Milford Asset Management's KiwiSaver returns likely to be the envy of many competitors

The latest data released for KiwiSaver performance as at September 30, 2013 is from Milford Asset Management. (Our previous story covering the June, 2013 returns can be found here.)

Normal transmission resumed for Milford's KiwiSaver scheme with the posting of another round of solid returns. The previous quarter's returns to June 30 which broke an impressive string of monthly (and quarterly) gains was merely a speed bump.

Milford has added considerable value over and above the long-run benchmark of 10% p.a. Recent commentary from the manager highlights the flagship Active Growth KiwiSaver Fund did under-perform the NZX50 Index by approximately 1.6% for the past 12-months, but beat the broad Australian share market index by roughly 10% over the same period.

The flagship Milford KiwiSaver Active Growth Fund has returned 21.9% (or 21.35% after tax and fund fees), the Balanced Fund 16.5% (or 15.14% after tax and fund fee) sand Conservative Fund 14.1% (or 12.21% after tax and fund fees). The reporting of the after tax and fee returns is in line with the introduction of the Periodic Disclosure Regime on July 1. For those wanting more information on the new scheme reporting they can visit the Financial Markets Authority (FMA) who have published helpful tips on how to review funds. The link to the FMA site is here.

After allowing for tax at the top rate of 28% and all fund related fees the returns posted by Milford are likely to be the envy of many managers.

Milford remains upbeat about the prospects for the global economy with the belief the global financial crisis is over and the world economy will grow steadily, albeit slowly, in the median term. Europe seems to have bottomed out, the United States economy is recovering, China has stabilised and emerging countries have shown some improvement in recent months.

There are more positive signs across the Tasman following the election of a more business friendly government in September, a material upturn in house prices and signs that the Chinese economy has stabilised.

Milford are also positive about the domestic economy because of strong demand for soft commodities, particularly dairy products, a positive net migration inflow, the Christchurch rebuild and rising business and consumer confidence.

Within the Active Growth Fund a number of small adjustments were made to the portfolio constituents in order to position the portfolio for the expected economic upturn. Amongst the major holdings additional shares have been purchased in Fisher & Paykel Healthcare, Tower through the Guinness Peat Group sell down, Z Energy, Air New Zealand and Tourism Holdings.

The Conservative Fund benefited from a stake in Kathmandu which was up 13%, and reported an 18% increase in profits over the previous year due to strong sales from both its existing and new stores. The key negative for
performance was Argosy which fell 3% in line with New Zealand property stocks which fell following a capital raising from Precinct and as investors switched into more growth orientated shares.

Milford built a position in Telecom NZ during September following a fall in its share price after its annual result. Telecom offers an attractive gross yield of around 9% although has relatively little earnings growth in the short-term due to strong competition and declining calling revenues. Also the Fund added to its holding in Tower, which Milford believe is attractively valued at current levels with a 10% dividend yield and strong balance sheet. On the flip-side the Conservative Fund reduced its holdings in Australian property companies Cromwell and Ingenia.

The Balanced Fund For the month the Fund benefited from the strong performance of its holdings in the non-KiwiSaver Milford Trans-Tasman and Active Growth Funds. The exposure to share investments continues to be just above 50% of the funds total assets.

During September the Balanced Fund purchased a holding in the newly launched Milford Dynamic Fund, which replaces the non-KiwiSaver Active Growth Fund that was closed to new investment during September. To manage this risk the Balanced Fund’s typical allocation to the Dynamic Fund is likely to be less than 5.0%.

When looking through the holdings of the individual funds the underlying allocation to shares is a healthy 67%. This weighting to shares would be at the upper end of what many advisers would expect to see in a 'balanced' fund. A 50/50 or 60/40 (growth vs income) asset mix would be more along the lines of what many advisers would be suggesting is appropriate for a medium risk portfolio.

Below is a table of the performance of the three Milford funds. The return data is after tax and after fees and is as published by the manager. (No adjustments have been made to take into account those additional fees which scheme providers may charge and which are not included in calculating the fund performance. We do make such adjustments, but they will not be included until the full benchmarking is published.)

More detailed performance reporting can be found here ».

The table below outlines the assset allocation for each Milford fund as at 30 September 2013.

* Existing Milford non-KiwiSaver fund.

^ Milford non-KiwiSaver Active Growth Fund is now closed to new investment.