KiwiSaver rally strongest in riskier, long term plays

KiwiSaver investors with strong stomachs and funds in high growth, higher risk assets did best as the global market recovery over the past six months, according to a Morningstar Australasia survey.

Tuesday, October 20th 2009, 9:03AM

A substantial investment market rally has seen the NZ sharemarket up 22%, Australia up 35% and the aggregate global sharemarket up almost 12% since March. "The past six months have clearly illustrated how quickly markets can turn around," said Chris Douglas, Morningstar Australasia's manager, Fund Analysis.

"KiwiSavers who switched to conservative options would have missed out on these rapid gains. While short-term volatility is inevitable, KiwiSaver options investing in growth assets continue to offer the greatest potential for growing the value of retirement savings over the longer term."

Reporting on over 120 KiwiSaver investment options, all categories produced positive results said Douglas. The best-performing funds were the growth-oriented vehicles with greater proportions of their assets in local and international share and listed property. "

These were the funds that were hardest hit by the market declines from late 2007 to early 2009," he said. "Most KiwiSaver options in the Multi-Sector Growth and Aggressive categories returned 15 to 20% over the six month period.

Conversely, more conservative funds that invested principally in cash and fixed interest have not benefitted from this rally."

The majority of KiwiSaver assets are in multi-sector funds which invest in a range of assets. However, the top performing KiwiSaver funds over the two years to September 30 2009 were in single-sector categories according to Morningstar.

An absolute return approach and ultra-high cash weighting enabled Aon KiwiSaver Milford Aggressive to return almost 13%. "We have cautioned in previous reports about the trade-off between maintaining a high cash weighting and potential returns," Douglas said.

"A high cash weighting will hold up returns during market downturns, but acts as a drag when markets recover. The three and six-month returns to September 30 2009 for a number of options illustrate this clearly - they did not perform as well during the market rally as funds with higher weightings in growth assets."

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