KEY POINTS:
KiwiSaver funds with the highest exposure to shares have taken a beating in their first three months, reflecting the poor performance across the markets locally and internationally.
Figures released yesterday by fund analysis firm FundSource show on average KiwiSaver growth funds - those with more than 70 per cent invested in shares and property - were down by 3.27 per cent in the three months ending December 31 last year.
Balanced funds or those with between 30 and 70 per cent in growth investments were on average down 1.58 per cent.
Defensive and cash funds, or those with higher levels invested in cash deposits and fixed interest investments, were positive. Over the same period the benchmark NZX-50 index dropped 5.6 per cent.
KiwiSaver was launched in July last year but the first contributions were not transferred to fund providers until October 1.
Carmel Fisher, managing director of Fisher Funds which specialises in growth investments, said it was predictable that the performance of growth funds had suffered as they had the highest level of investment in shares and the sharemarket had had one of the worst performances in five years in the last quarter of last year.
"There is nowhere for growth funds to hide. The only way to avoid this would be to cash the fund up [by selling off the shares]. If people wanted cash they would have put their money in a cash fund."
Fisher said growth funds were always expected to have more extremes - suffering from bigger losses when the markets were down but making bigger returns when the markets were up - and over time they could produce higher returns.
Three months was an insignificant period to measure performance. Investors should give funds at least three years, preferably five, before making a decision to switch as this was enough time for a fund to go through at least one business cycle and one election cycle as well as different market and currency changes.
ASB head of business ventures Peter Hall said a period of negative returns in the markets was not unexpected given the long and sustained growth that markets had experienced.
"It does, however, highlight the importance of maintaining a well-diversified portfolio. A well-diversified portfolio will reduce the amount of volatility in returns to these types of investments."
Hall said the current volatility also highlighted the importance of focusing on the long-term nature of investment rather than short-term swings in market value.
FundSource business manager Gabrielle Donnell said the difference in performance returns across the sectors was a timely reminder to investors to ensure they were in the appropriate fund for their investment timeframe and goals.
"While growth funds with higher equity exposures can experience significant variation in returns over the short term, over the long term they have higher return potential. Income-focused funds with more cash and fixed interest investments typically provide more steady returns in the short term, with relatively lower return potential over the long term.
"Investing decisions should be made on the basis of personal goals rather than short-term movements," she said.
Acumen financial planner Lisa Dudson said it was unfortunate timing that the first three months of KiwiSaver had coincided with one of the poorest periods in performance from the markets in some time.
But, she said, it was important to remember that KiwiSaver was a long-term savings vehicle and was not about the short-term volatility of the markets.
"It doesn't matter what you invest in, you are always going to have good and bad periods."
Dudson said a downturn in the markets was not all bad news as it also allowed fund managers to buy shares at what could be a good price relative to the value of the company.
