No need to panic, KiwiSaver investors told after sea of red

The NZX50 index fell 7.1 per cent in the March quarter, pulling down the performance of KiwiSaver funds. Photo / File

KiwiSaver members are being urged to hold their nerve again after a torrid start to the year in financial markets sent most funds into negative territory.

Figures from Morningstar show $1.536 billion was wiped off the value of KiwiSaver funds in the March quarter, dropping the total to $87.3b.

Tim Murphy, Morningstar director of manager selection for the Asia-Pacific region, said despite the fall there was "no need to panic".

"KiwiSaver is, for the majority of people, a long-term investment. While the first quarter saw some negative returns, in the context of recent years it is a fairly minor pull-back on the scale of things. That is why we highlight the 10-year returns which, despite the last quarter are all strongly positive."

The last time sharemarkets fell around the world was in March 2020 at the start of the Covid-19 pandemic but within six weeks they had bounced back higher than before.

But it also prompted a sharp increase in the number of people switching KiwiSaver funds.

A report by the Financial Markets Authority found in March 2020 there was seven times the 2019 average monthly volume of switches and 70 per cent of switches were people moving to lower-risk funds.

Younger people also dominated those moving their money with members aged 26-35 making five times the number of fund switches than they normally would.

Murphy said superannuation investors often saw negative returns and started to panic.

"It is usually the absolute worst time to do that."

He said investors who switched into lower-risk funds in March and April 2020 then missed out on one of the strongest 12 month periods of return in market history.

"The over-riding message is KiwiSaver is a long-term investment. There are going to be bumps along the road.

"Frankly in the last 10 years there have been far fewer bumps than we would have expected. Obviously there is one taking place at the moment. But if you have appropriately chosen a KiwiSaver option in terms of your risk profile that is more aggressive, more growth oriented, then drawdowns like this are part of the cycle of investing. Markets don't go up forever."

He said the vast majority of people should do absolutely nothing.

Bad timing

But the downturn in markets has been bad timing for one group of investors. The default KiwiSaver schemes switched from conservative to a balanced strategy in December with around 350,000 default members moving into new funds.

Morningstar figures show the average return for five of those funds ranged between -5.1 per cent and -5.9 per cent for their first three months in operation.

"From a timing perspective it has proven to be unfortunate timing. But all the messages remain around that.

"For default investor KiwiSaver is meant to be a long-term savings vehicle and therefore exposure to higher-return-seeking assets is appropriate. To the extent there are members that aren't comfortable with that then they have the ability and the option to choose more conservative settings should they wish."

The average return for the conservative category over the quarter was -3.9 per cent, for balanced funds it was -5.1 per cent and growth funds -5.7 per cent. Aggressive funds which have the highest percentage invested in shares and property fell on average -6.5 per cent.

Tim Murphy, Morningstar director manager selection for the Asia Pacific region. Photo / Supplied

Murphy said there were two major themes driving the fall in share markets.

"Inflationary concerns right across the world are seeing a rise in interest rates and bond yields. So that has obviously been negative for bond returns."

At the same time higher growth companies had also had big falls in their share prices - particularly technology companies.

While sectors like energy had since share prices rise due to the increase in tightness in the energy market because of the war in Ukraine.

"You have seen a broad fallback in bonds, that has flowed through to the equity side and particularly around the tech sector concentrated in the US, although you have seen it locally too. That sell-off has continued. That is definitely playing out."

April and May has continued to see markets fall.

Murphy said investors could potentially be in for a rough ride this year.

"It hasn't started well. A lot of it does come back to the view of whether inflation is structurally higher or is it just transitory. If you take the view that the high inflation trends are transitory then by the end of year we could be seeing it much lower and that will flow through to bond markets and make them a lot more attractive and that potentially puts a cushion under equities again."

But over the longer term returns remain high. Over 10 years the aggressive category has averaged 10.1 per cent per annum, while growth funds have averaged 9.9 per cent a year, balanced 8 per cent and conservative 5.1 per cent.

ANZ remains the largest KiwiSaver provider with $18.5b followed by ASB with $14b and Westpac with $9.3b.