Miserable year as six in 10 funds fall in value
The panicky end to 2018 on global sharemarkets left six in 10 Kiwisaver funds posting losses.
In all, 61 of the 103 Kiwisaver funds tracked by research group Morningstar ended the year in negative territory, according to its latest quarterly Kiwisaver report.
‘‘International equities had gone through some squalls throughout 2018, particularly at the very start of the year when there had been heightened fears about the outlook for the global economy, but nothing compared with the sharp sell-off that occurred in the final quarter,’’ Morningstar’s Tim Murphy said.
Rises and falls in international sharemarkets are becoming more significant for New Zealand households as the total amount in Kiwisaver funds topped $50 billion at the end of 2018.
The only bright points in the year for Kiwisavers were when the New Zealand sharemarket delivered a positive return, and when the weakening of the United States dollar provided some insulation against falls in the value of US shares.
‘‘Despite a difficult year for many other equity markets, New Zealand shares delivered a positive return of 4.9 per cent and was one of the best-performing developed-economy equity markets last year,’’ Murphy said.
The falls in global share prices were prompted by investors becoming increasingly concerned at the end of last year that global economic growth could be hit by a trade war between China and the US.
‘‘A number of concerns combined to cause near panic selling,’’ Murphy said, ‘‘with the main ones the ongoing trade dispute between the US and China, the potential impact of a series of interest rate increases, the latecycle outlook for the global economy particularly once the effects of tax cuts wore off in the US, and ongoing wariness of emerging markets as an asset class.’’
The MSCI World Index of developed markets ended 2018 with a 8.7 per cent overall loss.
Murphy said the kiwi’s decline against the greenback ‘‘was a mitigant for local investors, but the end result was still a loss of over 3 per cent in New Zealand dollar terms’’.
Kiwisavers are encouraged to invest in the kind of fund that suits their needs best, with the main choices being conservative, balanced and growth funds.
For long-term savers trying to maximise their retirement savings, growth funds are often the fund of choice.
Growth and aggressive funds carry the highest risk of shortterm losses as they invest more heavily in shares than do the other types of funds. Despite this, they should deliver the highest returns over the long term.
The average Kiwisaver growth fund delivered a loss during 2018 of 2.1 per cent. Only four growth funds, operated by Milford, Fisher Funds and Generate, delivered positive returns.
Of the 26 balanced funds that Morningstar tracks, 22 delivered negative returns.
All the conservative and cash Kiwisaver funds delivered positive returns.
Murphy cautioned Kiwisavers to judge their fund over longer time periods than a single year.
‘‘It is most appropriate to evaluate performance of a Kiwisaver scheme by studying its long-term returns,’’ he wrote.
‘‘Over 10 years, the Growth category average has given investors a near double-digit annualised return of 9.5 per cent, followed by Aggressive (8.1 per cent), Balanced (8 per cent), Moderate (6.4 per cent), and Conservative (6.1 per cent).’’
Milford’s Kiwisaver Active Growth fund topped the performance across all multi-sector categories over 10 years, he said.
Over the 10 years to the end of 2018, the Kiwisavers who received the lowest returns were those who had kept their money in cash funds.
The highest-performing cash fund was from Mercer, which delivered a return of 3.1 per cent before tax.