REGULARS | INVESTMENT COMMENTARY
Is KiwiSaver proving to be an ‘investment success’ for members?
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As most KiwiSaver investors are receiving their annual member statements David van Schaardenburg looks at how accurate a measure of success they are.
ver the past few weeks, just over three million New Zealanders or 60% of the total population, will have received their annual member statement from their KiwiSaver provider. While annual member statements are a useful summary for KiwiSaver investors to monitor their savings progress over the last year against their current KiwiSaver strategy, these statements may not prove to be such a useful tool when assessing the investment performance of your current KiwiSaver manager. Due to the significant volatility in financial markets in Q1 2020, generally KiwiSaver funds delivered negative annual returns to most investors for the first time in over a decade. However, we can see from the following data that KiwiSaver is proving a success in terms of the build-up in household savings and in the growth of New Zealand’s fund industry revenues. •
KiwiSaver FUM has grown at an annual compound rate just above 17% over the past five years, even after considering the recent decline in asset values in Q1 20201.
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Gross contributions to KiwiSaver funds in the year to March 2020 added up to an estimated $7.7 billion ($7.2 billion via IRD), which is 48% higher than five years ago2.
028 | ASSET JULY 2020
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At March 31, 2020, KiwiSaver assets make up 32% of New Zealand fund industry FUM, which comprises 52% of the industry’s FUM growth since KiwiSaver started in mid-20073.
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Growth in KiwiSaver FUM has seen related income to suppliers growing from $250 million in 20154 to an estimated $540 million ($490 million in year to March 2019) in the latest financial year5.
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As a percentage of year-end assets, supplier revenues from KiwiSaver over the past five years have modestly declined from 0.88% of FUM6 to an estimated 0.85%.
Even though many individual KiwiSaver accounts sizes are still small, growth in KiwiSaver funds under management (FUM) has been very important to the prosperity of the New Zealand funds management industry. KiwiSaver member statements relate to $63 billion in household savings as of March 2020, which is up 10% from $57 billion in the prior year7. While the increase in wealth invested through KiwiSaver is good for the New Zealand funds management industry, I want to explore if KiwiSaver is working out as an “investment success story” for its current three million members.
KiwiSaver fund performance over 12 months For my assessment, I’ve used the most recent returns as reported to the FMA by KiwiSaver fund managers in their March 2020 quarterly fund updates8. The FMA KiwiSaver database contains 240 funds that have a performance history over 12 months. The range of returns (after fees before tax) for the 240 funds over the year to March 2020 has ranged from +19% to -39% with an unweighted average of -2.4%. Of the 240 fund options in the FMA database, in the year to March 2020: •
75 KiwiSaver funds (31%) after fund manager fees, before tax achieved a better return than their return benchmark (set by the KiwiSaver fund manager)
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66 KiwiSaver funds (28%) delivered a higher fund return after fees, before tax to their members than the fund fees charged (ie KiwiSaver members made more money in the fund than its KiwiSaver fund manager)
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89 KiwiSaver funds (37%) had a positive return (after fees, before tax)
It’s no surprise after the slump in sharemarkets in Q1 2020, that the
