"Only when the tide goes out do you discover who's been swimming naked" says Warren Buffett.
Return data for the past few months is providing hints as to who has been swimming without their budgie smugglers or bikini's on.
It is easy to make money when everything is fine and dandy and markets are rising on a continuous upward trend, the skill is to do the same when markets are in a state of chaos.
This is where asset allocation, investment process, strategy and manager skill comes into play.
Not everyone who has done well in the past few months will have done so via skill (although many will claim this). With a majority of the exposure in this category being to growth assets (i.e. over 80%) the drivers of returns are invariably going to come down to a handful or factors which provide incremental differences which cumulatively add value to the investors return. Some of the factors we have identified which are impacting returns for the past quarter and these are in no particular order of significance:
- market exposure (being over or underweight specific regions or markets e.g. over exposed to Europe or emerging markets was negative overall);
- cash exposure (holding greater exposures to cash and less in equities will be insulating portfolios when markets decline and detract from returns on the upside);
- sector or industry bias (i.e. being more exposed to specific sectors or sub-industries such as Financials, Industrials, Healthcare was positive and Energy or Telco's was negative);
- investment style and strategy (Large and mid cap growth companies outperfomed large and mid cap value style companies);
- currency strategy (having a zero hedge or dynamic hedging policy has benefitted managers against those with fixed or mandated exposures); and
- exposure to alternative assets (e.g. exposure hedge funds and multi-strategy investment strategies which can benefit from both up and down markets).
At present KiwiSaver managers are not required to publish specific attribution analysis for their funds and therefore we can not unpick the returns to provide a definitive explanation as to what strategy, country, sector exposures, specific securities or hedging positions have added or detracted value over the period.
KiwiSaver scheme providers are required to publish their top 10 holdings at the end of each quarter and full breakdown of holdings each year (ending March 31) so we can see the main holdings and exposures.
While we can not accurately unpick all the returns and give definitive explanations around exactly which assets added the most value (or detracted value) the broad themes outlined above will provide a general overview of drivers behind the returns and enable readers to approach their adviser or KiwiSaver manager for specific details.
Looking specifically at our regular savings data we have seen a change at the top of the leaderboard.
For the first time in six months something other than a property fund has taken top spot in the Aggressive KiwiSaver category. ANZ OneAnswer International Share fund has climbed up the rankings and knocked the property funds off top spot.
During the latest quarter Mercer SuperTrust funds ceased to operate and the funds were diverted to the main Mercer suite. This has reduced our universe of funds that have been going from April 2008 from 23 to 21 funds. Of the 21 funds that have been going since April 2008, 13 have provided investors with double digit long run returns based on our unique regular savings basis.
If we include the ANZ OneAnswer Sustainable Growth fund which has been only a couple of months less than the main universe the ratio becomes 14 out of 22.
ANZ OneAnswer International Share fund, ANZ OneAnswer Sustainable Growth fund and Kiwi Wealth's Growth fund have been the biggest movers in recent times.
ANZ's Australasian property fund and Milford's Active Growth fund continue to perform well and retain their spots near the top of our performance rankings. Other big movers in recent times have been Grosvenor International Share Fund and Craig's Equity Fund. The Craig's Equity Fund has a large global equity component and is unhedged so this fund has received the full tailwind of the rapidly depreciating NZD.
Another fund that has benefitted handsomely from being unhedged is the AmanahNZ KiwiSaver Plan1. On a regular savings basis the Amanah fund has returned just over 26% since it began in March 2014.
The other short-termer gaining recognition in the market is the Generate Focused Growth Fund. On a regular saving basis the fund has provided savers with a 14.6% in just over two years. Unlike some of the other top performers who have had a currency pick up the Generate Fund is partially hedged. The level of hedging has only recently been reduced and will have faced some headwinds recently. We highlighted this fund as one to watch in a previous review.
We are always conscious that short term track records should not be an indicator of a manager's ability to add value. It will be interesting to see how both Amanah and Generate perform in down markets after having enjoyed a purple patch.
On our regular savings basis, the average of the top five funds would have resulted in you earning $17,248 more than you have contributed. These earnings are down approxiamtely $100 on last quarters review.
While that may not seem a lot based on an average ending fund value of approximately $41,000 it is significant when you realise that $23,747 is what you, your employer and the Government contributed.
The average of the top five Aggressive funds earnings after-tax and after-fees is $9,223 (previously $9,838) more than the $8,025 you would have earned from the average of the top five Default funds.
To be awarded this classification it must not only have the best track record for the full period, but its return over the past three years must not be less that those it earned over the full period.
The second table below highlights those funds that have not been going the full distance and they are ranked on the level of contributions made based on our regular savings calculations.
Many of the funds in the second table have achieved returns over the short to medium term which would see them placed in the upper echelons of the main table if we ranked solely on performance.
Here are the full comparison as at June 30, 2015 for Aggressive Funds.
Aggressive 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.
|
$
|
|||||
|
A | A | IE | 23,747 | 19,204 | 13.5 | 42,951 | 20.3 |
ANZ OneAnswerAustralasian Property | A | A | P | 23,747 | 17,471 | 12.5 | 41,218 | 13.8 |
Milford Active Growth | A | G | AE | 23,747 | 17,153 | 12.3 | 40,900 | 13.9 |
Aon Milford | A | G | AE | 23,747 | 16,968 | 12.2 | 40,715 | 13.7 |
ANZ OneAnswerSustainable Growth | A | A | IE | 23,136 | 14,559 | 11.5 | 37,695 | 17.4 |
ANZ OneAnswer Growth | A | G | G | 23,747 | 15,443 | 11.3 | 39,190 | 14.3 |
ANZ Growth | A | G | G | 23,747 | 15,315 | 11.3 | 39,062 | 14.2 |
Kiwi Wealth Growth Fund | A | A | A | 23,747 | 14,873 | 11.0 | 38,620 | 16.9 |
Aon Russell LifePoints 2045 | A | G | A | 23,747 | 14,647 | 10.9 | 38,395 | 15.4 |
ANZ OneAnswer Australasian Share | A | A | AE | 23,747 | 14,173 | 10.6 | 37,920 | 15.2 |
ANZ Default Growth | A | G | G | 23,747 | 14,102 | 10.5 | 37,849 | 12.7 |
Mercer High Growth | A | A | A | 23,747 | 13,899 | 10.4 | 37,647 | 12.6 |
ANZ OneAnswer Int'l Property | A | A | P | 23,747 | 13,625 | 10.2 | 37,372 | 8.1 |
ASB Growth | A | G | G | 23,747 | 13,523 | 10.2 | 37,271 | 13.5 |
Fisher Funds Growth | A | A | A | 23,747 | 13,140 | 9.9 | 36,887 | 12.6 |
Westpac Growth | A | G | G | 23,747 | 12,439 | 9.5 | 36,186 | 12.7 |
Staples Rodway Growth | A | G | G | 23,747 | 12,191 | 9.3 | 35,938 | 12.0 |
AMP Aggressive | A | A | A | 23,747 | 10,846 | 8.4 | 34,593 | 12.0 |
SmartKiwi Growth | A | A | AE | 23,747 | 10,380 | 8.1 | 34,127 | 12.4 |
AMP Growth | A | G | G | 23,747 | 10,304 | 8.0 | 34,051 | 10.9 |
Grosvenor High Growth | A | A | A | 23,747 | 10,295 | 8.0 | 34,042 | 12.4 |
Fisher Funds Two Equity | A | A | IE | 23,747 | 10,271 | 8.0 | 34,018 | 12.1 |
--------------- | ||||||||
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition | ||||||||
A = Aggressive, AE = Australasian Equities, G = Growth, IE = International Equities, P = Property |
For those funds that have not been going for the full period (April 2008 to December 2014) the results are shown below. In this group Amanah KiwiSaver Plan has been the standout performer followed by Generate Focused Growth and Grosvenor International Share fund. Both Generate and Amanah are relative newcomers to the KiwiSaver universe and are yet to prove themselves over the long-term. However, the short term data shows some promise.
Aggressive 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.
|
$
|
|||||
Grosvenor Geared Growth | A | A | A | 19,462 | 9,803 | 10.7 | 29,265 | 13.6 |
Craigs Equity | A | A | A | 18,785 | 11,109 | 12.6 | 29,894 | 15.6 |
Lifestages Growth | A | A | 17,902 | 6,613 | 8.4 | 24,515 | 11.1 | |
Grosvenor International Share | A | A | IE | 16,435 | 9,087 | 13.1 | 25,522 | 15.6 |
Grosvenor Socially Responsible | A | A | AE | 16,435 | 6,746 | 9.9 | 23,181 | 11.3 |
Grosvenor Trans-Tasman Small Companies | A | A | AE | 16,435 | 2,336 | 2.6 | 18,771 | 4.0 |
Craigs NZ Equity | A | A | AE | 14,661 | 6,811 | 12.0 | 21,472 | 11.6 |
Craigs Australian Equity | A | A | AE | 14,661 | 2,652 | 3.9 | 17,313 | 2.8 |
Generate Focused Growth | A | A | A | 7,044 | 2,786 | 14.6 | 9,830 | n/a |
Amanah KiwiSaver Plan | A | A | 3,812 | 2,215 | 26.2 | 6,028 | n/a | |
--------------- | ||||||||
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition | ||||||||
A = Aggressive, AE = Australasian Equities, G = Growth, IE = International Equities, P = Property |
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.
For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.
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, Balanced and Growth funds can be found here, here, here, here and here
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1. The author is an investment strategist for the Amanah KiwiSaver plan and has a vested interest in this fund.
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