Our comprehensive review of Balanced KiwiSaver fund returns June 30, 2015, identifying who has the best long-term returns

Bank and Insurance KiwiSaver schemes continue to dominate the Balanced Fund category, although only 0.5% separates a number of funds. The variance between the top funds has come down from 0.9% last quarter.

Asset allocation, or rather the allocation to growth assets is one of the principal drivers of performance for this category at present. The top echelon have a common theme of lower exposure to growth assets as at June 30. This common trait does not necessarily explain everything, it is merely a high level observation.

Digging deeper into the underlying split between domestic and global assets reveals some of the secrets and this information is publicly available on the KiwiSaver scheme provider websites, although admittedly its not that easy to find on some sites.

When examining the returns it is also important to understand the split between local and offshore assets within the asset allocation. For example Domestic bonds and equities out-performed their global counterparts over the past quarter. Below is an example of three of the top fund asset allocations as at June 30, 2015 to illustrate the point. We have rounded the numbers so they may not add up to exactly 100%.

Asset category ANZ Default
Balanced
AMP Nikko AM
Balanced
Kiwi Wealth
Balanced
Cash (or equivalents 15.7% 5.0% 9.5%
NZ bonds 8.4% 9.6% 15.4%
Global bonds 23.6% 12.5% 21.0%
Australasian shares 11.2% 20.9% 0.0%
Global shares 33.3% 27.1% 51.2%
Listed property 8.0% 5.0% 0.0%
Alternatives (other) 0.00% 19.9% 2.9%

While these funds have a similar exposure to growth assets the actual underlying exposures are vastly different.

We noted earlier that asset allocation was been one of the principal drivers of performance recently but as our example highlights there are other factors influencing the longer run returns.

It now becomes clear that stock or fund manager selection, the level of hedging of international assets and manager skill are also playing a part.

Before moving on to looking at the overall performance of the funds in the sector we should note that during the quarter Mercer SuperTrust ceased offering their products and investor funds were reinvested into the already reduced Mercer KiwiSaver scheme range.It would not surprise us if we don’t see some further consolidation within KiwiSaver as scheme providers review their offerings. 

There is already some media speculation that Aon’s superannuation and KiwiSaver funds are being sold to a new entrant into the New Zealand market. The sale is yet to be confirmed.

Looking specifically at our data no single fund achieved a double digit per-year return over the long term but over the last three years we continue to see a number of 10%+ returns.

Milford did achieve a 10%+ p.a. return on their long run data but they have not been going for the full period since April 2008. Their returns have tailed off slightly as markets have retraced over the past month or so.

Over the shorter last-three-year period, the top seven funds have a larger dispersion in returns. This does suggest there is some difference of opinion between the various institutions regarding portfolio positioning (asset allocations), security or sub-manager selection and respective hedging positions.

All of the funds which have been going for our full ‘regular savings’ period have achieved returns in the short term which are equal to or exceed their longer-term performance and this by-in-large reflects their greater share market exposure compared to the Moderate and Conservative funds.

 ANZ Default Balanced Fund is our ‘best-in-class’ Balanced fund performer, although they are being strongly challenged.

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.

Over the full period, Balanced funds have delivered an extra $4,285 in return on average compared to the Default funds; that is they have delivered $12,027 in returns over and above the contributions compared with the $7,742 for Default funds. The extra return delivered has improved compared to last quarters summary for this peer group.

These numbers are the based on the average cumulative gain after tax and fees for the top five contributors in each sector.

Here is the comparison as at June 2015 for Balanced Funds:

Balanced 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.
$
                 

 ANZ Default Balanced

B B B 23,747 12,176 9.3% 35,923 9.3%
AMP Nikko AM Balanced B G G 23,747 12,164 9.3% 35,912 12.0%
ANZ Balanced B B B 23,747 12,137 9.3% 35,885 10.9%
Kiwi Wealth Balanced Fund B B B 23,747 11,834 9.1% 35,582 12.0%
Aon Russell LifePoints 2025 B B B
23,747
11,822 9.0% 35,569 11.0%
ANZ OneAnswer Balanced
B
B
B
23,747
11,754
9.0%
35,501
10.5%
Aon Russell LifePoints Moderate
B
B
M
23,747
11,483
8.8%
35,230
10.2%
Aon Nikko AM Balanced B G G 23,747 10,946 8.4% 34,693 11.2%
AMP Fisher Funds Two Balanced
B
B
B
23,747
10,286
8.0%
34,034
9.9%
ASB Moderate B B M
23,747
9,762
7.6%
33,509
8.5%
Fisher Funds Two Balanced
B
B
B
23,747
9,356
7.3%
33,103
8.7%
AMP Moderate Balanced
B
B
B
23,747
8,853
6.9%
32,600
8.4%
Grosvenor Balanced
B
B
B
23,747
8,759
6.9%
32,506
8.3%

The following balanced funds have not been going long enough to be included in the above table.

Balanced 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
to June 2015
 
 
 
 
% p.a.
 
 
 
 
 
         
Milford Balanced
B
B
B
16,939
8,343 11.5% 25,282 12.4%
BNZ Balanced
B
B
B
7,266
1,939 7.7% 9,205
n/a

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.

The June 30 review of Moderate funds can be found here, Conservative funds here & Default funds here.