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13 Jun 2024 6:06
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  •   Home > News > Business > Features

    Fund Performance Tables can do More Harm than Good

    Some figures I saw recently strengthened my resolve to steer people away from KiwiSaver performance comparisons.


    Before anti-KiwiSavers leap in and say, “Hey, your last column was about KiwiSaver. Enough!”, let me add that this column also applies to comparisons of other managed funds.

    But given KiwiSaver’s popularity, it was inevitable that various organisations would put together performance comparisons that the news media would highlight. Not me, though, for several reasons:

    • Often, not every provider is included. And some of the smaller, excluded ones might well be particularly good.

    • Unless the numbers show returns after fees, they don’t mean much. Who needs great performance if a big chunk of your return goes to the fund managers? Even when after-fees numbers are used, providers can define fees differently.

    • The numbers may not always be accurate. I’ve heard rumblings that some providers might manipulate their numbers to put them in a better light. I can’t prove it, but it’s a worry.

    • The periods are too short. Everyone is in KiwiSaver for at least five years, often much longer. And returns on long-term investments, typically in riskier assets, vary wildly in the short term – leading some investors to panic and bail out, to their detriment.

    • Most importantly, even if all of the above problems were solved, past performance is not a guide to future performance.

    This is where the research comes in. Global firm Lipper Analytical Services listed the 20 best performing US share funds in the ten years ending December 1998, and then checked their performance in the following ten years, ending December 2008.

    Out of 2,322 funds, the top three in the previous decade came 1,485th, 1,977th and 1,991th. The average rank of the top 20 was 1,745th. Eight out of the 20 funds were in the bottom 11 per cent. In other words, most were dogs.

    Three funds weren’t quite so bad, coming 208th, 620th and 767th in the following decade. Still, that’s nothing to write home about.

    There is considerable debate over whether this would apply in New Zealand. But even if the results were much less stark here, I think New Zealanders would be foolish to assume a top local fund will stay at the top.

    So, if KiwiSaver providers can’t be helpfully judged by past performance, how should they be selected?

    For a start, choose a provider that offers the right sort of fund for you in terms of riskiness and international exposure, and perhaps also ethical investing. Some providers offer funds in which risk is automatically reduced as you get older, which might appeal to you.

    It’s a great idea to go for low fees, perhaps using the KiwiSaver fee calculator on www.sorted.org.nz. And choose a provider whose communications make sense to you. Check websites to get an idea of this, and ask providers to mail information to you to sample.

    Other considerations might include whether the provider is New Zealand or internationally owned. Or you might want to know whether the boss belongs to his or her own scheme. If you are a non-employee, you might find that not all providers will accept the contribution pattern you prefer, so shop around for that.

    Once you consider all the factors that matter to you, you’ll probably find one provider emerges as your top choice. If you are already with a different provider, contact the new one, who will take care of the switch for you. For more on all this, see my book “The Complete KiwiSaver.”

    © 2024 Mary Holm, NZCity

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