Morningstar has defended the media and regulator focus on manager fees in its latest quarterly KiwiSaver survey.
According to the Morningstar report, industry push-back following the NZ regulator’s release of a fee disclosure guide last year missed the point.
The study says while certain industry groups argued returns after-fees and tax were more important than fees per se, fund costs deserved close scrutiny. Rival Australasian research house SuperRatings (part of the Lonsec group) produced a study last year showing investors in high-fee KiwiSaver funds generally experienced better five-year returns after fees and tax compared to low-cost peers.
“We agree that after-fee returns are what matters most, but in our opinion fees are an important barometer which tell you more about a fund manager than just the costs,” Morningstar says in the report.
The Morningstar study, authored by head of research ratings Asia-Pacific, Chris Douglas, says fees represent the single component of future returns funds and investors can control with “even small differences” hitting the bottom line over the long term.
“The cost of a KiwiSaver scheme also provides insights into the stewardship of the firm,” the report says. “For example, it can illustrate whether the firm’s alignment is most strongly with investors in the company’s funds, or with the company’s shareholders. Does the fund manager reduce costs as the firm’s assets grow, or continue to charge the same percentage-based fee?”
In the survey proper, the single-largest KiwiSaver provider, ANZ, hit almost $9.5 billion as at the end of December last year, or just under 26 per cent of the $36.7 billion total pool measured by Morningstar.
Performance-wise, ANZ was bottom-quartile in most risk sectors over the 12-month period, although long-term results proved more respectable, the Morningstar survey shows.
In particular, Morningstar highlights the five-year returns of the ANZ-owned, adviser-distributed KiwiSaver scheme, OneAnswer as top-in-class in the multi-sector growth category over five years.
“ANZ takes a long-term view in the strategic positioning of its portfolios, which is the key driver of performance, although tactical asset allocation has also been a consistent net positive,” the report says. “Outperformance against peers has predominantly been the result of growth exposure achieved through domestic and international equities. Equally positive has been the listed property exposure, the performance of which surged from 2012 to 2015.”
Elsewhere, NZ-owned KiwiSaver schemes took out a clean-sweep of the December quarter multi-sector performance awards with Kiwi Wealth topping the default, balanced and aggressive categories. New-comer, Simplicity, recorded the best quarterly returns in the growth sector while Booster (formerly Grosvenor) provided the top-performing conservative fund in the three months ending December 31.
Australian-owned banks rank one, two and three by size in the KiwiSaver market followed by AMP (which recently relinquished third place to Westpac). A brace of NZ-owned firms – Fisher Funds and the government-backed Kiwi Wealth – round out the top six providers, which collectively manage a tad under 85 per cent of the KiwiSaver market as measured by Morningstar.