Is your KiwiSaver investment fund on course to help you meet your financial goals? Peter Verhaart, from our Investment Management Team, reveals the latest performance results – and gives the inside scoop on how your money is managed.
Chief Editor: KiwiSaver celebrated its 10th birthday earlier this year, which makes this a good time for investors to ask how their money is doing. So how has the Kiwi Wealth KiwiSaver Scheme performed over the past decade?
Peter: I’m happy to say that our 10-year figures show that all three of our investment funds that have been in existence since the start of KiwiSaver have outperformed their benchmarks.
[Chief Editor: A benchmark = a measure of how a passive fund would have performed].
Our Growth investment fund outperformed the benchmark after tax and fees by 2.5% per annum, our Balanced investment fund by 1.5%, and our Conservative investment fund by 1%.
Chief Editor: How about our most recent performance results?
Peter: Again, it’s great news for our members. Two independent investment research houses have just released their latest performance surveys of KiwiSaver scheme providers, and we’ve done really well in both of them.
In the Melville Jessup Weaver survey, our Growth and Balanced investment funds ranked first and our Conservative investment fund ranked third in their respective categories for returns for the year ending 30 September 2017. Great news for our investors!
And in the Morningstar survey, our Growth investment fund ranked first, our Balanced investment fund ranked second and our Conservative investment fund ranked fifth in their categories over the same time period.
Chief Editor: Did the surveys have any other interesting results for our members?
Peter: Yes! We were pleased to see that the Melville Jessup Weaver survey ranked our Balanced investment fund and our Conservative investment fund at the lowest level of volatility – in other words, risk – over 10 years. That’s out of all the KiwiSaver investment funds it surveyed, in their respective categories, according to Melville Jessup Weaver’s own criteria.
Chief Editor: So how important is managing risk to the investment team?
Peter: It’s hugely important to us. Managing risk is one of our mantras. As a Kiwi-owned company, our sole focus is on building the wealth of New Zealand and New Zealanders.
We take that responsibility very seriously, which includes aiming to reduce risk for our members, to provide some protection for their hard-earned capital during bear (weak or stressed) markets. It may mean we don’t always keep up with bull (strong) markets but it has paid off over the longer term.
Chief Editor: Given that the market goes up and down all the time, what steps can you take to reduce risk?
Peter: We believe that the best way is through active management and diversification.
Kiwi Wealth takes an active management approach, which means we work hard to get investors the best investments possible for the level of risk identified in the fund they’ve chosen.
Passive investment involves closely matching the market’s performance, regardless of what happens with individual companies.
People sometimes think passive investing is less risky, but it can expose investors to more risk because the KiwiSaver scheme provider is exposed to the volatility of the markets. You will get the highs, sure, but you’ll also experience the full impact of the lows.
We also use diversification, which involves spreading our members’ assets across a wide range of investments that behave differently in different markets. These include, but aren’t just restricted to, shares and fixed interest investments. We also use another category of investment called ‘Alternatives’, which are assets that tend to do best in bear markets - in times of market stress or weakness.
We use Alternatives as a kind of ‘insurance policy’, to protect our members’ money when markets are weak and other investments, like shares, tend not to perform as well. Not always, but over time, after a variety of different investment cycles, this strategy works to help shield our members from the full impact of market falls. Our members can find these investments under “External Manager” in the “Where it is invested” part of their online reporting.
Our approach enables us to manage risk and return to deliver the best investment outcomes for our members, rather than just following whatever’s happening in the market. Comparatively, if an investor is in a passive investment fund for over 10 years, they could potentially be leaving a lot of money on the table – certainly, this would’ve been the case compared to the performance of our investment funds over the past 10 years.
Chief Editor: Is reducing risk one of the reasons why Kiwi Wealth invests globally, rather than just in New Zealand?
Peter: It sure is. Diversifying our members’ assets across many countries, industries and companies and being aware of the factors that influence the performance of our investment funds is key. New Zealand companies make up only 0.02% of the world’s share markets, and they tend to be concentrated in just a few industries, so it’s not surprising we have no, or low allocations to NZ shares.
We love living and working in New Zealand and we do invest in Kiwi companies and banks through fixed interest investments like bonds. Our members can see those companies listed under ‘Fixed interest’ in the securities listings of their online reporting.
Kiwi Wealth’s Investment Management Team are here to get the best outcome for our members at the level of risk they’ve selected. Investing globally in a broad range of assets is the best way to do that over the long-term. We have a world of opportunities to choose from.
Chief Editor: Can we expect similar great results in the next performance surveys?
Peter: Well, while we’re delighted that Kiwi Wealth has had such a great showing in these surveys, of course we can’t always expect the markets to favour our investments, especially over shorter periods of time. But our members can be certain their money is being managed by an extremely safe pair of hands whose primary goal is to get the best possible returns for them over the longer term.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any investment decisions.
Kiwibank Limited is a distributor of the Kiwi Wealth KiwiSaver Scheme (Scheme). Kiwibank is not an issuer of the Scheme. Kiwi Wealth Limited is the Issuer and Manager of the Scheme and is a related company of Kiwibank Limited. The Product Disclosure Statement for the Scheme is available at www.kiwiwealth.co.nz