Our comprehensive review of KiwiSaver Growth funds to September 30, 2016 identifies the top performers

Returns over the long-term may be constrained to below 10%, but we haven't seen the last of some stellar performances.

Aon's top performing funds in this category all posted three-year regular saving returns in excess of 9.5% with their market leading Russell Lifepoints Growth turning in a return of 10.1% for the last three-years.

The same fund's long-term return at 9.5% after tax and fees as per our regular savings model isn't bad either.

Aon's top performing funds in this category all posted three-year regular saving returns in excess of 9.5% with their market leading Aon Russell Lifepoints Growth Fund turning in a return of 10.1% for the last three-years. The same fund's long-term return at 9.5% after tax and fees as per our regular savings model isn't shabby either.

Aon Russell Lifepoints Growth Fund and AMP ANZ Default Balanced Growth Fund overtook the previous leader ANZ OneAnswer Balanced Growth Fund.

Generate Growth Fund is the standout performer on a since inception of the fund basis, however, the fund is a toddler compared to the other managers who have been going since 2007. Their return is shown down the bottom of our table, which is ordered on the total contributions our model investor has made since 2008 or when the fund began. Their positioning is in no way a reflection of their performance.

Rising bond yields have been less of an issue for managers in this sector as the allocation to fixed income assets is generally much lower and when attributed to the overall result will have limited impact, relative to movements in equity, property or commodity/alternative asset markets.

Currency hedging plays a big part in either adding or detracting from performance in this category as there is a greater exposure to international assets. 

Our regular savings model suggest investing in the top five funds in this category would have yielded $16,881 more than our sample investor contributed since inception of our analysis.

The average Growth fund earnings after-tax and after-fees is $6,427 (previously $4,833) more than what was earned in the average of the top five Default funds.

Here are the full comparison as at September 30, 2016 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 2016					$	% p.a.	$
Aon Russell LifePoints Growth	G	G	G	28,805	17,656	9.5%	46,460	10.1%
AMP ANZ Default Balanced Growth	G	B	G	28,805	16,890	9.2%	45,695	8.0%
Aon Russell LifePoints 2035	G	G	G	28,805	16,698	9.1%	45,503	9.6%
ANZ OneAnswer Balanced Growth	G	G	G	28,805	16,680	9.1%	45484	7.9%
ANZ Balanced Growth	G	G	G	28,805	16,483	9.0%	45,288	7.9%
Aon Russell LifePoints Balanced	G	B	B	28,805	16,472	9.0%	45,277	9.6%
ASB Balanced	G	B	B	28,805	15,781	8.7%	44,585	9.0%
ANZ Default Balanced Growth	G	G	G	28,805	15,393	8.5%	44,198	8.0%
Aon ANZ Default Balanced	G	B	B	28,805	15,180	8.4%	43,985	8.4%
Fisher Funds Two Growth	G	G	G	28,805	14,405	8.0%	43,209	6.7%
Westpac Balanced	G	B	B	28,805	13,626	7.7%	42,431	7.5%
AMP Balanced	G	B	B	28,805	11,987	6.8%	40,792	5.8%
QuayStreet Growth	G	G		28,805	11,949	6.8%	40,753	6.9%
QuayStreet Balanced	G	B		28,805	11,543	6.6%	40,347	6.7%
QuayStreet Bal. SRI	G	B		28,805	10,428	6.0%	39,232	5.6%
Booster Balanced Growth	G	G	G	22,012	8,036	7.5%	30,048	7.3%
BNZ Growth	G	G	G	12,083	3,252	8.0%	15,335	6.4%
Generate Growth	G	G	G	11,856	3,854	10.2%	15,710	7.8%
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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' Booster was formerly Grosvenor and QuayStreet was formerly Craigs Investment Partners

Our September 2016 reviews of the Default, Conservative, and Moderate and Balanced funds can be found here, here, here, and here.

Observations and return drivers

We noted in the review for the Balanced category that some defensive positioning by the team at ANZ was probably behind the slip in their fortunes over the short term and that we would not be concerned about sacrificing some of the short term return if it meant we were assured of greater capital security.

The additional volatility in markets and the fact that equity markets, which until now have been on a stratospheric rise, are starting to trend lower, could be playing right into ANZ's hands. We will watch developments in the market and with the various manager allocations with interest over the coming months.

The Aon Russell Lifepoints Growth Fund has been underweight international shares and overweight Australasian shares, which has been giving the fund a boost. Despite the NZ market starting to pull back it remains a stand out performer.

The AMP ANZ Default Balanced Growth Fund asset allocation has some small deviations away from its target allocation and had been underweight in equities and bonds and overweight Cash, Listed Property and Alternatives heading into this latest quarter. The defensive positioning of this portfolio is not being such as drag on the performance as it has on the main ANZ portfolios, which is both interesting and intriguing.

We have noted other sector reviews that the Fisher Funds Two portfolios have been climbing up the leader board and again this is the case in the Growth category. Fisher Funds has been having some success with their stock picking and portfolio positioning and this is flowing through to their bottom line. One of the highlights during the quarter has been Fishers' external emerging markets manager who invested into SK Hynix Inc (a Korean semiconductor producer). This investment is up nearly 36% year-to-date and contributed to the fund outperforming its benchmark.

A research house agrees with us

A survey of returns in KiwiSaver by investment consultants Melville Jessup Weaver (MJW) shows that on average the difference in performance between growth and conservative funds in KiwiSaver is approximately 2.1%. MJW suggest a greater return differential should have been expected. We agree completely and have been commenting on this exact point for some now. The fact that investors are not being adequately rewarded for taking on additional risk is a concern and something that requires further examination as to why.

Could it be that managers themselves are taking too much risk and not receiving an adequate return on their capital invested?

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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.