Our comprehensive review of KiwiSaver Growth funds to June 30, 2015 identifies the top performers, but raises questions of whether the reward is worth the risk

Five out of eighteen funds within the Growth fund universe have achieved a long run return above 10% which is not a lot when you consider these portfolios have considerable exposure to growth assets and we have been in a five year plus environment which has been favourable.

The latest quarter has seen themes such as return compression compared to the last few quarters, declining stock market returns in Europe and China, a spike in interest rates due to uncertainty around Greece, the sudden weakening of the NZ dollar, the importance of asset allocation and to a lesser degree stock selection emerge as drivers behind returns.

For funds that are approximately 65% to 80% exposed to growth assets the drivers behind the returns are generally going to be more focussed towards global stock market performance, specific country or regional exposures within the various funds and hedging policies. Recently having what we call a home bias, that is favouring domestic assets over foreign has paid dividends for some managers as the NZ bond and equity markets have been strong performers.

The rapid decline in the value of the NZ dollar has meant those funds with unhedged or very low levels of hedging across their international assets have received a boost in returns.

We can't over-state the impact hedging has had on returns over the last quarter. For example the broad Australian stock market was -6.6% in AUD terms but +4.3% in NZ dollar terms and the MSCI World index in NZD and 100% hedged returned 0.2% compared to the unhedged version which was +11.2%.

Funds with greater exposures to Europe and Asia compared to the US will invariably have underperformed. The ongoing Greek tragedy and sudden plunge in Chinese shares will have dampened returns in June and taken some of the cream off the top.

Fewer funds have achieved a 9% plus return compared to the past review however all the funds exceeded their long run returns over the past three years. Over the shorter term the Aon Russell Lifepoints Growth fund returned an impressive 14.7%.

On our regular savings basis, investing in the top funds you would have earned an average of $13,694 more than you have contributed. Previously this figure was $12,911.

While that may not seem a lot based on an average ending fund value of $37,442 it is very significant when you realise that $23,747 is what you, your employer and the Government contributed. The average Growth fund earnings after-tax and after-fees is $5,670 more than the $8,025 you would have earned in a Default fund.

AMP, ANZ, Aon and Staples Rodway continue their dominance of this category and are extending their lead on the rest of the pack with some above average three-year return numbers.

Of the new generation of funds to enter into the market, Generate's Growth fund is head and shoulders above the pack. Enthusiasm for the new kids on the block must be tempered somewhat as they have not shown any form during a bear market period which generally sorts out the wheat from the chaff so to speak.

Here are the full comparison as at June 30, 2015 for Growth Funds.

Growth Funds				Cumulative contributions (EE, ER, Govt)	+ Cum net gains after all tax, fees	Effective cum return	= Ending value in your account	Effective last 3 yr return % p.a.
since April 2008	X	Y	Z
to June 2015					$	% p.a.	$
Aon Russell LifePoints Growth	G	G	G	23,747	14,390	10.7%	38,137	14.7%
ANZ OneAnswer Balanced Growth	G	G	G	23,747	13,708	10.3%	37,455	12.5%
AMP ANZ Default Balanced	G	B	G	23,747	13,668	10.2%	37,416	12.8%
Aon Russell LifePoints 2035	G	G	G	23,747	13,362	10.0%	37,109	13.4%
Staples Rodway Balanced	G	B	G	23,747	13,343	10.0%	37,090	11.8%
Aon Russell LifePoints Balanced	G	B	B	23,747	13,093	9.9%	36,841	12.7%
ANZ Balanced Growth	G	G	G	23,747	12,731	9.6%	36,478	11.6%
ANZ Default Balanced Growth	G	G	G	23,747	12,579	9.5%	36,326	11.3%
Aon ANZ Default Balanced	G	B	B	23,747	11,891	9.1%	35,638	10.6%
ASB Balanced	G	B	B	23,747	11,810	9.0%	35,558	11.2%
Mercer Balanced	G	G	G	23,747	11,258	8.7%	35,005	10.1%
Craigs Growth	G	G		23,747	11,065	8.5%	34,813	11.4%
Westpac Balanced	G	B	B	23,747	10,731	8.3%	34,478	10.6%
Fisher Funds Two Growth	G	G	G	23,747	10,688	8.3%	34,435	10.7%
Craigs Balanced	G	B		23,747	10,077	7.8%	33,824	9.9%
AMP Balanced	G	B	B	23,747	9,622	7.5%	33,369	9.3%
Craigs Balanced SRI	G	B		23,747	8,991	7.0%	32,738	9.4%
SmartKiwi Balanced	G	B	B	23,747	8,590	6.7%	32,337	9.1%
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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'

The following Growth funds have not been going long enough to be included in the above table.

For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.

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.

Our June reviews of the Default, Conservative, Moderate and Balanced funds can be found here, here, here and here.