KiwiSaver

Growth in retail funds under management was concentrated in KiwiSaver funds in the first quarter of this year, FundSource research shows.

Its Retail Managed Funds Industry Trends and Market Composition report for the March 2015 quarter shows KiwiSaver inflows of $987 million.

That was up from $949 million in the December quarter of 2014.

Total KiwiSaver inflows over the 12 months to March hit $4.2 billion, taking the net funds under management of KiwiSaver funds to $27.3 billion.

KiwiSaver funds now make up more than half of all retail net funds management at 52%, compared to 47% in March 2014.

Of the other product types, funds in New Zealand unit trusts fell by $0.5 billion in the year ending March 31.

Superannuation funds and Australian unit trusts also experienced net outflows, while Group Investment Funds remained stable. As at the end of the March 2015 quarter, New Zealand unit trusts, the second-largest product type, accounted for 38% of net funds under management. This was down from 40% in March 2014.

The five fund managers who experienced the largest inflows in the March 2015 quarter were: ANZ, BT (including Westpac), ASB (including Sovereign), Milford Asset Management and Fisher Funds.

 

ANZ is running a campaign to remind KiwiSaver members to contribute enough to get their $521 free from the Government.

The campaign will run for two months.

The Government provides $521 as a member tax credit each year to KiwiSaver members who contribute at least $1042 to their accounts in the year ended June 30.

ANZ Wealth managing director John Body said it was a great benefit but too many KiwiSaver members were missing out because they had not contributed enough money during the year to qualify.

“Our analysis indicates that 56% of possible member tax credits were paid out last year which was up on the 50% paid in the prior year. It’s great to see more members taking advantage of this benefit but we estimate that last year KiwiSaver members nationally missed out on an estimated $400 million that could have been claimed if they had contributed the minimum amount.”

Body said ANZ Investments was contacting KiwiSaver members who had not contributed enough to qualify to remind them of the benefit: “We want to ensure our members make the most of Kiwisaver so they save enough for a comfortable retirement. Members still have a couple of months until June 30 to top up their contributions to make sure they get their full entitlement. Given the Government will give you 50 cents for every dollar you contribute up to $521, it makes a lot of sense to ensure you have contributed enough to qualify. In the past, we have found that members didn’t know about the benefit and were keen to contribute more in a lump sum so they would qualify for the full amount.”

Longer term,  Body advised KiwiSaver members to set up a direct debit if they want to be sure they qualify automatically for their full member tax credit benefit next year: “It’s a lot easier to put in just over $20 a week than it is to find $1042 at short notice.”

Some KiwiSaver providers are incorrectly indicating the risk category of their funds, new research shows.

The research by Randall Clement, with Henk Berkman and Annie Zhang, recently won an FMA research prize.

It is due to be published in the journal New Zealand Economic Papers.

Sorted, FMA and Morningstar all rank funds according to their risk in a way that is designed to be accessible to consumers.

But the researchers said there were substantial differences in their thresholds for exposure to growth assets.

A fund with 45% growth assets is considered conservative by the FMA. But Morningstar requires a conservative fund to have no more than 20% exposure to growth assets.

The research found that some funds’ self-reported risk categories were incorrect.

Some funds within the moderate-balanced and balanced peer groups exhibited volatility similar or greater than the average volatility of growth funds.

The researchers did not want to identify the providers in question but said a clearer risk classification system would help investors.

“Many investors are only willing to accept low-to-average risk and invest in conservative or balanced funds. It is important for them that these funds have the correct risk indicator.”

Zhang said: “KiwiSaver might be their first time investing in the sharemarket or in a managed fund. If all the other funds perform as an apple and perform within a band but one apple performs as a banana, it shouldn’t be able to advertise as an apple.”

The FMA said the research prize, open to students completing a master’s thesis or honours dissertation, had been awarded to two students so far. Winners receive $1000. Nick Barry, from Victoria University, was the other winner, for his thesis on information leakage and abnormal trading prior to earnings announcements.

Capacity constraints are a looming issue for the KiwiSaver market to contend with as it grows, research house Morningstar says.

It has released its latest quarterly KiwiSaver survey, which showed healthy returns for investors across all providers and risk profiles. There was a direct correlation between allocation to growth assets and performance during the quarter.

But the report noted the small size of the listed equity market in New Zealand could be a problem as managers sought to place their growing assets under management locally.

It said the small size of the market would present a problem for managers as the pool of assets they had to invest grew to a point where they were limited in their ability to invest successfully in the local market.

“As fund size grows, it becomes more difficult for managers to manoeuvre their portfolios without impacting the price of relevant stocks. This problem also extends to the fixed income market, especially given the lack of issuance in New Zealand and reliance on Australian banks and the local government funding agency, but the concern is more imminent with regard to domestic equities.”

Manager research director Tim Murphy said: “It’s going to reach a point where unless a significant number of new firms come to list, where it becomes problematic.”

He said many managers were nearing capacity.  The challenge for consumers was that they could end up with too much invested in stocks that were hard to get out of in a liquidity event.  “It’s not an issue yet but there will come a point when it is an issue.”

Managers could allocate more off shore, or more managers could come in to the market and invest in New Zealand equities, he said.  “We’re seeing several new successful boutique firms that have cropped up in recent years and there is room for more of that.”

But he said KiwiSaver had never been stronger and managers’ approach to it had improved.  Morningstar now gives higher ratings to managers, on average, than when the scheme first launched.

Providers were now focusing more on their KiwiSaver offering. The growth of KiwiSaver was having flow-on effects to providers, asset managers and unitholders, he said.