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Are default members missing out?

Q.        I have been in the AMP KiwiSaver Default fund since 2007. Last year my balance reached $50,000 so I decided to find out if the default fund was the right fund for me. I went through the risk profile questions on their website, which told me that I should be in a growth fund. I shifted my KiwiSaver across to the AMP Growth fund in May last year and I have been amazed how quickly the balance has increased since I did. My question is, how much have I missed out by being in a conservative fund all these years, and why didn’t AMP encourage me to review my fund?
 
A.         Well done on taking a closer look at your KiwiSaver. Too many people think that being in KiwiSaver is enough, and that one fund is just as good as another.
 
While growth funds have achieved higher returns than conservative funds over the past two or three years, your new fund has not significantly outperformed since you made the change. Going to the AMP website I see that over the 6 months to the end of November 2014 the AMP Growth Fund achieved 5.19% while their Default (Conservative) fund achieved 3.57%. That’s a difference of about $400 over the 6 months. The long term average is somewhat better, with the Growth fund achieving an average of 7.87% per annum since April 2008 compared to 4.12% per annum from the Default fund (figures provided by FundFinder). A growth fund will have a larger proportion invested in shares than a conservative fund so you can expect more volatility or risk. Are the investors in the AMP Growth fund being sufficiently rewarded for the extra risk they are taking? 
 
While you were researching your options, you could have cast your net wider by using the comparison tools on the Sorted FundFinder website. There you can compare the performance of 50 different KiwiSaver Growth funds. The average return for this group of funds is 9.97% per annum, with the top performers in the growth sector achieving over 13% per annum.
 
Of course, past performance is no guarantee of future returns. High returns may be just a matter of good fortune, or the fund manager may indeed be better than average in picking next year’s winners. It is important to look at the consistency of returns, and find out about the investment team and the strategies that they use.
 
You feel that your fund manager has not provided much guidance over the years that you have been invested with them. The Financial Markets Authority agrees with you that fund managers should do more to engage with their clients, and encourage them to review their KiwiSaver fund. 
When the default funds were reviewed last year, Commerce Minister at the time Craig Foss said “It is important KiwiSaver members are equipped with the information to actively decide which fund best suits their individual circumstances taking into account factors such as risk level, fees, investment returns and service. As a requirement of their appointment, the KiwiSaver default providers will also offer investor education to encourage people to make this active choice.”

The problem that fund managers face is the sheer number of clients that they service. The AMP Default fund is one of the largest funds (being one of the original default funds) with over 1.2 billion dollars invested on behalf of 142,049 members. Fund managers are required to communicate with their investors regularly, but if too many tried calling their 0800 number for advice they would be swamped.
 
Fortunately investors do have tools such as the Government-funded FundFinder website, so that investors can do their own research using unbiased information. 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz