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Right KiwiSaver is a balance of risk and return

Q.           My husband and I have been in KiwiSaver since it started.  We were in the ASB default scheme but we then moved across to the Grosvenor balanced fund.  Their adviser said that this was a more suitable fund for us.  When we look at our statements, we don’t think this fund is doing as well as the ASB fund.  We also don’t understand the information that they send us.  How do we find out whether this fund is any good?

A.         There are currently 28 organisations offering KiwiSaver schemes, with each one providing a selection of investment options ranging from low risk cash funds to high risk share funds. With over 200 funds to choose from, no wonder investors get confused!

So how can the investor compare one fund with another, and be reassured that their money is in the right place?

Fortunately there is now a tool for making just such a comparison. It has been developed by the folk behind the award-winning Sorted website. You can find it through the Home page of the Sorted website, by clicking first on Calculators and then on KiwiSaver Fund Finder. Or just google ‘Sorted KiwiSaver Fund Finder’.

The Fund Finder tool not only simplifies the process of comparison but also provides additional drop down information and links to the fund website. If you first check your previous fund, the ASB conservative fund, you will see that this fund’s fees are 0.79% compared with an average in that sector of 1.33%; services are rated 78% compared with the average of 71% and average returns have been 3.96% compared with the sector average of 4.18%.

The Grosvenor Balanced Fund is in a different sector, as it is a balanced rather than a conservative fund. The fund’s fees are 1.74% compared with a sector average of 1.50%; services come out strongly at 88% satisfaction. Average returns have been 3.45% compared with the sector average of 3.83%. Yes, conservative funds have achieved a higher average return than balanced funds over the past 6½ years, as they withstood the fallout from the Global Financial Crisis better. Over the past 2 years most balanced or growth funds have outperformed their more conservative counterparts, however. 

The Grosvenor Balanced Fund achieved 6.62% over the past 12 months compared with 4.37% from the ASB Conservative Fund.  While 6.62% sounds good enough, most other balanced funds did better with many achieving double digit returns. 

I asked David Beattie, Grosvenor’s Chief Investment Officer and Joint CEO for his comments. He said that Grosvenor is concerned about downside risk – protecting their investors’ money is very important to them. He said “Grosvenor’s balanced fund return has been behind the unusually high average return of other ‘balanced’ funds over the last year or two, due to our more defensive investment strategy during this time.  However, with the benefit of hindsight, our caution over this time has gone unrewarded.  Our balanced fund now has a total share market exposure similar to that of other balanced funds and we do not expect the recent relative underperformance to continue.”

All active managers tread a fine line between taking enough risk to reap rewards, while protecting their positions from a sudden fall. It is difficult to get it right all the time. Some argue that you are better off not trying, and just invest in a passive fund that follows the index. The ASB Conservative fund uses an index-tracking investment management style, hence the lower fees. Which is better? You can argue the merits of both strategies, and whatever your preference, you can find the statistics to back up your argument. Active managers can achieve stellar returns, but they can also get it wrong. Passive funds usually do well in a rising market, but when the market falls you may find there’s no brake on the slide. 

What you don’t want to do is simply look for the fund with the highest returns or the lowest fees. Find a fund manager whose strategies make sense to you, and who achieves reasonable returns at a reasonable cost. Look for consistency rather than last year’s winner. And if you don’t understand the information that you are sent, let them know. They will appreciate your feedback.