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How are KiwiSaver Returns Stacking Up?

KiwiSaver is for many New Zealanders their primary savings method to help meet their retirement costs. Despite reasonable contributions from both the employer and individual, many investors seem ambivalent as to what fund to invest in. This is reflected with around 40% of contributors still being in a default fund. These funds have very conservative asset allocations with only around a 20% weighting to growth assets.

Research House Morningstar has recently released its December Quarter 2013 KiwiSaver Survey. Any return figures shown are after fees, but before tax. Please note that their figures may differ from those provided in the Fund Manager regular disclosures. The following table provides peer group averages.

The KiwiSaver total market size as at 31 December 2013 was $M17,622. The Conservative profile figures include the default funds. There are also funds not included in the peer group which explains the difference in total market size.

The difference in returns between the various risk profiles is as expected and the impact of the global financial crisis has largely been worked through the funds from Moderate to Aggressive. In our opinion it is likely that the conservative funds will struggle return wise as they are predominantly invested in cash and fixed interest which are likely to produce low returns for several years in the current economic environment.

When it comes to looking at the various managers’ performance returns, there are significant differences between them. This is not at all surprising.  When investing long term, you need managers that have good management skills across all asset classes. Preferably the lead fund manager (i.e. your KiwiSaver provider) should be able to hire and fire the underlying managers in a seamless way for the investor. This is why we prefer to use a multimanager investment approach in our managed investment portfolios.

The consistency of the Aon Russell 5 year league table results across the Multi Sector Options illustrates this. There are major differences between providers, and if you are really interested about what is likely to be a significant contributor to your retirement funding, you should really consider your options as to which provider and risk profile is best able to fulfil your investment needs. It could well be not your bank’s scheme. Seeking unbiased advice may be the best investment decision that you will make.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.