KiwiSaver well-positioned for 2016

Aggressive and growth funds are likely to continue to top the KiwiSaver performance tables through 2016, an analyst says.

Thursday, January 7th 2016, 6:00AM

by Susan Edmunds

Kathryn Young

On a three-year annualised basis, aggressive and growth funds have been the clear standouts, returning 11.9% and 11.5% respectively according to research house Morningstar. That is well ahead of balanced funds’ average 9.7%, moderate funds’ 7.3% and default funds’ 6.2%.

Morningstar analyst Kathryn Young said there was unlikely to be any major upset for KiwiSaver investors through 2016.

She said “muted” was likely the best way to describe this year’s predicted performance. New Zealand equities’ long run of double-digit returns was unlikely to continue, she said.

“There have been really strong returns on a lot of asset classes over the past five years and valuations are at a place where they are vulnerable to shocks, as we’ve seen in global equities.”

But she said she was not expecting major equity market losses.

Young said KiwiSaver funds were well diversified, with reasonable asset allocation that would make them able to weather market environments such as the current one well. “We’re not worried about the structure of the KiwiSaver managers we cover.”

Not having a lot of exposure to emerging markets had helped KiwiSaver returns over recent months, she said. “That’s where a lot of the pain has been in the past year and could be in the coming year.”

Of the managers Morningstar researches, only AMP and Mercer have emerging market shares int heir strategic asset allocation.

“KiwiSaver is a bit insulated from that and that’s probably a good thing going into the year,” she said.

Morningstar was not predicting any major changes in KiwiSaver market share, either.

Young said she expected banks to continue to dominate.

Market turbulence was unlikely to prompt members to move to more conservative investments in great numbers, she said, partly because many were already invested more conservatively than was the norm internationally and partly because many were not engaged enough with their KiwISaver accounts to do so.

She said she did not expect aggressive and growth funds to stop being the best performers because there is no equity market collapse predicted, and fixed interest is also expected to deliver muted returns.

Tags: KiwiSaver Morningstar