However, looking back over the past 10 years, Milford’s balanced and conservative KiwiSaver funds delivered the highest average annual returns of the funds assessed.
Meanwhile, its growth fund was bumped from the top spot it had consistently held since at least 2017.
It was unseated by Simplicity’s growth fund, which delivered an average annual return over 10 years of 9.9% – a result above Milford’s 9.6%.
The September quarter was the first time Simplicity was included in the ranking. Founded in 2016, Simplicity had only just accumulated the 10-year record required to be counted.
While MJW covered providers responsible for about 93% of the KiwiSaver market, it didn’t include some smaller fund managers and fast-growing newcomers like Kernel and Sharesies.
Speaking to the Herald, Milford’s general manager of KiwiSaver and investment funds Murray Harris explained Milford’s funds weren’t as exposed to tech stocks, which have been shooting up in value, as some other funds – especially those that tracked the market.
Because the likes of Nvidia, Apple and Microsoft had become so big, they were accounting for very large portions (in the realm of 35%) of indices like the S&P 500.
Milford’s growth fund, on the other hand, was about 20% exposed to this sector.
Harris conceded Milford probably took too cautious an approach to investing in AI-related companies early on.
“So that’s impacted our one-year performance,” he said.
“With the benefit of hindsight, yeah sure, we would have put more into AI sooner.
“We have been adding to that tech theme … We’re at market weight for our index, but how far do you want to chase it before you’re wrong, and then you’re causing pain for your clients by being overexposed to a sector that’s not performing well?”
MJW principal actuary Ben Trollip noted the tech and energy sectors had far outperformed other sectors, like utilities and real estate, in the September quarter.
However, the tech and energy sectors were also a lot more volatile.
Harris said Milford’s approach was to not only maximise returns in the good times, but to protect investors’ funds in the bad times.
“There’s quite a bit of risk out there, and we just don’t want to expose our clients’ money to that unduly,” Harris said.
He noted Milford’s funds were among the least volatile of those assessed by MJW.
Harris said KiwiSaver providers that actively managed their funds, rather than had them track indices, earned their stripes during downturns.
As for the recent poor performance of Milford’s conservative KiwiSaver fund, which is more exposed to bonds and cash than equities, Harris said: “The bond exposure that we have been carrying hasn’t really been performing in the way you would expect, where often bonds and equities work in opposite directions.”
However, he noted that with bond yields rising globally, “if you’re buying the bonds now, in the future, the yields are going to be good”.
What about Simplicity?
Turning to Simplicity, its founder Sam Stubbs challenged Milford’s approach.
Even though Simplicity is a passive manager and tracks some indices, so should benefit from tech companies’ strong performances, he noted the other parts of its portfolios were also doing well.
Its growth fund is currently slightly more exposed to “growth assets” than Milford’s, at 80% versus 75%, with Harris clarifying that Milford could alter this portion quite a lot depending on market conditions.
Stubbs said Simplicity was reducing its funds’ volatility by increasing their exposures to New Zealand.
For example, Simplicity’s KiwiSaver growth fund’s largest investment, accounting for a notable 6.7% of the fund, is in Simplicity Living, which does build-to-rent developments in New Zealand.
Stubbs believed this would protect investors if tech stocks crashed, as Kiwis would still need somewhere to live and would continue paying rent.
“We have a lot [invested] in Icehouse Ventures. We have a lot in built-to-rent housing. We run our own mortgage operation,” he said, noting Simplicity’s performance was proof that “investing in New Zealand is much better than people think”.
Stubbs believed Simplicity was well-placed to make good investment decisions locally, as it knew the market.
But when it came to investing offshore, it was happy to track the market.
“If you’re an active manager and you think you can have a competitive advantage in picking where tech stocks in America are going to go, you’re kidding yourself,” he said.
MJW’s Trollip recognised the variety in KiwiSaver fund management styles.
He encouraged investors to look at longer-term performance, noting there could be a lot of noise in the short term.
Trollip also made the point that while comparing funds’ performance was important, the amount one invested and risk profile of the fund selected (ie; growth, balanced or conservative) had the biggest impact long-term.
He also cautioned that past performance didn’t guarantee future performance.
Jenée Tibshraeny is the Herald‘s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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