in theirs either.

Even if it does result in less private money being saved, that is still likely to be outweighed by the benefit to the public finances as less public money is spent.

by JD | 17th May 11, 5:00pm 1305608433

I know. I don't disagree. I plan on doing exactly that depending on what the budget says. His attitude just rankles. :)

by Black Celebration | 18th May 11, 7:51am 1305661892

I would be interested to see GMK* and Hujlich**

*I am aware GMK don't tend to participate in such things. So I looked at their website and their own performance figures are only to 31 March 2011 (it's 18 May today!). Nonetheless, the Growth fund returned a less-than-those-listed-above 4% over 1 year.

**I know they are now with FF but those plans still exist and it would be interesting to see just how off-kilter they are.

Both of these providers have (or had) high-profile people at the helm, promising to be different. They've certainly been different, I'll give 'em that.

by yet another account | 18th May 11, 10:18am 1305670711

I believe the reason that GMK isn't listed is because they provide after-tax figures (only?). You'd need to compare to after-tax figures for the other providers for a fair comparison.

(GMK has reports for members available to the end of April, I guess they just haven't updated the external graphs yet)