KiwiSaver

A market rally at the end of 2022 saw the value of KiwiSaver assets recover $3 billion in the December quarter, although the market lost 12% for the year, shrinking from $90.2 billion  to $86.5 billion.

The New Zealand equity market gained positive ground for the fourth quarter and the S&P/NZX 50 Index returned 3.7% in Morningstar’s KiwiSaver December quarter survey.

Top contributors were Fisher & Paykel Healthcare,  a2 Milk, and Ebos Group, returning 23.1%, 20.6%, and 16.7%, respectively.

Across the Tasman the S&P/ASX 200 index increased 3.2% over the December quarter, driven mainly by the materials and financials sector where top performers were BHP Group (11.75%), Westpac (9.6%), and Commonwealth Bank of Australia (6.7%).

In local property, REITs measured by the S&P/NZX All Real Estate Index lost 22.3% over the one-year period and 3.6% over the last quarter. Despite the Australia REITs market returning 5.2% over the December quarter, the S&P/ASX 200 A-REIT had a loss of 19.7% over one year.

Morningstar global fund data director Greg Bunkall says all multisector KiwiSaver funds produced positive returns for the quarter with average returns ranging from 1.3% for conservatives to 3.0% for aggressive schemes.

The Q4 figures, which are after fees but before tax and take into account associated tax credits, show MAS KiwiSaver schemes leading in performance across a range of categories. Top performers against their peer group includes QuayStreet Income 1.9% (multisector conservative), MAS Moderate 2.6% (multisector moderate), MAS Balanced 3.6% (multisector balanced), MAS Growth 4.5% (multisector growth), and MAS Aggressive 5.0% (multisector aggressive).

In the multisector group, top performers for the year were QuayStreet Income -1.7 % (multisector conservative), Milford -5.3% (multisector moderate), InvestNow Castle Point 5 OCNS -3.5% (multisector balanced), Milford Active Growth -7.9% (multisector growth), and SuperLife High Growth -12.7 (multisector aggressive).

At the extreme ends for all peer groupings,  the highest 12 month performance was a return of 18.8% for SuperLife Aust Res in Australasian equity peer group, while reflecting the thrashing taken by tech stocks, the lowest was Nikko AM ARK at -63.3% in the international shares group.

Bunkall says default options appointed in 2021 had a rough year – SuperLife KiwiSaver Default (-10.6%), Westpac KiwiSaver Default Balanced (-10.8%), and Booster KiwiSaver Default Saver (-12.1%) in 2022.

In long term results, over 10 years, the aggressive category average has given investors an annualised return of 8.4%, followed by growth (8.1%), balanced (6.4%), moderate (4.1%), and conservative (4.2%).

The three leading providers; ANZ, ASB and Westpac retain their positions of first, second, and third respectively but all declined in market share last year and have done so steadily since 2019.  ANZ leads at 20.5% (AUM $17.7 billion) down from 21.4% in 2021, ASB is in second position, has market share of 15.9% (AUM $13.7 billion) down from 16.1% in 2021, and Westpac holds third spot with 10.6% market share (AUM $9.16 billion) down from 10.7%.  Fisher Funds sits in fourth spot with Kiwi Wealth taking fifth.

Meanwhile Milford in sixth place has climbed one place each year since 2019 when it sat in ninth place. The six largest KiwiSaver providers account for approximately 69% of assets on our database.

An analysis by the Financial Markets Authority of key risks for managed investment schemes has found robust controls across the sector, pockets of concern and emerging concerns around cybercrime and climate-related disclosure obligations.

Based on a survey of four Supervisors for 53 licensed fund managers, the FMA Managed Investment Schemes Sector Risk Assessment reports that risk controls in the sector are successful in reducing overall risk to medium/low, and concludes that without them the risk would be medium to high. This makes the possibility of harm occurring “unlikely” and the consequence of the harm “minor” the report concludes.

However, within the overall rating, the effectiveness of risk controls varied for mortgage fund managers, on governance risk for smaller funds, and on operational risks for larger more complex funds. The survey found some managers' boards and governance structures provide stronger support than others at the ‘top level’ of the business to promote sound governance, compliance frameworks and control processes. Better practices were more common in large fund managers. Of the schemes analysed, 15 were small (less than $250 million funds under management), and three were property investment schemes. The survey did not include superannuation and workplace savings schemes managers and forest and property fund managers.

Overall and Emerging Risk Factors

Top risk factors to the overall sector include macroeconomic factors, product management risk (such as product disclosure documentation, marketing and advertising), new financial instruments (typically volatile and/or illiquid), investment operations (risk embedded in the managers’ business operations, systems and processes), and manager oversight of outsourced investment services.

The survey results were aggregated by fund manager, risk category (business governance, investment risk, and operational risk), sub-sector and sector.

Emerging risks were also identified around cybersecurity, business continuity planning, and the ability of some managers to meet upcoming statutory obligations on climate-related disclosure.

The FMA website has information sheets on cybersecurity and operational system resilience aimed at fund managers and financial advisers.On the topic of climate change, the FMA has published guidance notes on its advertising and disclosure expectations for financial products that incorporate non-financial factors such as environmental, social and governance performance.

FMA director of investment management Paul Gregory finds the overall results encouraging. He says the report highlights the importance of supervisors’ continued efforts to monitor the sector and ensure mitigants and controls are adequate and effective.

Generate is the third KiwiSaver scheme to invest in venture capital putting $20 million into New Zealand’s largest VC firm Movac.

The investment will go towards Movac’s Growth 6, a later-stage VC fund for private Kiwi tech companies needing to grow.With $3.5 billion in KiwiSaver funds under management, this first foray into VC will form a small part of Generate’s Australasian equity allocation, with exposure across all of its KiwiSaver funds except the defensive fund.

Sam Goldwater, Generate’s lead portfolio manager and executive director, says the move looks beyond the current volatile economic cycle. “VC is a long term investment and Movac will invest the funds over the next few years. Our long term strategy involves investing a small portion of our funds in Kiwi venture capital, in particular innovative Kiwi tech companies.New Zealand is producing some incredible technology companies, we want our members to be part of that and help fund NZ Inc. I wouldn’t surprise us to see other KiwiSaver funds make similar investments.”

Movac Partner Mark Vivian says Growth 6 has attracted more than $100 million in the past ten weeks including $70m from NZ SuperFund (it’s third with Movac) and $20 million from Annuitas, which manages the Government Super Fund and National Provident Fund.

“As KiwiSaver schemes grow they’re looking for more or higher return asset classes to invest in. Private company investment in VC can be a pretty good investment over four to ten years plus. We see about 300 investment opportunities a year, by and large in New Zealand or if not they have a New Zealand connection.

“In volatile times we actually see entrepreneurship increase. Obviously because people are restructured out of existing employment, and also because people see obvious gaps in the market. All four of our funds have been top decile globally when it comes to cash returns.”

In 2020 institutional KiwiSaver fund Kiwi Wealth put $54m into Movac’s Fund 5, along with NZ Super Fund ($70m) and NZ Growth Capital Partners ($30m) which manages the Government’s Elevate NZ Venture Fund.

Movac investments include Tradify (job management), Alimetry (gastric ailment solutions), Dawn Aerospace (green propulsion tech), ZeroJet (world’s first electric jet propulsion for boats), and Atomic (low-code customer experience platform).

Not-for-profit KiwiSaver Simplicity was the first KiwiSaver provider to dip into the VC world when it committed $100m and took a small stake in  Icehouse Ventures in 2019. The Icehouse. It has now invested $25m of that and separately it has put $10m into private equity with two companies, Quantify Optomics which tests fiber optic cables, and Reliable Foundations, a provider of residential concrete foundations. All private equity and VC investment is done through Simplicity’s wholesale fund which is entirely funded by its KiwiSaver Growth Fund and Growth Investment Fund. Simplicity head Sam Stubbs says annualised returns since the fund launched three years ago are 9.5%.

“This is a logical well proven asset class for patient and long term investors. We’re very patient animals so we’ll take our time. KiwiSaver providers should absolutely look at this area. KiwiSaver members should be rewarded for having their money locked up. They should be in higher risk, more illiquid investment and get higher returns from long term money in the form of VC, private equity, infrastructure and housing. Most KiwiSaver providers are lazy and want to keep that liquidity.”

Big KiwiSaver managers continue to ramp up use of digital tools to steer jittery investors and beleaguered KiwiSaver members onto the right investment path.

New Zealand’s second largest KiwiSaver provider ASB is launching a new KiwiSaver advice tool on its mobile app and online banking platforms and Kiwi Wealth has incorporated the Atomic.io messaging system into its online portal.

ASB Head of KiwiSaver Distribution, Hamish Davidson, sees ASB has seen a lot more correspondence in the past 12 months around market volatility.

“With Covid, KiwiSaver customers right across New Zealand tended to overreact and change their funds which may or may not have been the right thing to do. So we’ve tried to engage with a lot more people over the phone. This time not as many have moved to more conservative funds as they did when Covid broke out.”

Davidson says partnering with BlackRock has provided more access to information which the bank has shared with customers.

“We know for a fact there are still a lot of people in New Zealand who don't necessarily understand KiwiSaver or don't use it as effectively as they possibly could.”

ASB research in the third quarter shows Kiwi are not confident in their retirement plans with 64% believing they need to be saving more for retirement and around a quarter (27%) having a clear idea how much money they’ll need. Of the almost 1000 New Zealanders surveyed, only 23% say they have a good overall understanding of KiwiSaver.

The digital tool will allow customers to do a bit of a sanity check themselves and self-service with personalised information on the right KiwiSaver fund and contribution level. They will also be able to make changes but if they still need to talk to someone they will call and talk to a specialist.”

Meanwhile Kiwi Wealth says it is already seeing customer behaviour change through use of its new messaging platform.

Chief executive, Rhiannon McKinnon, says during periods of market volatility, making short-term decisions can cost investors significant returns over the long run.

“Our commitment to reach customers on their terms and with the right support helps them make good decisions to grow and protect their long-term wealth.”

Kiwi Wealth has sent 1.4 million targeted, personalised messages with information. McKinnon says of the viewed messages, 25% have led to direct action, such as using digital advice tools to review their fund choices and risk appetite.

A recent test showed a 22% increase in customers using digital advice to help them select the right fund.

Kiwi Wealth joins ANZ, BNZ, Kiwibank and Southern Cross Health as users of the Atomic messaging platform. Digital advice tools are also available from BetterSaver, kōura Wealth, Nikko Asset Management and Milford Asset Management.