Investors need a better way of understanding how risky a KiwiSaver fund really is, one adviser says.

Jon-Paul Hale, of Willowgrove Consulting, said the FMA's KiwiSaver Tracker was potentially confusing for users because the way funds are assessed meant that balanced options could sometimes be placed in the same basket as growth or conservative funds.

When he used the tool recently, two bank growth KiwiSaver funds displayed among a comparison of balanced funds.

The FMA said it was because the funds were reported on based on their actual asset allocation, not the target allocation.

Hale said that could mean an investor would choose such a fund thinking it was less risky than other growth funds, then find it returned to its target allocation and became more volatile than expected.

But a spokesman for the FMA said it was comfortable with the approach, and it was disclosed appropriately.

“When we launched the Tracker, we explicitly stated that ‘The information in the KiwiSaver tracker about fees and return is an important factor in considering your investment, but it is not sufficient information to make an investment decision’.

“The FMA is satisfied that the tool does what it was designed to do, which is to complement the other independent sources of KiwiSaver analysis and allow investors to look carefully at who is managing their funds and what the results and costs are.”

Aaron Gilbert, head of the finance department at AUT, said strategically altering asset allocations was an important tool for chasing returns in active management.

“Where this becomes a problem is when you have arbitrary decisions about what is balanced and growth, for instance. You need some threshold, but you will get edge cases where small changes could see them move between categories."

Sometimes a balanced fund and a growth fund could have more similar risk profiles than two growth funds, he said.

"The categories themselves are broad, two growth funds could have different amounts of risk associated with them but both be growth funds.

"There is an issue with using such crude tools as risk types, especially when asset allocations change, either actively by choice or passively due to different returns from different assets.  It is an inherent weakness of that way of categorising, but short of getting people to understand more sophisticated measures it is what it is."

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