The above graphs compare returns from our three portfolios against funds of the same or similar type that are either run by the six default KiwiSaver providers or have more than $50 million under management.
Ideally, performance data would be after taxes and fees, so that you can assess what each fund has delivered to
your pocket (as we do
here and as detailed in your monthly reports). We have lobbied successive governments to impose this standard on the industry. It is still not in place. Unfortunately the industry doesn’t follow any standardised treatment, with many providers publishing returns without any deductions (which boosts apparent returns) and others only deducting some of their charges in so-called after-fees data. Using pre-tax numbers won’t accurately measure relative performance, because gross returns can have different tax impost, depending on how each portfolio earned the return. This ‘gaming’ makes it near impossible for you to get accurate comparative performance data.
The trap for investors using comparative returns from newspapers is that they don’t reflect what you get in your pocket. So the resultant commentaries from journalist and industry research houses can be sadly, in many instances, worthless – and potentially grossly misleading. The comparative graphs above are as accurate as we can get from published data. The returns are before tax and after some or all charges, depending on the fund.
FAQs
Why don’t you use a hedged offshore equities benchmark
The only reason to hedge international equities into a single currency (in this case the NZ dollar) is to reduce volatility, as measured in NZD terms. We would not expect over time any superior returns from world shares being hedged into any particular currency.
Why don’t you provide comparisons of returns with all KiwiSaver Funds?
We only provide comparisons with the default providers (largest by numbers of members) and those over $50m (largest by funds under management), and then only with providers that fit the general description of being diversified conservative, diversified balanced or diversified growth. There are a number of highly specialised KiwiSaver portfolios. For example, we don’t have a portfolio that can be compared to a specialist property sector portfolio, an aggressive New Zealand-only equities portfolio, or a New Zealand commercial debt portfolio. We regard these niche portfolios as quite unsuited to the primary purpose of KiwiSaver which (a) only allows a person to belong to one scheme and (b) is for long term saving.
Is the October 2009 NZ Herald Story correct – have you come last in all three categories?
The story this question relates to can be found
here. The NZ Herald story relates to the 12 months ended September 30 2009. Leading into that period our portfolios didn’t fall anything like as far as most comparable portfolios, so didn’t have the ground to make up, in order to achieve the two year return. The graphs
here illustrate this point. Put bluntly, our returns over the collapse and recovery of markets look fine compared to comparable portfolios and were achieved without the volatility.
Are the MorningStar figures correct?
Morningstar data is a dog’s breakfast – and is in our opinion useless for comparing providers and portfolios from an investor’s perspective. For example, the data is before tax, so comparing pre-tax returns for two portfolios can give you a totally different picture than comparing them after-tax, which is of far more relevance to the investor. Let’s say Portfolio A returns 12% and Portfolio B 10%. But Portfolio A’s return is totally taxable and Portfolio B’s isn’t. The after tax returns are 8% for A and 10% for B. Morningstar presents the first picture, whereas from the investors’ perspective, the second picture is the relevant one.
Even worse, the charges deducted to arrive at a pre-tax, post-fees position, are highly variable with some taking out all charges (legal, marketing costs etc), while others just take out some of what they declare they’ll charge.
Why didn’t you catch the growth that the other fund managers did in 2009?
In large part because we are internationally invested and normally not particularly hedged back to NZ dollars. Other managers either hedge their portfolios more as a matter of course (which is why they fell so much in 2008), or are NZ-centric and not diversified as our portfolios are.
Why weren’t you more active in managing currency?
The rise in the dollar from 49 cents has gone faster and further than we expected. So it’s been simply a matter of not hedging back to NZD sufficiently quickly. What worked for us well the previous year when the NZD fell out of bed, hurt us this year in comparison with NZ-centric portfolios. Our performances for 2009 continued to beat all the market benchmarks that are comparable with our portfolio (
see here) – that is what we focus on. Hedging heavily into any one currency is not what we do – yet we would have had to do that to be comparable to NZ-centric portfolios over this period.
Cash is the minimum standard for any demonstrated value add, why have you added less value than cash?
This is true from a long term perspective, in any short period returns from non-cash portfolios can go up or down, and is the price investors pay of procuring longer term returns
A year ago you guys were telling us you were the best performer (the SST piece featured in Morgan Online) and now we hear you’re the worst. What’s going on?
In the previous year many KiwiSaver members took an almighty hit from the fall in the NZ and world sharemarkets. We did not – our most aggressive portfolio was down 8% rather than the more common 20%. This year the markets have bounced back and those who remained fully invested have ridden that. Because we were deliberately underinvested right through the two year period we have arrived at the same end point without the huge plunge and rise of those investments.
You keep on talking about transparency and reporting – why don’t you focus less on reporting how badly you’ve done and instead focus on doing better?
It is strange that an investor would want less transparency and reporting. The industry suffers terribly from a lack of both. With respect to performance, in terms of all comparable portfolios over the life of KiwiSaver our portfolios lie respectively 4th out of 7 for conservative, 1st out of 7 for balanced, and 1st out of 7 for growth.
How much damage was done while Gareth was out of the country or on the road?
The investment strategy team makes decisions continually. Gareth is part of this team and his location is irrelevant to its decision-making. Over the last 10 years he has spent 40% of work hours outside of the office.
Your dynamic asset allocation only seems to work when markets are going down, what do you do to capture the gains of markets going up?
We are a conservative, wealth-defending investor. This is the opposite of a boutique, sector-specific manager. As a result we have nothing like the volatility of such funds and do not get their sensational losses or gains.
Why should I invest with the Gareth Morgan KiwiSaver Scheme?
If your interest is wealth-protection first and foremost, and enhancement as a second order requirement, the portfolios GMK offer are appropriate. If the interest is to make spectacular short term gains, they are not. Since inception, GMK’s portfolios have performed very well compared to comparable portfolios (
see this link) and with a lot less volatility than the norm.
Why haven’t you taken advantages of the last year in terms of buying equities cheaply?
For our growth portfolio we have, but have done so carefully. Over the last year we have moved from a 45% invested position to an 85% invested position. The companies we have purchased equity in have all had strong balance sheets, little debt and global franchises. The recovery in sharemarkets this year has been dominated by highly leveraged companies with weak balance sheets – the same sectors that took the largest of the hits the previous year.
Were you wrong about the W shaped recovery?
It is too premature to assert we have a V-shaped recovery. The markets are heavily pricing in a V, the real economy has yet to respond and, as the world’s leading central bankers have recently been saying, remains vulnerable to a slide.
I’ve seen other KiwiSaver providers advertising much better returns than you. Why isn’t your performance better?
You should look at any advertisement with big returns carefully. Many of them refer to a selected period where they have done well. But the only real test of any fund is performance over a long period – and even then you have to be sure they didn’t just get lucky once and have been dining out on it ever since. For KiwiSaver, the only appropriate period over which to compare performance is since inception – after all it’s only being going since late 2007. Our
comparative returns page lists all the funds that are of the same or similar type that are either run by the six default KiwiSaver providers or have more than $50 million under management.