KiwiSaver – cheap and cheerful not always higher returns

KiwiSaver funds – cheap and cheerful need not mean higher returns to you

A recent PocketWise study highlights that there is no evidence to suggest that the cheapest KiwiSaver funds have been producing the highest returns for New Zealanders. Not at least in the first 10-year history of KiwiSaver funds.

PocketWise (www.pocketwise.co.nz), a recently launched fintech tool that helps consumers find the best deals on financial products, conducted an analysis of all retail KiwiSaver funds. It ranked the performance returns of funds over all five-year periods ending March each year, capturing returns from over a 10-year period. Next, the fees charged to members by each of the funds were factored in.

The analysis, which was conducted on diversified funds (conservative, balanced and growth category funds), showed that the cheapest 15% of funds barely featured in the highest performing 15% of funds across any five-year period in any of the categories. There were only 3 instances where there was an overlap between the cheapest and the highest performing funds. All returns were considered after fees and tax. The same analysis was conducted ending the June period each year, resulting in a strikingly similar pattern.

Binu Paul from PocketWise says “Fees are charged regardless of whether a fund has added value or not and so it is a very important factor to consider. But the result of this analysis is a timely reminder for KiwiSavers that fees should be only one aspect of your decision to invest.

You are better off figuring out the category of funds that suits you and, then hunting down funds that are value for money in that category. If you ask just for ‘cheap’, you might end up getting exactly that.”

The KiwiSaver initiative that kicked off in July 2007 has over 2.8 million members choosing from over 250 funds, with close to $50 billion dollars invested in aggregate. Paul says that arguably the 5-year timeframe used is not long enough to draw any conclusive trends but the fact remains that the analysis was conducted across multiple five-year periods over the entire 10-year history of KiwiSaver. He says, “We also looked at all the funds in each of the categories that have a full 10-year history. Remarkably, even within that longer timeframe there was not a single instance where the cheapest 15% of funds featured in the list of highest performing 15% of funds.”

With only funds that have at least a five-year history being considered, more recently launched KiwiSaver funds were not included, given their shorter history. “With more and more pressure on providers to reduce fees, and with the launch of newer KiwiSaver funds with lower fee structures, it could mean that in future years the observed trends may change, but only time will tell. In the interim it would be wise for KiwiSavers to shop around”.

PocketWise is aimed at helping Kiwis make better informed decisions when shopping for financial products such as mortgages, KiwiSaver funds, credit cards, term deposits, personal loans, international money transfer etc. The site will soon feature a raft of insurance products as well as retail managed funds. The team behind PocketWise has been rapidly onboarding products over the past few months taking on board rich feedback from early users.

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