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Milford's growth KiwiSaver fund still clocking double-digit returns after a decade

Wednesday 1st November 2017

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Milford Asset Management's active growth KiwiSaver fund is the only one to deliver annualised double-digit growth over the 10-year life of the state-sponsored savings scheme, Morningstar research shows. 

The research analysis firm's quarterly KiwiSaver report has included annual 10-year returns for the funds with the scheme, whose principle legislated purpose is to "encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement". That makes long-term returns the "most appropriate to evaluate performance" of the scheme, Morningstar manager research ratings director Chris Douglas said in his report. 

Milford's active growth fund, with $760 million under management, topped the leaderboard on the 10-year basis with annual returns of 13 percent after fees. The fund and its principal Brian Gaynor have long advocated the benefit of active investment management, despite the growing push for investors to park their money with a passive investor, often relying on global index-tracking exchange-traded funds, to keep fees down to a minimum. 

"This approach started off with a much greater bias to Australasian equities, but has become more diversified as it has grown," Douglas said of the fund's 10-year performance. "Asset allocation does move around and the strong performance has come from a bias to growth assets and exposure to Australasian credit." 

Of the conservative funds, the Aon Russell Lifepoints Conservative fund, with $74.9 million of assets, was the top performer over the decade with annual after-fees returns of 7 percent. Among moderate vehicles, the Aon Russell Lifepoints Moderate with $20 million under management was the 10-year leader with annual returns of 9.3 percent, and Aon ANZ Balanced, with $29 million of assets, was the first-ranking balanced fund with annual returns of 7.1 percent.

KiwiSaver uptake has exceeded expectations since it was launched in 2007, with 2.79 million members, equivalent to 72 percent of the working age population, with assets worth $43.24 billion: an average of $15,500 per member. That's after $1.72 billion of withdrawals for the first-home buyer scheme over the past five years. 

The Financial Markets Authority rapped the default providers over the knuckles in this year's annual review of the scheme, saying not enough was being done to encourage those people automatically enrolled to make active decisions about what kind of fund to choose.

Morningstar's Douglas said the FMA was right to see how it can ensure providers are putting investors in a fund with the right risk profile for their age and circumstances but noted how hard it was for providers to "engage the disengaged". He mooted the lifecycles approach raised by ANZ several years ago, where default fund members were put in growth, balanced, or conservative funds depending on their age. 

"The primary purpose of KiwiSaver is to help New Zealanders save for their retirement and if someone is saving for a house via KiwiSaver, then hopefully they are engaged enough to ensure they are also in the right risk profile," Douglas said. "With KiwiSaver now 10 years old, it's time to try something new that will help investors." 

Across the different groups, default funds with $8.59 billion under management delivered an annual return of 5.4 percent after fees over 10 years, conservative funds with $11.04 billion of assets, generated annual returns of 5.6 percent, and moderate funds with $6.39 bilion of assets, delivered annual returns of 6.9 percent. Balanced funds with $9.68 billion of assets posted annual returns of 5.9 percent, while growth funds with $11.56 billion delivered annual returns of 5.9 percent. Aggressive funds with $2.23 billion under management generated annual returns of 5.1 percent over the past decade.


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