The Morningstar KiwiSaver September Quarterly Survey showed funds with a bias towards growth assets such as shares and listed property had continued to outperform their conservatively minded counterparts.
Despite some short-term volatility, 2017 had been a good year to invest in growth assets and there had been healthy returns across the board.
Average multisector category returns ranged from 4.93% for the aggressive category to 1.65% for the conservative category.
Morningstar analyst Chris Douglas said with interest rates at historic lows, fixed income offered limited upside although it played an important role in a diversified portfolio.
Equities provided exposure to growth assets which should provide higher returns over the long term.
One of the most important decisions an investor would make was choosing the right risk profile, he said.
Default providers were expected to engage with those auto-enrolled into their funds to ensure that was the case.
It had been reported the New Zealand regulator, the Financial Markets Authority, recently sent out "please explain" letters to the nine default providers asking them why they were not converting more of their members from the conservative default scheme into a more appropriate risk profile to enable them to meet their future financial goals.
The feedback Morningstar had received from KiwiSaver providers indicated it was "incredibly difficult" to engage the disengaged, Mr Douglas said.
"Put simply, most people don’t spend a lot of time thinking about their KiwiSaver scheme and whether they are in the most appropriate fund."
The situation was seen all around the world, he said.Australia also had many disengaged investors and it was reported more than $A11.7 billion ($NZ12.9 billion) of investments resided in lost and unclaimed superannuation accounts.
The FMA was correct to ensure KiwiSaver providers were doing everything they could to put investors into the right risk profile, Mr Douglas said.
In Australia, default investors were allocated to a growth fund. A rules-based approach could be adopted where default fund allocations for anyone 40 or younger went into a growth scheme, those 40 to 55 went into a balanced scheme and those 55 and over into a conservative scheme.
Another alternative was allocating everyone to a balanced scheme with an equal allocation to growth and income.
Those suggestions were oversimplifying the situation and risk profiling was more complex, especially when first-home buyers also invested in KiwiSaver, Mr Douglas said.
The primary purpose of KiwiSaver was to help people save for retirement and if someone was saving for a house, hopefully, they were engaged enough to ensure they were also in the right risk profile.
Either way, with KiwiSaver now 10 years old, it was time to try something new to help investors, he said.
KiwiSaver assets on the Morningstar database grew to $43.2 billion at September 30, from $35.9 billion at the same period last year.
ANZ led the market share with more than $11 billion, accumulating $1.7 billion in the past year. ASB remained in second position, Westpac was
third ahead of AMP and Fisher Funds was fifth.The six largest KiwiSaver providers accounted for about 84% of assets on the database.
Top performers in the quarter included five Aon KiwiSaver Russell funds and Booster KiwiSaver Geared Growth (multisector aggressive).
Milford Active Growth KiwiSaver was the top performer across all multisector categories in the last 10 years.All KiwiSaver funds managed to produce positive returns across the multisector categories.
In the past 12 months, the aggressive category delivered 13.56% growth versus 3.63% for conservative.
