AMP a laggard with KiwiSaver default status on the line

AMP’s KiwiSaver is still the worst-performing default provider as the deadline to bid for the next seven-year contract creeps closer.

Friday, October 30th 2020, 7:10AM

by BusinessDesk

The latest Morningstar report shows AMP delivering the lowest returns in each timeframe, except the past quarter. Across the past decade, AMP has generated an annual 4.9 percent return after fees for its default fund investors compared to more than 5.5 percent from its peers.

ANZ’s default conservative fund has been the best performer, generating a 6 percent annual return in the past 10 years, followed by Fisher Funds at 5.8 percent.

The government is in the process of choosing the next set of default providers to replace, or renew, existing providers appointed in 2014. The tender is open until December.

The Ministry of Business, Innovation and Employment’s request for proposal document expresses a preference for appointing five default funds, meaning almost half the incumbents could miss out.

Luckily for AMP, the performance of a fund is not a key consideration with MBIE’s bottom line being which provider can offer the lowest possible fees.

Twice as important

MBIE's criteria puts a 60 percent weighting on fee structure and just 28 percent on providing the investment product and engaging with its members.

The biggest change is the new default funds will be balanced portfolios rather than conservative ones. This means they will need to include have a greater weighting of riskier assets such as stocks.

There will also be a requirement to pursue a responsible investment policy excluding fossil fuels and illegal weapons.

A survey run by Mindful Money and the Responsible Investment Association of Australasia found 76 percent of respondents expected their KiwiSaver funds to be invested responsibly and ethically. The most distasteful investments were in firms committing labour rights abuses and human rights violations, while gambling and tobacco were also sectors most respondents sought to avoid, and sugary foods, alcohol and meat products were unpopular.

A similar number said they expect those types of funds to also perform better in the long term.

Industry lagging behind demand

Steffan Berridge, a responsible investment strategist at Kiwi Invest, said surveys show investors have a basic expectation investments will be ethical but fund managers have been slow to catch up.

“The bulk of the industry has still not yet twigged to the importance of responsible investment as a driver of improved portfolio performance and ESG outcomes,” he said, referring to environmental, social and corporate governance frameworks.

Morningstar’s KiwiSaver report shows mixed returns from ethical funds although many responsible funds outperformed their less-conscious equivalents.

Booster’s socially responsible balanced fund outperformed its regular sister-fund by 1 percentage point over the past five years. Similarly, SuperLife Balanced generated an annual 7.6 percent return over the past decade, whereas Superlife Ethical reported an 8.2 percent annual return.

In the growth category, the socially-focused CareSaver was a top performer in the past year, second only to Juno Kiwisaver which topped returns in almost every category.

But the trend doesn’t hold everywhere. AMP’s responsible investor fund lags behind its other balanced funds and Booster’s geared growth fund is up more than 1 percentage point on its responsible aggressive fund.

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Tags: AMP