Don't rely on KiwiSaver fund names, investors told

Thursday, 7 September 2017

It needs to be easier for investors to understand how much risk a KiwiSaver fund is taking, one researcher says.

If you're trying to pick the right KiwiSaver fund, you need to do more than just look at what the fund is called, industry commentators say.

KiwiSaver members are often told that they must make sure that they are in the right type of fund for their circumstances. Usually, growth assets such as shares perform better over the long term. But they can be volatile.

That means that people with a long time until they retire are usually encouraged to put their money in 'growth' or at least 'balanced' KiwiSaver funds. Those who might want access to their money in the near future are usually encouraged to stick to conservative funds, where there is less chance of a downturn just as the money is needed.

But researchers say you can't always rely on what a fund is called to describe its risk profile.

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AUT professor of finance Bart Frijns wrote a research paper in which he said the way KiwiSaver funds' risk levels were described could be misleading. He said there should be more transparency from KiwiSaver providers so that investors could understand the level of risk their funds were taking and how their investment assets were allocated.

He said some funds that were described as 'balanced' could be riskier than growth funds.

Research house Morningstar classifies KiwiSaver funds in its reports according to their asset allocation – the percentage of investments in different asset classes – rather than what the KiwiSaver providers themselves call a fund.

Nikko, ANZ, Booster and OneAnswer all have balanced or balanced growth funds that end up in Morningstar's growth category.

Booster, Generate, Fisher Funds, Kiwi Wealth and Mercer all have growth funds that Morningstar categorises as aggressive.

Funds described as conservative also appeared in the 'moderate' category.

Morningstar would consider a growth fund one that had between 60 per cent and 80 per cent growth assets. But over time even that much variation could make a difference - a 60 per cent growth fund would be expected to have a different outcome to an 80 per cent one.

David Boyle, group manager of investor education at the Commission for Financial Capability, said it was something that investors should be aware of.

But he said it was partly due to the size of the New Zealand market, and would change as more money was invested and more funds launched.

'There is a challenge around making sure everyone is true to label. Part of that is because of the number of funds in the market.'

Investors could look at KiwiSaver providers' product disclosure statements, which include a 'risk indicator' showing how volatile they have been over the past five years.

Chris Douglas, of Morningstar, said: 'I think what we have in KiwiSaver is pretty good, especially given the small size of funds. You can't just create a category with two or three funds. As KiwiSaver grows, it will evolve, and we will be able to have more granularity. This is just part of the evolution of KiwiSaver.'