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Is your fund a kitten or a lion?
 
Q.           Both my husband and I joined KiwiSaver back in 2007 when it started. Because we always had trouble saving we thought KiwiSaver would be a big help to us. I have stayed in the default AMP fund while my husband decided to switch into a growth fund, I think the one run by Carmel Fisher.   The other day I compared our fund balances and was surprised to see that he has over $20,000 in his fund, while I have about $16,500 - even though I earn slightly more than he does. Should I change to a higher risk fund? We are both in our 40’s so have many years of saving ahead of us.
 
A.            You should both pat yourselves on the back for joining KiwiSaver when you did. With your fund balances growing, this is a good time to review your risk profile and check that the fund you are in is suitable for you. You are in very different funds, so a variance of $3500 is not surprising. You need to investigate the asset allocation and investment style of the fund you are in and then decide it matches your appetite for risk.  There are dozens of funds available from the 45 KiwiSaver scheme providers, ranging from conservative through to aggressive. There are also ‘lifestages’ funds available which automatically reduce the allocation to growth assets as investors’ age. 
 
Let’s look at the default AMP fund that you are in. This is a large default fund with $1174 million as at 30 September 2013. Everyone in this fund was automatically allocated to it when they joined KiwiSaver, as it is one of 6 original default schemes set up for this purpose. The Government has decided that all default schemes should be conservative, so that they would not be blamed for making a decision on behalf of investors to take a higher level of risk. This puts the onus on default investors to review their scheme and move if they are not comfortable, as your husband has done. 
 
According to Morningstar’s latest quarterly report, the AMP default fund is tracking at the bottom of its peer group with a paltry average return of 4.3% per annum before tax over the past 5 years. Other conservative default funds have a higher weighting to growth assets, while the AMP fund has 45% in cash, in the expectation that its members will make an active choice to move to another scheme. With $1174 million in the fund, it looks like plenty of members have yet to do this.
 
The Fisher Growth Fund is quite a different animal. It is classified as ‘aggressive’ by Morningstar, so is not for the faint-hearted. It has been the top performing fund in its sector over the past 5 years, with an average gross return of 11.2% per annum. If you look at the latest asset allocation, you will see that 87.4% is in shares (both in New Zealand and overseas) with the balance in cash, fixed interest and listed property. It is a smaller fund than the AMP fund, with $622m. 
 
By now you will have realised that your funds are as different from each other as a kitten is from a lion. Both are in the cat family, but that’s about where it begins and ends. 
 
What about fees? The Morningstar report shows the ‘total expense ratio’ of each fund. The AMP default fund has a low total expense ratio of just 0.54% per annum while Fisher Funds is much higher at 2.24% per annum. As I have pointed out before, while fees are important, you often get what you pay for. Comparing your fund balances, I am happy to argue that Fisher has given investors in their Growth Fund good value for money over the past 5 years.
 
How often should you review your fund? I would suggest that once a year investors should take the time to find out how their fund has performed, relative to its peers.   Before you make any decision to change, complete a risk profile questionnaire. Most fund managers provide them on their website, or go to the ‘sorted’ website. If you give each question careful consideration you will get a good idea of how much risk you can tolerate. It is very easy to chase high returns in the good times, but consider how you would feel if your fund dropped 10% or 20% over a short period of time. While you are in your 40’s you have plenty of time to make up any losses, but you still need to feel confident that the investment strategy is the right one for you.