KiwiSaver fund labels should not be taken at face value, according to two recent surveys.
In its first report on the KiwiSaver market, Australian research house, SuperRatings, found a “material divergence in investment structures” in funds within the same risk category.
Adam Gee, SuperRatings chief, said wide differences in asset allocation between “similarly-labeled” KiwiSaver funds contrasted markedly with the Australian superannuation market.
“Unlike Australia, where the majority of conservative, balanced and growth investment use reasonably similar allocations to asset classes, the KiwiSaver system shows large differences, which will make it challenging for members to easily compare options,” he said.
Gee said the wide diversity of asset allocations of KiwiSaver funds in the same risk category could result in “material variances in investment outcomes for members, depending upon the performance of different asset classes within portfolios”.
Indeed, the latest Melville Jessup Weaver (MJW) KiwiSaver survey found significant deviation in returns among funds with the same alleged risk profile.
For example, the MJW survey found the top-performing KiwiSaver growth funds in the three months to December 31, 2014 – KiwiWealth and ANZ – were overweight global equities compared to peers.
According to the MJW survey, the worst-performing funds in the KiwiSaver growth category over the December quarter, AMP and Fisher Funds, had global share allocations of 42-44 per cent compared to 85 per cent for KiwiWealth and 52 per cent for the ANZ growth fund.
The KiwiWealth and ANZ KiwiSaver growth funds reported quarterly returns of 7.1 per cent and 4.6 per cent respectively, compared to the median return of 3.4 per cent.
Mark Weaver, MJW principal, said the KiwiWealth growth fund had zero exposure to global bonds and 11.3 per cent in cash compared to ANZ’s 9.8 per cent and 3.6 per cent allocations to the respective asset classes.
Similarly, the top-performing conservative KiwiSaver fund over the quarter, the Aon Russell conservative fund, reported a 63.5 per cent allocation to global bonds compared to the peer group average of 32.6 per cent.
Weaver said the diverse underlying investment strategies of providers emphasised why KiwiSaver members should look beyond labels such as ‘growth’ or ‘conservative’ to understand their fund’s performance.
“It’s healthy that KiwiSaver schemes offer a range of investment choice,” he said. “But KiwiSaver investors should be aware that, given the wide range of asset allocation strategies, funds in the same risk category can deliver significantly disparate returns over different time periods.”
Despite its concerns about asset allocation variation and potential governance issues, SuperRatings (a division of Lonsec) concluded the KiwiSaver system was “highly efficient… and economical” in its first report on the market.