Some KiwiSaver investors have now doubled their money after tax and fees; lack of NZ shares and alternative investments are hurting some funds

By Craig Simpson

We are now starting to see the first KiwiSaver schemes under our regular return model starting to double their investment.

That is, the fund 'earnings' now exceed the total contributions (whether they be from you, your employer or the Government).

There have been many ups and downs over the past eight years, but luckily for investors, most of the downs came at the beginning of the investment period when the balances were small.

There are certain segments of the KiwiSaver universe where the investor experience has been luke warm. Investors in the lower quartile funds across the various categories are doing themselves a disservice by staying in them.

Over the course of our regular review series we have noted there is a clear difference between the cream-of-the-crop and the also-ran's. 

We have observed the core drivers of the schemes with the best long term performance over several reporting periods has involved funds:

• being over-weight NZ shares (based on NZ's overall weight in the World Index);
• minimising their cash exposure;
• holding an exposure to US shares as opposed to European, Asian or emerging market equivalents;
• having an exposure to bonds, predominately NZ securities;
• exposing the portfolio to alternative investments (including listed property); and
• being hedged to a position of at least 50% on international shares and 100% on global bonds and property.

Those funds with little or no exposure to NZ shares or bonds have been some of the stragglers in each category. The local markets (bond and share) have continued to perform well and are shining stars on the global stage.

We have observed the difference between the return received from the top funds in categories from Moderate to Aggressive compared to the top Default funds is widening again as stock markets fight back from their recent bout of volatility.

The Default funds are at the conservative end of the investment spectrum and have a constrained exposure to shares. There is generally no exposure to property or alternatives either.  These two asset classes have provided some valuable return enhancements in the past 12-months.

Falling interest rates in NZ has negatively impacted cash holdings and funds with large defensive cash holdings are suffering compared to their peers.

A common trait across the better performing funds is the outsourcing of the investment management component of the scheme to a third party manager. There is also extensive investment into other offshore domiciled managed funds. Exchange traded funds (ETF's) are used in some strategies and this enables managers to access the market (or specific market segments) at very low cost.

Unless the fund is a single sector fund (e.g NZ of Australasian Shares) it is rare to see a diversified portfolio that consists of only listed securities.

Best of the best

The funds to be awarded or special 'best in class' badge across all the various categories are listed below. These funds are the best-of-the-best as at the end of March 2016 in our opinion. For the Default category we have not allocated the best in class award. While ANZ's Default fund had the best overall long term performance, ASB's Default fund which ranked third in our table had the superior three year performance. ASB's fund has been slowly closing the gap on the leaders and has a long term performance which is not too far from the top funds.

Default: not awarded - top performing fund ANZ Default Conservative

Conservative: Kiwi Wealth Conservative Fund

Moderate: Aon Russell LifePoints 2015

Balanced: AMP Nikko AM Balanced

Growth: Aon Russell LifePoints Growth

Aggressive: ANZ OneAnswer Australasian Property

The table below highlights the best funds in each main class, and the range of returns between the top and bottom performers.

This is the list of the top funds at March 31, 2016 based on our regular savings return model. For the purpose of comparison we have only used those managers who have been in existence for the entire analysis period of April 2008 to December 2015.

Category	Top 3 Funds	Average of Top Five after fees after tax	Average of Bottom Five after fees after tax	# of funds invested for full period	Top long-term return after fees after tax
Aggressive		13.4%	7.8%	19
	ANZ OneAnswer Australasian Property				13.9%
#2	ANZ OneAnswer Australasian Share
#3	Milford Active Growth
Growth		9.9%	7.1%	15
	Aon Russell LifePoints Growth				10.3%
#2	AMP ANZ Default Balanced
#3	ANZ OneAnswer Balanced Growth
Balanced		8.9%	7.2%	14
	AMP Nikko AM Balanced				9.4%
#2	Aon Russell LifePoints 2025
#3	Aon Nikko AM Balanced
Moderate		7.6%	5.9%	13
	Aon Russell LifePoints 2015				7.9%
#2	Aon Russell LifePoints Conservative
#3	ANZ OneAnswer Cons. Balanced
Conservative1		4.7%	n/a3	7
	Kiwi Wealth Conservative				5.7%
#2	ANZ OneAnswer NZ Fixed Interest
#3	ANZ OneAnswer Int'l Fixed Interest
Default2		6.0%	n/a3	9
#1	ANZ Default Conservative				6.4%
#2	Mercer Conservative
#3	ASB Conservative

1. The Conservative Fund data in the table excludes cash and default funds.
2. There are now nine default funds, however only five have been in existence for the full period of our analysis.
3. Insufficient number of funds to provide data.

If your fund is not in this list, you can find it in our full reviews (links below). If your fund is in the bottom third of our full lists you should think long and hard about why you are still in that fund. Get advice before you move however.

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 March 2016 reviews of the Default, Conservative, Moderate, Balanced, Growth & Aggressive funds can be found here, here, here, here, here & here.