New higher risk settings have played against default KiwiSaver members during the first quarter of 2022, according to the latest Melville Jessup Weaver (MJW) figures.
The MJW investment quarterly survey released last week shows all of the six newly established default balanced funds were down by at least 5 per cent for the three months to the end of March compared to the median -4 per cent for the average KiwiSaver conservative strategy.
Following the government-initiated shake-up last December, KiwiSaver default funds shifted up a risk gear or two from the previous conservative asset allocation to a balanced approach – effectively doubling the overall exposure to shares.
If asset allocation theory holds true default members should benefit from owning more equities over the long term but the short-term result represents an unfortunate introduction to the higher risk category.
Quarterly default fund returns ranged from -5.1 per cent for Westpac to the BNZ result of -5.9 per cent. Kiwi Wealth and Simplicity hovered near the bottom of the default pack – returning -5.7 per cent and -5.8 per cent, respectively – with Booster (-5.2 per cent) and SuperLife (-5.3 per cent) not far behind Westpac.
The MJW numbers don’t cover the December monthly period when providers – bar the Simplicity outlier result of 0.21 per cent – reported returns ranging from 1.84 per cent to 2.74 per cent.
Despite the tight legal constraints on risk settings, default providers still show considerable diversity in underlying asset allocation.
Kiwi Wealth, for example, has just 9.3 per cent in Australasian shares compared to the almost 21 per cent in the Simplicity default fund. Meanwhile, SuperLife reported the highest cash allocation (13 per cent) against just 2.1 per cent for Simplicity.
SuperLife is also the sole default fund to eschew global fixed income, instead putting 32 per cent in local bonds versus the peer group average of 16.5 per cent.
As at the end of March, total default funds under management amounted to $2.6 billion, the MJW report says. In December each of the newly appointed default funds received about $380 million, redistributed from the five discontinued providers.
Simplicity and SuperLife – the two schemes starting without prior default members – reported respective default funds under management of $362 million and $372 million by March 31.
However, the poor default fund returns were in line with the broader market sell-off that saw most asset classes – excluding infrastructure, some real assets and alternatives – in the red for the quarter.
“While this was perhaps unsurprising given the outbreak of war in Ukraine, the primary cause appears to have been the more hawkish behaviour observed from central bankers,” the MJW report says.
The cross-asset quarterly slump in both shares and equities led to losses across the KiwiSaver diversified sectors ranging from -4 per cent for the median conservative manager to -5.9 per cent among growth funds.
“Managers who performed well this quarter included Milford (top growth and balanced fund) and BNZ (top conservative fund),” the MJW study says. “These funds benefitted from higher cash holdings than their peers, one of the only true safe havens this quarter.”
Milford had the highest cash allocation by far in the growth and balanced sectors of 16.7 per cent and 21 per cent, respectively.
MJW principal, Ben Trollip, said as Milford manages most assets in-house it can likely implement large allocation shifts more easily than those using third-party managers.
The March quarter figures further confirm a sentiment shift from growth to value. While the median value global shares manager in the MJW survey was down -4.5 per cent during the three months to the end of March, the average growth return stood at almost -12 per cent: value international equities now heads the 12-month period too – with a median return of 5.8 per cent compared to 4.5 per cent for growth.
The same dynamic appears as well in the Australasian shares sector where value manager Devon was the only one to record positive returns for the quarter (up 3.3 per cent for its Dividend Yield fund) while the growth-oriented Fisher Trans-Tasman Fund shed 10.6 per cent over the same period.
Trollip said the wide disparity of returns could trigger some manager reviews over the following months as investors continue to contend with volatility in bond and equity markets.
“However, volatility levels remain well below the peaks seen during the 2020 Covid-19 sell-off and the 2008 global financial crisis,” he says in the report.