Kiwi Wealth trails rival funds
But short-term dips may not be a worry for the long-term investor,
Kiwi Wealth KiwiSaver investment bosses have defended the scheme’s lack of investments in local shares, following its slump in Morningstar’s fund rankings.
When Morningstar’s KiwiSaver report for the second quarter of the year came out on Tuesday, it showed Kiwi Wealth funds at the bottom of the one-year rankings for conservative, balanced and aggressive funds.
Morningstar fund researcher Kathryn Young said Kiwi Wealth had a tough year because it has no exposure to Australian or New Zealand shares which had had a good year compared to global share markets.
But Peter Verhaart and economist John Carran from Gareth Morgan Investments (GMI), which does the investing for Kiwi Wealth, said investors should focus on long-term, not short-term returns.
Verhaart also said Kiwi Wealth, which is the sixth largest KiwiSaver provider managing nearly $2.5 billion of KiwiSaver money, invested where it believed it would get the best longterm, riskadjusted returns.
He took a swipe at rivals sticking close to each other when deciding how much to invest in local and overseas markets, saying it was a strategy to minimise the ‘‘peer risk’’ of being embarrassed by under-performing rivals.
‘‘From a fundamental investment point of view, you are doing the best to get the best outcomes for your clients rather than trying to hug the average so you don’t risk sticking your head over the parapet,’’ Verhaart said.
KiwiSaver growth funds had between 11 and 63 per cent of their money invested in New Zealand and Australian shares, Verhaart said, yet New Zealand’s sharemarket made up just 0.2 per cent of the total value of OECD sharemarkets.
GMI had been a global investor since its founding by economist Gareth Morgan, but Verhaart said New Zealand and Australian shares were not banned from its funds. Instead, they had to compete for their place.
Young said that meant periodic underperformance for Kiwi Wealth. ‘‘When the local market does well in comparison to international equity markets, Kiwi Wealth will usually face significant headwinds.’’
For Kiwis there’s risk in having all their economic eggs in the New Zealand basket, Carran said.
‘‘Most New Zealanders have most of their wealth and incomes tied up in the New Zealand economy – their homes, bank savings, and wage and salaries,’’ he said. ‘‘If a large shock adversely affects New Zealand’s economy then all of these will be affected at the same time.’’
‘‘The New Zealand share market is relatively concentrated in a few industries, notably utilities, including power generators, transportation, and the construction industry. Buying overseas shares allows GMI to thoroughly diversify its portfolios, not just across different regions and countries, but also across different sectors and industries.’’
Local share market returns had been good for since 2003, partly driven by a rising dollar, but, Carran said: ‘‘The advantage enjoyed by domestic shares is unlikely to sufficiently compensate for their extra risks associated with lower diversification and lower liquidity.’’