Our comprehensive review of Conservative KiwiSaver fund performance to December 31 2015, identifying who has the best long-term returns

By Craig Simpson

A strong bias towards domestic assets and an average of 20% in growth assets across the various funds in the sector has meant investors in the KiwiSaver Conservative funds have been insulated from the turmoil that played out in markets during the December quarter.

NZ domiciled assets have been some of the best performers globally in what has been a testing quarter and end to the year. Many of the major indices were in negative territory at year end however none of the KiwiSaver funds we monitor recorded negative one year returns.  

For investors in Conservative KiwiSaver funds the impact of sharemarket losses will be reasonably small as in most cases portfolios have less than 30% of their total assets exposed to equities or growth assets.

Many funds within the KiwiSaver universe also have a domestic bias and with local assets outperforming global shares and bonds it is likely many investors in the more conservative funds will not have experienced any erosion in capital.

Our regular return savings model the return from the Kiwi Wealth Conservative Fund has retained its top spot. Compared to last quarters review the main changes in the rankings have been caused through the removal of the Lifestages Capital Stable and Staples Rodway Conservative funds from our analysis as these schemes are no longer available for investment. The only only other change was a positional switch between the Fisher Two Preservation and ASB Cash funds.

Assuming you had been invested for the period April 2008 to December 2015, the difference between the average return of the top and bottom conservative fund (excluding Default and Cash funds) in dollar terms is approximately $3,500. Including cash funds the difference is $4,450 or $44.50 per month since April 2008.

The Staples Rodway KiwiSaver scheme is no longer open to new investment and hence we have removed this fund from our analysis. Likewise the Lifestages Capital Stable KiwiSaver Fund is no longer offered to investors and is replaced by the Lifestages Income Fund. We will commence reporting on the new Lifestages fund in our next review for this sector.

Here are the full comparisons to December 31, 2015 for Conservative Funds.

Conservative Funds				Cumulative$ contributions (EE,ER,Govt)	=+Cum net gains after all tax,fees	Effective* cum return	=Ending Value in your account	Effective last 3yr return%p.a.
Since April 2008	X	Y	Z
to December 2015					$	%p.a.	$
Kiwi Wealth Conservative	C	C	C	25,648	8,237	5.7%	33,886	5.3%
ANZ OneAnswer NZ Fixed Interest	C	C	FI	25,648	7,379	5.1%	33,027	3.3%
ANZ OneAnswer Int'l Fixed Interest	C	C	FI	25,648	7,120	5.0%	32,769	4.0%
AMP Cash	C	D	Ca	25,648	5,104	3.5%	30,753	2.9%
Mercer Cash	C	D	Ca	25,648	4,923	3.3%	30,571	2.8%
Grosvenor Enhanced Income	C	D	C	25,648	4,882	3.3%	30,530	2.7%
ASB Cash	C	D	Ca	25,648	4,833	3.3%	30,481	3.1%
Fisher Funds Two Preservation	C	D	Ca	25,648	4,793	3.2%	30,441	2.8%
Aon Nikko AM Cash	C	D	Ca	25,648	4,722	3.2%	30,371	2.7%
ANZ Default Cash	C	D	Ca	25,648	4,,612	3.1%	30,260	2.7%
ANZ Cash	C	D	Ca	25,648	4,534	3.0%	30,183	2.7%
Westpac Cash	C	D	Ca	25,648	4,520	3.0%	30,168	2.7%
ANZ OneAnswer Cash	C	D	Ca	25,648	4,388	2.9%	30,037	2.6%
Aon ANZ Default Cash	C	D	Ca	25,648	3,786	2.4%	29,435	2.2%
Craigs fixed Interest	C	D	Ca	20,687	3,632	3.4%	24,319	1.6%
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Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive, Ca = Cash, FI = Fixed Income

For those funds that have not been in existence for over three years their results are shown in the table below.

The trend of returns from Default funds outperforming a majority of the Conservative funds continues and has us questioning the worth of having a Conservative category within KiwiSaver as investors are better served at present being in one of the top performing Default funds.

Since inception, and on a regular savings basis, the average of the top five Conservative funds (excluding Default funds) has produced compound annual returns of 4.5% after all fees and taxes. Over the past three years, that return has edged down to an average of 3.6% p.a.

The decline in returns from Conservative funds is principally influenced by movements in the fixed income markets. Returns from cash are also very low globally and funds with high portions of cash in their portfolio will be struggling to generate any noticeable and meaningful returns.

Capital Guaranteed Funds

In addition to the mainstream Conservative KiwiSaver funds, savers interested in risk-protected returns should consider Westpac's capital 'guaranteed' funds.

These funds invest in equities but have a Capital Protection Plan that's designed to give you the opportunity to earn the higher returns normally associated with growth assets without the risk of losing your initial contributed capital (other than through the insolvency of the Capital Protection Provider or a "tax change event"). The goal of generating higher returns is implemented by having as much of the CPP Fund as possible invested in growth assets.

However, the manager is also required to preserve the capital value of the Fund. It does this by reducing the amount invested in growth assets if the value of the assets of the CPP Fund falls below certain predetermined levels. Instead, some (or, if there is a very dramatic fall in the value of the growth assets, all) of the assets of the CPP Fund are placed in a form of deposit with the Capital Protection Provider that is designed to recover part of the value of the assets over time, but does not produce a positive investment return (these are sometimes called zero coupon bonds or deposits).

Westpac has five such plans, all starting at different times:

Don't jump into these capital protected funds unless you understand fully how they work in good times, and bad.

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

You should move only with appropriate advice and for a substantial reason.

Our December 2015 review of the Default funds can be found here.