KiwiSaver

Morningstar has given silver ratings to a range of AMP KiwiSaver funds.

It awarded the rating to its aggressive, growth, moderate balanced, moderate, conservative and balanced funds.

It is the second year AMP KiwiSaver funds have received silver ratings.

Bronze, silver and gold ratings indicate the level of conviction Morningstar has in recommending a fund. It can also rate funds neutral and negative.

Morningstar said AMP KiwiSaver has one of the most impressive multisector investment teams in the market.

“Although performance has gotten the wobbles in recent years, we continue to believe the team will deliver long-run risk-adjusted returns that better most peers,” analyst Elliot Smith said.

Morningstar recently gave neutral ratings to ASB’s balanced, conservative, growth and moderate funds.

Smith had praise for Peter Verhaart, head of AMP’s New Zealand’s multi asset group.

“Verhaart is supported by head of investment strategy Keith Poore and chief economist Bevan Graham, they form an accomplished partnership. Verhaart is focussed on strategic positioning and manager research, while Poore concentrates on dynamic asset allocation and Graham on macroeconomics. Their deep investment thinking and grasp over the investment process induces confidence.”

He said AMP had a focus on long-term returns and could be less opportunistic than other managers.

Advisers whose clients are worried about the possibility of a market correction should encourage them to stick with the KiwiSaver fund they are in, new research shows.

Actuarial firm MJW has released a report looking at the impact of a market correction on KiwiSaver funds.

It says booming stock markets over recent years have sparked concerns of a major market correction in the near future.

“A risk identified is that members in a growth option or similar will suffer a significant negative return, causing them to switch to a more conservative option and then sit in this fund in future, suffering further reduced returns as a result.”

The firm compared two hypothetical funds: a growth fund with 80% in growth assets and a conservative fund with 20% in growth assets.

It used employee members earning $70,000, who started saving in 2007.

It assumed a market correction starting October 1, resulting in 27% losses for the growth fund and 9% for the conservative.

In that situation, the correction reduced the growth fund by $14,000 to $43,000 and the conservative balance by $2000 to $47,000.

“While the growth KiwiSaver member emerges from this correction in a worse position, the momentum it had already built up in the years leading up to it means its position is not markedly worse off than the conservative member who was shielded from the brunt of the loss,” the report said.

The growth fund’s balance would then overtake conservative again in 2019 and accelerate away as time went on.

MJW said members who chose a more aggressive investment style should be focused on the long term and wait out any correction that occurred.

Actuary Mark Weaver said investors who were worried about the possibility of a downturn should be told it was better to stay where they were because timing the market accurately would be next to impossible. “If you switch and markets do fall, when do you switch back?”

He said growth investors could lose money in the short term but would still come out ahead in the long run.

New Zealand’s falling dollar made the biggest difference to KiwiSaver members’ account balances over the most recent quarter, research firm Morningstar says.

It has released its latest KiwiSaver survey, to June 30. Over that period, the New Zealand dollar fell in value by just over 8% against the US, 12% against the Euro, 9% against the Australian, and 13% against the British pound.

KiwiSaver funds with more exposure to growth assets performed more strongly than conservative funds again in the quarter.

Morningstar said that did not necessarily mean the growth assets themselves performed better but that currency exposures within conservative funds are usually fully hedged so were not affected by the falling New Zealand dollar. The median aggressive fund returned 2.85% for the quarter, while the median conservative fund returned 0.38%.

Forsyth Barr and Generate were the top performing aggressive and growth funds. Generate was also top of the moderate category and Kiwi Wealth topped the conservative category.

Tim Murphy, director of manager research, said the drop in the dollar had come as a bit of a surprise, given how strong the dollar has been lately. “The benefits of that have been seen in funds that have unhedged foreign exposure.”

But he said that did not mean KiwiSaver members should rush to change to funds that were exposed to the falling currency. “You shouldn’t make a decision on your KiwiSaver investment on the basis of one particular factor. You’ve got to ascertain what’s the appropriate risk profile, then compare the different options and providers. There is no one magic solution.”

In the past, Morningstar has been critical of the fees charged by conservative funds and Murphy said they had not changed.

He said KiwiSaver members could see a drop in funds as assets under management grew and managers had more scale to work with. He said how much the managers would try to hang on to increasing margin and how much they might pass to members would remain to be seen.

Meanwhile, Morningstar analysts say pockets of value are returning to the New Zealand sharemarket.

Asia-Pacific consumer sector head Daniel Mueller said stocks were trading in line with fair value estimates after a market pull back in the most recent quarter.

He said Contact and Genesis Energy were both trading below fair value. Ryman Healthcare and Fisher and Paykel Healthcare were two high-quality stocks with strong growth prospects trading close to fair value. Mueller said low-risk New Zealand property stocks were a reasonable place for investors to be.

“I wouldn’t say there is lots of value but it looks now that they are fairly valued.”

The search for yield has pushed up some defensive stocks to levels that some analysts have described as overpriced but Mueller said they had started to come off a bit. “Over the last quarter they have pulled back a bit and there is a little bit of value.”

Spark had come off the boil after a number of non-core asset divestments and a subdued reaction to the half-year result.

A number of simple steps could dramatically improve the financial wellbeing of KiwiSaver members if there was industry collaboration to implement them,  investor education workshops have been told.

At IRD’s annual KiwiSaver day this year it is holding a workshop to discuss possible administrative tweaks to the KiwiSaver system.

As part of the Commission for Financial Capability’s summit this month, workshops involving KiwiSaver providers, IRD, the Ministry for Business Innovation and Employment and financial advisers discussed the value of investor education and what more could be done to improve outcomes for New Zealand savers.

That feedback will be collated and delivered to the IRD workshop on August 10.

A number of top priority initiatives were determined.

They included ensuring savers were in the right choice of fund, making it clear what benefit extra contributions could have and the cost of a contribution holiday, showing on annual statements the income a lump sum would translate to, and understanding key concepts such as compound interest and risk and reward.

The workshops said there were still a number of gaps in investor education resources. Participants said many members still did not understand KiwiSaver is not Government guaranteed, many did not understand the different investment types and there needed to be work to get savers making better use of resources.

Those who participated in the workshops are now being asked to share the outcomes with their colleagues and staff and pick the top three initiatives that they think would make the most material change to KiwiSaver members.

Commission group manager of investor education David Boyle said the aim was to realistically determine what could be done.

He said much of what had been suggested was the type of change that needed to be adopted industry-wide and could not be implemented by one individual group working alone.

“If we are serious about changing New Zealanders’ financial wellbeing, the biggest component of that is KiwiSaver, if we can find two or three things other than the member tax credit to do at a certain time or in a certain way and all do it the same way it cuts through the noise of life. It’s tough enough getting people to top up their account to get the [full member tax credit], let alone working out whether they are in the right fund or what income they need in retirement. But that doesn’t mean we shouldn’t try to do it.”