KiwiSaver is a part of New Zealand life now. Since it's launch on 1st July 2007 most people know about KiwiSaver, even if some people have not got around to joining KiwiSaver.
At Moneyworks, we believe that KiwiSaver should be a core part of all our clients retirement savings strategy. As a result of the low fees and good returns on KiwiSaver, a number of our clients who have reached the age of eligibility for NZ Super (age 65), where they can withdraw their funds, have elected to leave their KiwiSaver account where it is.
While many people (mainly children and people who choose not to contribute to KiwiSaver) have low balanced of less than $2,000, there are a large number of people with balances of over $30,000. There are also quite a few people who have been contributing the maximum of 8% of their income into KiwiSaver and/or are high earners who have over $100,000 invested.
As your KiwiSaver savings increase in value it is vital that you make sure that you are invested in the correct place. A core rule of financial success is that you regularly review your financial plan and your financial arrangements. Making sure that your KiwiSaver account is working for you is vital. Here are some of the techniques we use to make sure that the KiwiSaver schemes we recommend to our clients are working for them.
Monitoring consistency of returns
Since the launch of KiwiSaver, we have monitored the balanced funds of KiwiSaver providers every quarter. We use the Morningstar Research information tha
t we subscribe to, and we produce a quarterly analysis of these funds. We track their ranking against the other funds and compare it to where they ranked previously. This helps us to see whether the fund manager has returns that are all over the place (ie 1st ranked last time, but 15th this time), or are consistently in the first quartile or consistenly in the bottom quartile.
The reason that we use a 'balanced' fund for the comparison is that this is the middle of the range of risk profiles. Balanced means that long term, the aim is to half of the investments in 'growth' assets (shares and property) and half of the assets in 'income' investments (cash, fixed interest, debt, credit.) The two other main risk profiles that people have are 'conservative/moderate' and 'growth/moderately aggressive'. Unfortunately with these other risk profiles, there is a large difference between how fund managers interpret their brief. A conservative/moderate fund can have (Based on Morningstar research KiwiSaver Quarterly report) anywhere between 18% and 41% in 'growth assets'.
With a Balanced fund, we can almost compare apples with apples, knowing that the long term aim is usually to have a 1/2 1/2 mix of growth and income assets. However, see our note below on measure the growth assets.
Other important factors we look at in recommending KiwiSaver providers to our clients
We also look at how much of the balanced fund we are monitoring are in 'growth assets'. The more in growth assets, the higher you would expect the return to be when growth assets are increasing in value. Interestingly this is not always the case which is why it is important to continually review the relative relationship. In the last survey (31/12/2014) the percentage of 'growth' assets in 'balanced' funds in the Morningstar survey that we monitor ranged from 51.5% to 65.2%. As growth markets are giving strong returns at present, this will make a big difference in the potential return of the investment if there is a higher allocation. Interestingly however, the fund with the 65.2% growth allocation was the poorest performer (by a long way).
Other factors that we check are:
1. How big is the fund that is being monitored? The larger the fund, the more tricky it is to move in and out of investments without having an impact on the value of that investment - particularly if it is a New Zealand listed share.
2. Has the fund increased or decreased since last quarter? What is the trend, is money being withdrawn out of the funds. This is a trend that is more likely from the fund managers that are consistently performing at the bottom of the table.
3. What are the fees on the fund? Have these increased or decreased since last quarter? What is the trend? Do these funds appear to have any impact on the relative return of the fund?
By monitoring the KiwiSaver funds each quarter, we can keep in touch with how many funds are still available. There have been a number of amalgamations and name changes including
1. Gareth Morgan KiwiSaver is now KiwiWealth
2. Tower is now part of Fisher and rebranded Fisher
3. Fidelity is now part of the Grosvenor Scheme
4. ASB have closed down their FirstChoice KiwiSaver scheme and merged it with the ASB scheme.
If you would like a review of whether your KiwiSaver savings are working for you or not, contact us by clicking here. Please note that there may be a fee applicable if you are not already a Moneyworks client.
By Carey Church