Bumper returns across most asset classes pushed KiwiSaver fund performance into record territory in 2019, according to the latest Melville Jessup Weaver (MJW) quarterly investment survey.
The study, authored by MJW principal Ben Trollip, notes KiwiSaver returns were “particularly healthy” over the 2019 calendar year.
As the miserable December 2018 quarterly data slipped out of the annual performance series, the survey found the “average balanced fund returned 16.3% after fees for the calendar year, which is the best since our KiwiSaver survey began in 2009”.
Likewise, all other KiwiSaver risk categories recorded outstanding numbers last year ranging from a more than 20 per cent post-fees result for the average growth fund to almost 9 per cent among the conservative bunch.
For the 10 years to the end of 2019, average annualised returns spanned from 5.8 per cent for conservative KiwiSaver funds to above 9 per cent for growth funds in a spread that mostly conformed to risk-weighting theory.
The now-gone decade was kind to active management in some KiwiSaver sectors at least, the MJW report says.
“It is worth pointing out that while Milford’s Active Growth Fund had a weaker year relative to the peer group (7th out of 11), its long term numbers continue to stand out,” Trollip says in the study. “Milford has returned 12.6% per annum over ten years after fees. By contrast, the (mostly) passively managed ASB fund produced 9.8% per annum after fees, indicating that, at least over the last decade, Milford’s higher fees have been justified.”
The median manager also outperformed the index in most asset class categories during the December 2019 quarter, MJW data shows, reversing recent trends – albeit on a before-fees basis.
Last year provided a final super-charge to asset class returns (particularly equities) that pushed the 10-year figures into extraordinary highs.
Topped by NZ shares and property, which both booked around 14-15 per cent over the year, and a 10 per cent result from global equities, local investors recorded many happy returns ahead of the 2020s.
For NZ equities the 10-year period was especially fruitful, the MJW report says.
“The local share market had its second best result in nominal terms in the 2010s, only losing out to the 1980s,” Trollip says. “However, when we allow for inflation, which has been significantly lower in recent years, the real return is the best on record.”
But MJW tempers the upbeat historical recap with a few “sobering” observations, including: each of the three previous high-scoring decades for US equities (still the bellweather for global markets) were followed by years of subdued performance; and, the long-term secular decline of interest rates suggests fixed income return expectations “should perhaps be much lower” over the next 10 years.
“While it would be disingenuous to suggest a market crash is around the corner simply because of strong recent results, it is sensible to expect the 2020s to prove more challenging. Interest rates are much lower than in previous decades, seemingly capping the upside for bond and cash returns,” Trollip says in the study. “… Being successful in the 2020s will demand a strong investment governance framework, shrewd use of good quality active, passive and smart beta strategies, and regular monitoring and review of performance.”