Kiwisaver fees should be front and centre for investors this year, Morningstar analyst Chris Douglas says.
Releasing the Morningstar KiwiSaver December quarter survey, Mr Douglas said there was a lot of discussion about fee transparency at the end of last year, after the Ministry of Business, Innovation and Employment released a mock-up annual statement where fees were prominent.
Some fund managers and industry participants were quick to voice their concerns, stating the focus should not be on fees but rather on after-fee and tax returns.
"We agree after-fee returns are what matters most. But in our opinion, fees are an important barometer which tell you more about a fund manager than just cost.
"We spend a lot of time talking about fees. It’s the one element of future performance fund managers, and investors can control and even small differences can eat into investors’ returns and future retirement assets and income."
Investors should not have to search for the fee associated with an investment product. It should be laid out in a consistent manner, include all costs and be easy to compare against others, Mr Douglas said.
The cost of a KiwiSaver scheme also provided insights into the stewardship of the firm. For example, it could illustrate whether the firm’s alignment was most strongly with investors in the company’s funds, or with the company’s shareholders.
Did the fund manager reduce costs as the firm’s assets grew or continue to charge the same percentage-based fee?
Mr Douglas believed the ways fund managers handled fees could be informative about the firm and was why Morningstar included fees in its assessment of the parent company — as well as assessing fees and costs separately — when research team reviewed fund managers globally.
KiwiSaver funds with heavy growth asset allocations easily outperformed their defensive counterparts in the fourth quarter, the survey showed.
The sell-off in fixed income in the final months of last year led to the conservative, moderate and balanced categories posting negative results on average.
Anything with a tilt to New Zealand assets also tended to endure heavier losses as the local sharemarket fell more than global counterparts across the board, Mr Douglas said.
Average multi-sector category returns ranged from 2.54% for the aggressive category to -0.79% for the conservative category.
Top performers in their peer groups in the fourth quarter included: Kiwi Wealth KiwiSaver Scheme default (0.56%), multi-sector conservative; Booster KiwiSaver Asset Class Conservative (0.14%) multi-sector moderate; Kiwi Wealth KiwiSaver Balanced (2.1%) multi-sector balanced; Simplicity KiwiSaver Growth Fund (1.9%) multi-sector growth; Kiwi Wealth KiwiSaver Growth (4.35%) multi-sector aggressive.
Mr Douglas said despite the volatility, all KiwiSaver funds managed to produce positive returns over the year across multi-sector categories. Returns ranged from 9.44% down to 1.97%. The aggressive category average recorded 7% for the year followed by growth (6%), balanced (5.9%), moderate (5.1%) and conservative (4.7%).
It was appropriate to evaluate performance of a KiwiSaver scheme by studying its long-term returns, he said.
OneAnswer KiwiSaver Growth continued to top the multi-sector growth category over five years. ANZ took a long-term view in the strategic positioning of its portfolios, which was the key driver of performance. Tactical asset allocation had also been a consistent net positive.
Outperformance against peers had predominantly been the result of growth exposure achieved through domestic and international equities. Equally positive had been the listed property exposure, the performance of which surged from 2012 to 2015.
Milford KiwiSaver Balanced led the multi-sector balanced category over the five years to December 31. Milford’s exposure to growth assets had typically been higher than the peer group, which had driven strong peer-relative results.
Milford reduced the tilt to growth assets during 2016, and smart allocations in fixed interest meant the strategy avoided much of the negative volatility in the fourth quarter.
Aon Russell Lifepoints was a notable performer over the long term, most options appearing at or near the top of Morningstar’s multi-sector categories.
