Cautious KiwiSaver funds doing best

KiwiSavers who invested their money in cash or conservative funds had the highest returns over the past year, according to a Morningstar KiwiSaver performance survey.

The survey which took in the year to March 31, found those funds with the lowest level of growth assets such as shares and property were best able to avoid the global financial turmoil.

Morningstar fund analysis manager Chris Douglas said there was little surprise the conservative options remained the top performers, given the volatility in the sharemarkets in the first half of the year.

"Despite the doom and gloom, these have held up pretty well because of their high allocations to cash and fixed interest."

The best performer was the ING KiwiSaver SIL International Fixed Interest fund which had a return of 11.09 per cent.

Douglas said fixed interest investments had done very well in the past year in the falling interest rate environment.

The NZX New Zealand Government Stock index was up 12.5 per cent over the year to March 31 and the international index was also up 9 per cent.

Douglas said it was likely most of the cash funds had some investment in New Zealand Government stock but now that the official cash rate had come down, their investment in bank deposits would result in a fall in returns.

AMP continued to be the best performing default fund, up 1.91 per cent. The lowest of the default funds - the Axa KiwiSaver Income Plus fund - was down 2.19 per cent.

Douglas said his research showed over 50 per cent of all KiwiSaver money was invested in conservative funds mainly driven by the high level of money flowing into the six default schemes.

Many of the top performing funds outside of the conservative sector also escaped the worst of the sharemarket drops by moving into high levels of cash and fixed interest. The best performing fund manager overall was Huljich Wealth Management with its funds ranking top in the moderate, balanced and growth categories.

Douglas said Huljich had primarily achieved this through moving to more defensive assets. For instance, its conservative fund had only 17.5 per cent in growth assets.

Other top performing managers included Brook and Milford which had also taken similar strategies.

But Douglas warned that while the payout of having a high cash level was significant in the short term, it could also erode returns when the market turned if the manager timed it badly.

"These guys are going to have to make a tactical decision when to decide to get back in [to the sharemarket]."

Douglas said history had shown most fund managers struggled to pick the bottom or the top of the market consistently. He warned KiwiSavers to be careful when looking at the short-term time horizons and said young investors in particular needed to look at the long term.

"If you're young and have 20 or more years to invest, we suggest taking a closer look at the more growth-orientated categories. Many of these funds - those hardest hit by recent market declines - remain the KiwiSaver options with the greatest potential for increasing the value of retirement savings."

The full report is available at www.morningstar.net.nz

Year to March 31

1. ING KiwiSaver SIL InternationaL Fixed Interest Fund

+11.09 per cent

2. AMP KiwiSaver Cash Fund

+8.06 per cent

3. Asteron KiwiSaver Capital Fund

+7.67 per cent

4. Huljich Conservative Diversified KiwiSaver fund

+7.39 per cent

5. Tower KiwiPlan-Preservation

+7.36 per cent

Source: Morningstar