KiwiSaver funds continue run of positive returns

KiwiSaver funds continue run of positive returns, for now – Mercer

KiwiSaver funds with a higher allocation to shares and property were the best performing funds for the first quarter of 2010, according to Mercer’s KiwiSaver survey.

For the fourth consecutive quarter, KiwiSaver funds posted positive returns, as of the quarter ended 31 March, 2010. The median KiwiSaver Growth Fund returned 3.3%, higher than the more conservative Default Fund median return of 2%.

The best performing fund for the quarter was Fidelity Life Aggressive with returns of 6.3 per cent for the March quarter.

Martin Lewington, Head of Mercer New Zealand said funds were faring well given strong growth in global markets and better than expected corporate earnings, but growing concerns over possible sovereign debt defaults in the Eurozone could threaten the run of positive returns.

“While KiwiSaver funds have posted positive returns over the last four quarters, performance has reached a plateau and we’re not seeing the same level of growth achieved over the last six months.

“This is an outcome of the competing pressures influencing investment markets. While on one hand we’ve seen increased tolerance for risk, strong performance in the US market and better than expected corporate earnings, uncertainty still prevails and this is putting a cap on the markets.

“Recent events indicate that the volatility is far from over, particularly as the European debt crisis, which has concerned investors for some time, now comes to a head and could impact on returns in the upcoming quarter.”

While growth funds have made the highest gains for the last quarter, default funds remain the strongest performer over the past two and a half year period, recording a median return of 4.5 per cent compared to -3.7 per cent for growth funds.

“The impact of the global financial crisis can still be seen in returns since the launch of KiwiSaver two and a half years ago. The conservative position of default funds has remained the most attractive as a result of the economic uncertainty. However, growth funds are increasingly attracting investors who are seeking a more risky bucket of investments more suited to the long term investor. However, the success of aggressive investment strategies not only depends how long is long term but also your entry price. The market light is now amber,” said Mr Lewington.

Funds under management for the top seven default funds have grown by nearly $1 billion since June 2009. As of 31 March 2010 the top seven funds held $2.2 billion of KiwiSaver assets, This highlights not only the dominance of these large funds, but also the conservative investment of a large portion of KiwiSaver dollars.

ENDS

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