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 |
| AMP | 2.2% | 4.4% | 3.5% | 0.55% | 20.2% |
| ASB | 4.8% | 5.6% | 4.8% | 0.43% | 19.7% |
| AXA | 4.0% | 7.0% | 4.3% | 0.53% | 20.2% |
| Mercer | 3.7% | 7.9% | 4.9% | 0.53% | 20.4% |
| OnePath | 6.3% | 6.2% | 5.2% | 0.45% | 20.2% |
| Tower | 4.8% | 5.8% | 4.4% | 0.51% | 21.8% |
| Peer group averages | 1 year p.a. | 3-year p.a. | 4 year p.a. | Est. total fee | Member fee |
| Defaults options | 4.3% | 6.2% | 4.5% | 0.50% | $33.60 |
| Conservative | 4.3% | 6.0% | 4.6% | 0.69% | $35.10 |
| Moderate | 3.6% | 7.0% | 3.5% | 0.83% | $35.10 |
| Balanced | 3.4% | 6.1% | 3.9% | 0.93% | $35.10 |
| Growth | -0.4% | 7.3% | 0.1% | 0.94% | $34.10 |
| Aggressive | -4.8% | 7.5% | -1.6% | 1.01% | $36.00 |
9 Comments
I see that KiwiBank are looking to have their new GMI acquisition in as a default fund. I hope before that investors are going to be able to judge just what their performance is, because at the moment I don't think they can. And Gareth Morgan is too busy trying to micro-manage everything, including my wife, who incidentely he believes to be a dropkick and wanker, apparently - his words - to fix his issues with Morningstar.
Regarding my link above, I'd be interested in your opinion on the footnote to that post where I look at GMI performance and benchmarking. Am I right in that analysis do you think?
We all wish we had perfect foresight but just have to manage with what we have got.
There is this manta that shares( as in growth funds) will outperform other investments (such as conservative funds. And that probably was true for many decades. But is it still true. Have things changed.
It has not been really true over the past decade and now looking forward there doesn't seem to be much that will change back to the last century outcomes. Maybe the growth funds just won't be the things to do for the next 30 years at least. And given the advantage of the conservative funds with their stability - maybe they will be the performers.
How to know ? gimme a telescope somebody.
Good for you Amanda, been driving me crazy lately listening to the propaganda coming out of the banks the last few weeks trying to scare/drive people across to "growth funds" so the fund managers can have a bit more play money to lose (actively manage). Good to see it go out in the mainstream that being in the conservative funds the last four years is by far the best thing to have done.
Now deduct the debasement...then judge if having your capital locked up for so long is really the best thing to do when a repeat of the property bubble is underway in Auckland and likely in chch if residents decide to stay...ask Bollard...he thinks so!
So NZ remains a property speculators haven fully pumped by the banks creating the credit supported by Alan Bollard and the govt.....savers would do better to chase rental property and suck on the winz benefit rort...or just gamble on property..
My wife & 3 kids have been on the BT Funds pure Cash fund for the last 4 or so years- since KS started. Averaged 3.5% . Cash Fund Unlikely to go backwards. Couldn't care less about 'maximising' the 'return'. Just want the savings actually 'returned' to the owner!
Kiwisaver is effectively a savings scheme rather than a serious investment scheme. Just 'set and forget' and stop worrying over it.
It may work out - it might be not much cop - keep diversifying outside of KS, aim for a freehold house, join KS, buy some shares directly, invest in your kids, start an ecommerce business in your spare time, sell something for $50 on Trademe every week, upgrade your personal qualifications, apply for promotion/better job, keep sowing the investments - some will be great, some poor, some ok.....
Speaking of defaults....http://globaleconomicanalysis.blogspot.com/
Why are the returns low? Because they are gambling not investing. If there was true invetment going on, the returns would be better, and more stable, economic growth would be higher. They are speculating, buying paper in hopes that they can sell it to a greater fool later. When the market is full of fools buying and selling from other fools it's lose lose, the only winners are those making the fees.
Mary Holm missed a shot!
"First, though, what's happening on April 1? Your employer contribution, which is taken out of your before-tax salary, is at present not taxed. But that tax break ends in April.
At your pay level the tax will be 30 per cent. So 70 per cent of the contribution will go into your KiwiSaver account and 30 per cent will go to Inland Revenue.
Some people think this makes things fairer. Let's say you have a workmate who also earns $60,000 but hasn't joined KiwiSaver. His full $60,000 is taxed, but your employer contribution is not. As a taxpayer, your workmate is subsidising you.........................................................
But try to put in at least $1043 a year so you receive the maximum tax credit of $521."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10781646
Notice how Mary sidestepped the fact that the tax credit $521 is paid by all taxpayers...so the workmate refered to is still paying twice...how fair is that....?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.