If the Financial Markets Authority's KiwiSaver Tracker was designed to make investors wary of higher-fee funds, it is not achieving its goal, one fund manager says.
The FMA has updated its KiwiSaver tracker, which shows fees as a percentage of funds' five-year average return.
Aggressive funds ranged from Mercer High Growth's 7.9% of return paid in fees to 17.2% for Booster's Geared Growth fund and 23.5% for NZ Funds Growth Strategy.
Growth funds varied from ASB's 5.5% to NZ Funds' Inflation Strategy's 21.3%.
Cash funds had high fee-to-returns ratios because their returns were so low.
When it was launched, the FMA said the tracker made it clear that there was no evidence that paying a higher fee got a better return.
But Booster's outgoing chief investment officer David Beattie said that was now not so clear.
He pointed to the scatter plot with the data which shows that all the lowest-fee providers have after-fee returns at 5% or below.
The best performers in the market hit more than 15% over five years.
The highest performers after fees over the five years were the Quay Street New Zealand equity fund (15.1% return, 1.3% fee, OneAnswer International Share fund (14.5% return, 1.1% fee) and OneAnswer Australasian share fund (14.4% return, 1.1% fee).
“At best there’s no relationship and when all the funds are together there’s potentially a positive correlation between fees and returns. We wouldn’t disagree with that.”
The most expensive KiwiSaver fund was the Lifestages Growth Portfolio, at 2.8% fees and a return of 9.1% after fees and NZ Funds Growth Strategy with 2.7% fees and 9.9% returns.
Booster’s Geared Growth fund also had fees of 2.7% but Beattie said that would soon change because it would no longer have to include its interest costs as part of the calculation. The fund borrows to leverage up its total exposure to equities. “They are not fees paid to us, they go to the bank as part of funding the facility.”
That would cut the fees recorded in half, he said.
Beattie said the onus for anyone charging fees that were higher than the average was to justify how they were adding value.
“If you aren’t you will go out of business because investors will go to those who are better at proving they are adding value or who say they offer cheap fees and don’t add a lot of value. The evidence does not support the proposition that the higher the fee the lower the return after fees.”
He said when funds went into negative returns the percentage calculations would look meaningless.
“It’s useful to plot the return versus fees but not to portray it as a percentage.”