It is important to understand how your investments are performing and why they are performing like they are.
Morningstar publish a survey of KiwiSaver returns every quarter. This survey covers the majority of the major KiwiSaver providers, and there is always an interesting commentary at the front of the report. To access the Morningstar December 2012 survey, go to Morningstar KiwiSaver Survey to 31 December 2012.
There are a number of things that you need to review and consider when you are looking at a survey like this, and we will update you on the issues as future surveys are released.
This quarters survey is the second survey to cover a 5 year pa return (KiwiSaver fund managers first received the funds on 1st October 2007 after they spent 3 months in holding at IRD.)
In the discussion at the front of the survey, Morningstar have highlighted the returns of a number of funds, as particularly good returns. When we looked at this, the first thing that came to mind is the fact that it is much easier to get a good return on a small fund than on a larger fund. So we looked at the size of the funds that Morningstar was saying have performed particularly well. These are the results:
|Name of Fund
Assets (millions) (for each fund)
|Brook KiwiSaver Balanced/Growth
|Milford KiwiSaver Balanced
|Aon KiwiSaver Russell Conservative/Moderate Funds
|Fidelity KiwiSaver Balanced Fund/Aggressive
|Fisher Funds KiwiSaver Growth
|One Path SIL KiwiSaver Conservative/Balanced/Growth Funds#
$226.0/ $195.1 / $126.6
*Surveyed by Morningstar as at 31/12/2012
#Also the ANZ and National Bank funds, also managed by OnePath Balanced Funds.
This shows that the OnePath SIL KiwiSaver and Fisher Funds KiwiSaver Growth funds have managed a strong performance for the periods ending 31/12/2012 even though they are large funds. The other four funds (with the exception of Fidelity Balanced Fund, which has $90 m) are managing very small portfolios, which can be easily moved and can nimbly take advantage of changes in markets.
With larger funds, there are a number of disadvantages that they face, particularly in a small market like New Zealand. Because of their size, if they make a decision to purchase a share or a bond, the quantum that they need to purchase can be so large, that they 'move the market' with their purchase. This creates logistical issues for the fund manager.
It is also more difficult to access adequate diversification across investments, to move quickly as the market moves, or good or bad news is released (because of the size of the market).
However, being big can bring some advantages. For example, the negotiated brokerage fees may be lower with a bigger fund - however, this is more likely to flow through to the total size of the fund manager, not just their KiwiSaver fund. Also, the larger the fund, the fund manager may also have greater purchasing power for new issues.
For you as an individual investor, you also need to calculate how big your KiwiSaver investment is relative to the size of the fund. Are you a big investor for that fund? Do you want to be?
The smaller the fund, the higher the fees are likely to be. As there are a number of fixed fees, if there are less investors and funds to share those fixed fees across (audit, legal etc), the higher the proportion you will have to py.
You need to be aware that historically a number of fund managers close down small funds regardless of the investment returns, if the fund is uneconomic for them to run.
So, next time you are reviewing your KiwiSaver funds, have a careful look at how big the fund is and take this into account in your decision making.
By Peter Church