Share-based KiwiSaver funds enjoy recovery

Share-based growth funds have been the best performers for KiwiSaver over the last year but default funds have proved best over two years, according to a survey of the retirement savings scheme.

KiwiSaver funds have fared well in recent share market rallies posting positive returns for the third consecutive quarter and providing the best returns for the past year, according to Mercer's KiwiSaver survey.

Mercer is one of the six government selected default KiwiSaver providers.

For the December quarter, KiwiSaver growth funds, the funds which have the greatest allocation to shares and property both in New Zealand and overseas, were the highest performers with a median return of 3.4 per cent.

That was well down on the 10.8 per cent median return of the previous quarter, which reflected the prevailing uncertainty surrounding the extent of the economic recovery, said Martin Lewington, head of Mercer in New Zealand.

While KiwiSaver funds had rebounded from the lows reached during the global financial crisis, there was still volatility ahead, he said.

"Equity markets are in for a bumpy ride with many risks still facing global economies such as high government debt and the potential to slip back a gear if stimulus spending is withdrawn too quickly, which could well impact upon the rate of growth for KiwiSaver funds."

While growth funds made the highest gains in the past year it was default funds, where either the employee or employer hasn't chosen a scheme, which recorded the strongest performance over the past two year period, recording a median return of 4.1 per cent, compared to a 4.4 per cent loss for growth funds.

Conservative funds returned 2.6 per cent over two years and balanced funds lost 0.7 per cent over the period.

"The returns of the past two years demonstrate both the severity of the global financial crisis and the speed of the rebound. The conservative positioning of default funds has paid off in the last two years, but this doesn't necessarily mean it is the best option for all investors.

"Those with a longer term horizon have the capacity to bear the heightened risk, but also reap the growth qualities of more aggressive investments over the course of their retirement savings," said Lewington.

KiwiSaver now has 1.27 million members and will have paid $3.67 billion to its providers by the end of the 2009-10 financial year.

- NZPA