KiwiSavers opt for growth schemes

Industry sources suggest most savers are wisely steering clear of the low risk, low return KiwiSaver default funds.

Tomorrow the first parcels of KiwiSaver cash pour into fund managers from the IRD, and a survey of the schemes on the market shows investors are opting for the higher end of the risk spectrum.

Finance Minister Michael Cullen, who is planning a triumphant announcement in the coming days, has instructed Inland Revenue not to release figures on how many savers (130,000 as at the end of August) have been committing cash, and how much money they are saving.

The money heading toward fund managers will be substantial. If 200,000 savers have opened an account, $200 million will be generated from the $1000 sweetener the government will be putting into every new account and that does not count people's actual savings for the months of July and August. Much of the September money does not land with fund managers until the end of October.

Savers have had to choose investment managers as well as which funds to invest in, and it appears they have by and large been making good decisions.

Industry sources suggest most savers are wisely steering clear of the low risk, low return Kiwisaver default funds. Instead, they prefer higher risk, higher return funds such as balanced funds and growth funds.

That is a wise move, as is starting early, because a couple of per cent extra a year makes a big difference in the long haul.

According to growth fund manager Fisher Funds, a 6.5 per cent annual return for a Kiwisaver saving 4 per cent of their salary from the age of 23 will produce about $200,000 more in savings at age 65 than a 4.5 per cent return.

Another local growth manager, Brook Asset Management, which has just entered the Kiwisaver game, says long-term investors should aim to have higher weightings in growth assets such as shares, infrastructure and property as they rise over time with economic growth, unlike income assets such as bonds and cash which do not rise as fast, although they have a less bumpy ride.

A survey of the balanced funds offered by the main Kiwisaver providers (or where they don't have one, their staple fund), shows an average weighting to growth assets shares (local and overseas), property and alternative assets like hedge funds and infrastructure of just under 60 per cent.

But there are big differences in emphasis between some fund managers. While the bank funds all hover around 60 per cent, as do the big insurance company schemes, there are some very aggressive growth managers.

Fisher Funds, for example, is a 100 per cent play on New Zealand and Australian shares. Superlife, a smaller Kiwi super fund manager, has 81 per cent in growth assets, including 17.5 per cent in property. Stockbroker First NZ Capital is aiming at around 80 per cent growth assets in its Kiwisaver.

Several, such as Grosvenor and First NZ Capital, can borrow money to leverage up investments to make them even more aggressive, although that increases risk. Some have gone to the other end of the risk spectrum, including Southland Building Society's (SBS) Lifestages scheme, which has about 80 per cent of Kiwisavers' cash being used to back residential mortgage loans made by the society, which provides a steady, though not spectacular, return which will appeal to some.

But while balanced funds suit those in their mid to late 40s and over, they are, many fund managers argue, nowhere near aggressive enough for younger savers, to whom the likes of Brook and Fisher Funds offer 100 per cent growth funds.

A standard growth fund from a bank or insurance company will, by contrast, still have 25 per cent in fixed interest and cash.

But for those who want aggressive growth early on, but do not want the headache (or risk), of shifting from higher risk funds down to lower risk funds as they age, or forgetting to do so, there are funds that do it for them.

Such options are offered by Superlife (the AIM Age Steps funds), AMP (Lifesteps) and Supereasy, a very cheap Kiwisaver scheme operated by Civic Assurance which was set up to provide financial services to local body workers, although anyone can join its Kiwisaver.

Its automatic fund, which is invested through reputable managers like ING, starts out by giving 20-year-olds a 75 per cent growth weighting and 25 per cent income weighting.

As they age 1 per cent of their growth savings shifts into income savings each year, meaning savers don't have to do it themselves.

The growth versus income balance is just one of the questions about where their cash is invested that Kiwisavers need to think about.

Those with a moral and ethical take on life might look to the Christian Koinonia Fund, managed by the Anglican Church, or Asteron's Kiwisaver, which has an ethical option.

Those preferring passive funds to active funds can invest in them through ASB and SmartKiwi, the NZX's Kiwisaver fund.

Those who want to keep the bulk of their cash invested in New Zealand might look to Fisher Funds, Huljich, SmartKiwi or Superlife.

- © Fairfax NZ News