KiwiSaver

KiwiSaver assets rose $3.5 billion to $110.8b at the end of the June quarter, up $13.3b from the June quarter last year.

Morningstar’s 2024 Q2 survey of 21 KiwiSaver providers comparing 296 products, estimates annual fee revenue for the quarter at $869 million, up from $779m in the past 12 months, with a projected annual fee revenue of 0.78%. The five largest KiwiSaver providers accounted for approximately 68% of AUM and generated around 69% of the fees.

With 18.7% of the market, ANZ continued to lead with more than $20.7b AUM but was down from 20.2% for the same quarter last year. The biggest of the four banks also topped estimated fee revenue  of $169.8m.

Fisher Funds and ASB pulled into the next two spots in almost a dead heat with 15.1% market share on assets of $16.8b each. Due to rounding Morningstar placed Fisher second and ASB in third place. Fisher outdid ASB for fee revenue with $160.1m compared to $100.3m.

Westpac took the next biggest slice of the market, 10% ($11b AUM), but was relatively low on the fee table – eighth place at $50.3m. Meanwhile Milford with 8.9% market share ($89.6b) came in third with fee revenue of $102.2m.

Across the market average multisector category returns ranged between 0.3 – 0.8% indicating incremental gains for most funds. Many multi sector KiwiSaver funds provided positive returns over the June quarter and many produced negative returns with funds that contained risk assets struggling the most, says Morningstar director of global data Greg Bunkall.

Of the default funds Simplicity and Superlife delivered the best returns (1.2% each) of the quarter, to boost solid annual numbers (10.6% for Simplicity and 10% for SuperLife). Most of the default funds punched out 10% returns for the year, with the notable exception of Fisher Funds on 8.3%.

As with Q1, Quay Street continued to perform well across many time periods in the conservative and balanced categories. Milford delivered consistently high performance within the moderate, balanced and growth categories over the long term, albeit struggling a little recently. Generate showed strong numbers across many time periods.

For conservative funds, BNZ First Home Buyer Fund topped the quarter for the first time with 1.1% annual returns. In the moderate category Pie Conservative had the best performance delivering 1.2%. Pathfinder Balanced Fund topped the balanced category at 1.9% and did it again for the growth category with 2.1%. In the aggressive category Kernel High Growth came in first with 1.9% returns.

For single sector funds, SuperLife NZ Cash delivered the best returns of the quarter with 2%, while for fixed interest Nikko AM Scheme NZ Corporate Bonds came top with 1.1% performance. Kernel S&P Global 100 NZD Hdg topped international shares with 8.9% (top across all fund categories).

The highest 12 month performance for this quarter was 98.4% from koura Carbon Neutral Cryptocurrency, while the lowest was -30.6% from koura Clean Energy. For the quarter, Kernel S&P Global 100 NZD Hedged came in top with 8.9% returns, while koura Carbon Neutral delivered -15.3% at the bottom of the spectrum.

Over 10 years, the aggressive category average has given investors an annualised return of 9.1%, followed by growth (8.2%), balanced (6.7%), moderate (4.7%), and conservative (4.3%).

While the overall tone for Q1 was cautious optimism,Q2 was a period of cautious navigation for investors, says Bunkall.

Global growth was tempered by ongoing domestic challenges. The equity markets delivered moderate gains, mainly through international exposures, while fixed income provided some stability amidst fluctuating yields.

The weakening NZ dollar underscored the importance of currency diversity in investment portfolios. Bunkall says while it was great to be unhedged in the previous quarter, it could be the opposite next quarter and a fully hedged position might have been preferable.

Turning to the current quarter’s volatility, Bunkall says at this stage it doesn’t really point to any growth or decline in growth in AUM over the next quarter.

Financial markets appear to be overlooking any potential volatility from global political and other international developments, according to MJW in commentary attached to its latest survey of fund performances.

“While bond market volatility is above average, it is trending down,” MJW's Ben Trollip said.

“Equity market volatility is not far off 'rock bottom' levels. And all the while we have two major conflicts underway in Ukraine and Gaza,”

His commentary was dated July 18, so before US President Joe Biden decided to withdraw from contention in the November election.

The VIX Index, which measures the volatility of the US stock market, ended July 17 at 14.48 points, compared with over 20 in November last year. It has since risen to 16.52 points on Friday, July 19.

Trollip noted that betting markets had given Donald Trump, the Republican Party's nominee, a 65% chance of winning amid the “disorganised revolt” within the Democratic Party since Biden's poor debate performance three weeks ago.

While Trollip didn't say so, it's notable that Trump didn't appear to suffer from the very high number of lies he told during the same debate. Trollip didn't mention the assassination attempt on Trump either, which some believe boosted his electoral chances.

“However, there are over three months to go and American politics are nothing if not volatile,” he said.

While Biden has nominated vice-president Kamala Harris to be the Democratic nominee, that' is yet to be decided.

He noted similar political turmoil in Europe, particularly in France where the snap election left the governing centrist Ensemble party falling from 42% of the seats in parliament to 2*%, and the British election which saw the Labour Party win 63% of the parliamentary seats with just 34% of the popular vote.

“The potential for a black swan event – an unforeseen risk manifesting in financial markets – would appear to be high,” Trollip said.

His commentary noted that while NZ came out of a technical recession in the March quarter, adjusting for population growth, the 18-month change in GDP fell from negative 0,5% to negative 4.2%.

“The Economist magazine has calculated New Zealand's GDP per person, adjusted for price differences, as US$54,100. This trails Britain, US$58,900, Australia, US$69,100 and the US, US$81,700, and perhaps goes some way to explaining our emigration flows which have been steadily increasing since mid-2021.”

Taking a passive approach to investment paid off for those in Simplicity's growth and blanced KiwiSaver funds in the June quarter and for those in its newer default fund created after it was chosen two years ago to be one of the six default managers.

But active manager Milford Asset Management continues to produce superior returns over the longer term.

Simplicity's KiwiSaver growth fund was the best performer of 15 growth funds in the June quarter with a 1.6% return and it ranked second over a one-year and three-year timeframe with annual returns of 13.3% and 4.6% respectively, according to the latest MJW survey.

But Milford's KiwiSaver active growth fund was the best performer over three, five and 10 year periods with annualised returns of 5.7%, 9.3% and 10.5% respectively.

In the June quarter, the Milford active growth fund ranked 13th with a negative 0.7% return and it was eighth for the year with an 11.7% return.

The worst performing growth fund in the June quarter was ANZ's with a negative 1.5% return and it also ranked 15th over one and three years with returns of 6.7% and 1.5% respectively.

MJW says its survey covers the largest 17 KiwiSaver schemes by assets under management at March 31, 2023 and that these schemes account for about 95% of KiwiSaver assets under management at that date.

Simplicity's balanced fund returned 1.3% in the June quarter, the best return out of 17 funds.

It was second-placed over one-year with a 10.7% return but fell to fourth place over three years with an annualised return of 2.8% and to fifth place over five years with an annualised return of 5.6%.

Milford's KiwiSaver balanced fund was best performer over three, five and 10 years with annualised returns of 4.3%, 7.1% and 8.7% respectively, but ranked 11th of the 17 for the June quarter with an 0.3% return.

ANZ's KiwiSaver balanced growth fund was the worst performer of the 17 balanced funds over the June quarter with a negative 1.2% return and its one-year return ranked 15th with a 6.3% return.

Another ANZ fund just called its balanced fund ranked 16th over the quarter and 17th over the year.

BNZ's first-home buyer KiwiSaver fund ranked first among 18 conservative funds in the June quarter with a 1.1% return but was 12th over the year with a 6.8% return, while ANZ's was the worst performing conservative fund with zero return over the June quarter and last over the year with a 5.4% return.

Simplicity's default fund was the best performer in the latest quarter with a 1.2% return, second over the year with a 10.6% return and first over a two year period with an annualised 10.1% return.

The worst performing default fund was Fisher's KiwiWealth fund with a negative 0.1% return in the quarter, and worst of the six with an 8.2% return over one year. Over two years, it was fifth out of the six with an 8.8% return.

Fisher's pre-existing KiwiWealth conservative fund, however, ranked first over one, three and five-year periods with returns of 7.7%, 2.5% and 3.5% respectively, despite ranking 15th out of 18 funds in the June quarter with an 0.3% return.

KiwiSaver fees are “highly competitive” with the fees charged by much larger Australian and British peers, according to analysis by Deloitte Consulting Australia commissioned by Generate KiwiSaver.

It also found that the fees charged on default KiwiSaver funds are on average lower than the fees charged to members of similar default fees in Australia and Britain.

The analysis found the was “a weak relationship” between the sizes of funds and the total fees paid.

“Due to the lower average fees and significantly lower funds under management (FUM) that characterises the New Zealand peer group, no meaningful benefit of scale are observed compared to the other systems,” Deloitte said.

Generate declined to comment on the results.

Fees charged by choice funds varied widely, but when management style, asset allocation variations and relative scale were taken into account, the fees charged by NZ and Australian funds were about equivalent.

Deloitte compared a NZ$30,000 account balance, the average size of KiwiSaver accounts currently, across the three countries and also a NZ$50,000 account balance “to capture a potential future state average KiwiSaver account balance.”

Deloitte noted that fees remain “an area of focus” for pension and retirement systems around the world.

“This is due, in part, to the material impact that fees have on the outcomes realised by consumers during retirement.”

The accounting firm considered each country's retirement income system, the impact of legislation such as mandated fee caps and asset allocation requirements, as well as product and fee structures.

It also looked at the largest providers in each country and representative funds from each of the major sectors and included all six of the NZ default providers and the information used is valid to March 31 this year.

Australian managers commonly charge dollar-based fees with 79% of default products and 71% of choice options charging a median fee of NZ$62 a year.

By contrast, no default providers in NZ and only 29% of local choice funds apply such a fee with the highest being $36 as year. In the United Kingdom, only 17% of funds charge dollar-based fees.

Deloitte notes that while dollar-based fees impact those with lower balances most, Australian accounts typically have higher average balances than the two sizes Deloitte examined, mitigating the impact.

Funds with higher allocations to growth assets tend to have higher fees, reflecting the higher management costs.

“We note that all funds in the NZ and UK peer group mostly exhibit a FUM lower than all but the smallest funds in the Australian peer group. In addition, the Australian system offers a substantially higher number of high growth options compared to the NZ system,” Deloitte says.

Fees ranged from a median 0.48% to 1.01% for a NZ$30,000 balance in a choice fund and from 0.44% to 0.92% for a NZ$50,000 balance.