KiwiSaver members switched a net $1 billion plus from higher risk funds to conservative options as record volatility shook markets in March, new estimates from Morningstar reveal.
Greg Bunkall, Morningstar data director Asia-Pacific, said sneak preview figures from the researcher’s database show never-before-seen net outflows from growth-oriented KiwiSaver funds (aggressive, growth and balanced) of just over $1 billion during March – mirrored by $1.1 billion of net flows to conservative and cash portfolios.
Bunkall said the final KiwiSaver risk exodus figures for March would be slightly higher given Morningstar data covers 90 per cent or so of the market as measured by funds under management.
“This is the first time we’ve seen net outflows from growth funds in KiwiSaver,” he said.
Despite the clear signs of panic among some members, the March flight to safety represents a small fraction of the approximately $60 billion KiwiSaver market.
And overall KiwiSaver performance in March was not too bad considering the dramatic market moves, according to Morningstar figures.
The preliminary Morningstar data shows average KiwiSaver returns in March ranged from about -3 per cent for conservative funds to almost -12 per cent for those in the aggressive sector.
Performance also traveled in line across the investment profiles as expected, getting progressively worse each step up the risk ladder.
A late share market rally at month-end and a falling NZ dollar rescued KiwiSaver returns somewhat from a more-dire situation mid-month, Bunkall said.
“Returns in the middle of March were looking decidedly worse,” he said.
However, the March volatility across equity, currency and bond markets has created more performance dispersion than usual across KiwiSaver funds.
“For example, a number of growth funds held more cash than others, so their performance will look relatively better,” Bunkall said. “Also, while currency isn’t usually a major factor, funds with unhedged exposure to global shares will have benefited from the falling NZ dollar in March.”
The Morningstar analysis shows the NZX fell 13 per cent in March compared to a 24 per cent drop in the ASX and a -8 per cent return for the S&P500 (all in NZ dollar terms). Local bonds were down 0.3 per cent for the month.
“Many investors expected the bond market to play more of a role in counter-balancing equity losses,” Bunkall said. “But with bonds finishing the month flat – after being down 1 per cent mid-March – fixed income continues to offer some portfolio defence.”
March 2020 still lags October 2008 as the worst month for KiwiSaver returns, Morningstar says.
“However, with more meaningful sized balances accrued since the Global Financial Crisis, the drop will be more keenly felt by investors this time around,” the researcher says.
Nonetheless, KiwiSaver members remain “slightly rewarded” for investing in higher risk funds over periods of three years or more.
“… and the longer investors have been invested the better the reward has been,” Morningstar says.