The final quarter of the year was particularly favourable to these asset classes with New Zealand shares (as measured by the NZX50 Index) being up 6.06 percent in gross terms to 31 December 2012 and a very positive 24.18 percent for the year. The MSCI World Index, which is the yardstick for global shares, rose 3.20 percent over the December quarter and 9.52 percent over 12 months.
KiwiSaver funds are invested into the market like any other managed fund so will be susceptible to market fluctuations. Whilst shares and listed property performed well, fixed interest returns were more lacklustre. According to Morningstar, New Zealand bonds eked out a meagre 0.72 percent gain in gross terms for the quarter and 5.14 percent for the year. Global bonds faired a little better with a gross index return of 5.14 percent for the quarter and 8.39 percent for the year.
Milestone is happy to share with clients the Morningstar KiwiSaver performance survey. This provides a fantastic insight into how each fund manager and their funds are performing relative to the index and their competitors. We can compare these managers and their performance over a five year timeframe. Past performance is not a guarantee of future performance so we are not recommending clients all pile into the very top performing fund that is appropriate for their risk profile.
It is not appropriate to crystal ball gaze and forecast how the markets will perform in the coming year and accordingly how well respective KiwiSaver funds will handle the market. However, there are a few truisms that are relevant. Firstly, it’s time in the market rather than timing the market that will produce the long-term results. One needs to be an investor in KiwiSaver to benefit from investment returns. Secondly, the longer a person’s investment time horizon before they need to access KiwiSaver, then the more investors tend to gravitate towards higher risk funds. The New Zealand public is starting to understand that being in a low risk default or fixed interest fund may be fine if one needs all their money in the next couple of years but is not appropriate if the saving horizon is medium to long-term. Thirdly, diversification of asset classes is just as important with KiwiSaver as it is with other investments. Increasingly, New Zealanders are seeking advice on their KiwiSaver funds and moving them to multi-sector funds with a higher risk profile. The Morningstar performance survey clearly highlights which fund managers are the standout performers in the December quarter plus over one and five years.
Potentially more good news is on the way for holders of KiwiSaver. Firstly, there is the mandatory employer contribution increase to 3% effective 1 April 2013. Secondly, the new KiwiSaver (Periodic Disclosure) Regulations 2012 are scheduled to come into force from 1 April 2013. These new regulations will likely significantly increase the level of disclosure and, importantly, consistency in reporting methodology from all fund managers. This will ensure it is much easier to compare the various KiwiSaver providers and get a greater understanding of the business and people running the schemes as well as the key performance and portfolio characteristics and fees.