KiwiSaver growth funds bounce back

Media Release
KiwiSaver growth funds bounce back into positive territory – Mercer’s inaugural KiwiSaver returns survey

Tuesday 11th August 2009

After a difficult 18 months KiwiSaver growth funds were the stand out performers in the quarter to June 30, 2009 producing a median return of 7.9 per cent according to Mercer’s KiwiSaver Survey.

The best performing growth fund over the quarter was the Mercer High Growth Fund (+12.2%), while the Fidelity Life Growth Fund was the best performing growth fund for the past twelve months (-5.7%). Over the past year the median growth fund return was -12.6 per cent.

Martin Lewington, Head of Mercer in New Zealand said the survey results highlights the folly of placing too much emphasis on the short term returns of a long term investment vehicle.

“Growth funds have struggled over the past 18 months but they were able to reap the benefits of a return of confidence in global stock markets over the past few months. Those investors who were spooked by the events of the global financial crisis and moved their savings to a more conservative fund will have missed the rebound in the markets.

“While conservative funds may have produced the best overall result for the past twelve months it is likely that the majority of members would be better suited to a balanced or growth fund, which is expected to provide higher longer term returns.

“The key outtake for KiwiSaver members is that while returns are important to consider, the salient point is to choose the type of fund that is most appropriate for your life stage and investment horizon.”

Mercer’s KiwiSaver Survey June 2009 is Mercer’s first survey to track the returns of KiwiSaver funds. The survey will be updated each quarter and will provides returns of funds covering four categories: default - which comprises the six KiwiSaver default providers and their respective default schemes; conservative – funds with a weighting of 20-39 per cent growth assets; balanced – funds with a weighting of 40-60 per cent growth assets and growth – funds with 61-100 per cent growth assets.

* The best performing default fund over the quarter was the Mercer KiwiSaver Conservative Fund (+5.4%), while the ASB Conservative Fund was the best performing over the last 12 months (+3.2%).

* The best performing conservative fund over the quarter was the Mercer Conservative Fund (+6.7%), while the AMP Conservative Fund was the best performing over the last 12 months (+4.2%).

* The best performing balanced fund over the quarter was the Mercer Active Balanced Fund (+9.9%), while the Fidelity Life Balanced Fund was the best performing over the last 12 months (-0.1%).

* The best performing growth fund over the quarter was the Mercer High Growth Fund (+12.2%), while the Fidelity Life Growth Fund was the best performing over the last 12 months (-5.7%).

Mr Lewington said the survey should give funds and members a level playing field on which to compare KiwiSaver returns but noted that the returns stated in the survey are before tax and after management fees (gross of tax and net of fees).

“We have reported the returns in this way to give a comparison across all funds, but having said that, at Mercer we believe the most accurate method of comparing KiwiSaver funds is on returns after tax and fees. Reporting this way will enable members to know the exact return on their fund after tax has been deducted - this can vary significantly between funds and providers. But until all players in the industry report in this method, members will have to settle for a system of reporting after fees but before tax is deducted to make comparisons.”

Mercer also notes that improving financial literacy will help members better navigate the complexities in the system and understand the importance of selecting the most appropriate investment option.

“While reports such as this are important for members, improving financial literacy so that members can better understand and maximise their KiwiSaver scheme remains an important issue in this country – and we have an important window of opportunity to do so now.

“The Australian experience suggests, as the value of KiwiSaver funds increase members will take a greater interest in their fund. We call it the ‘second hand car phenomenon’ – when the value of the investor’s scheme reaches the value of a second-hand car investors suddenly take a lot more interest in the type of fund they are in and the performance of their fund manager.

“In this new financial year when members are attuned to the recent woes caused by the global financial crisis but also have now been contributing to KiwiSaver for a couple of years the impetus to improve financial literacy will be even greater,” Mr Lewington concluded.

KiwiSaver Survey (pdf)

ENDS

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