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KiwiSaver: Stay focused on the long term

Tuesday 12th February 2008

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KiwiSaver is all about the long-term prospects. That's the message being shouted from the rooftops in the face of recent short-term uncertainty.

AMP Capital Investors' Head of Investment Strategy, Dr Leo Krippner, believes rationality is key.

"Over the 2007 December quarter, risk was realised rather than rewarded", said Krippner.

"Growth assets generally had a poor performance, reflecting fears that a US recession might impact negatively on global markets. That left returns flat for the conservative diversified fund and negative for the balanced and growth diversified funds.

"But returns were reasonable for the year as a whole. AMP Capital's conservative diversified fund returned 7.1%, our balanced diversified fund returned 6.9%, and the growth diversified fund returned 6.8%. These were more modest than 2006, but diversification and active management helped to hold returns up.

"For example, New Zealand commercial property was a good performer over the December quarter returning 1.9% and an outstanding 30.8% for the year. Conversely, the worst performer for the quarter and year was global property at -10.1% and -9.7% respectively. Holding more New Zealand property and less global property certainly made a positive contribution.

"Our central view remains for reasonable returns. We think global growth should continue at an even pace - although lower in the US and developed countries - and inflation should remain at moderate levels. Long-term horizon returns suggest that growth assets are reasonably valued. However, downside risks have become more tangible even over the past month. So, as an active manager of our clients' portfolios, we think it prudent to be cautious at this stage.

"The key thing for New Zealanders who have started their KiwiSaver accounts to remember is to focus on the next three decades rather than the last three months. While market volatility has forced returns down, KiwiSaver has easily beaten the under the mattress alternative when the Government's contributions are taken into account. And compulsory employers' contributions which come into play on 1 April this year will also significantly enhance the KiwiSaver investment outlook," said Krippner.

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