KiwiSaver performance analysis 'rubbish', says Morgan

Gareth Morgan has withdrawn his KiwiSaver fund from researcher Morningstar's analysis, published weekly in the Sunday Star-Times, and laid a complaint against the firm with the Advertising Standards Authority.

In a series of terse emails, Morgan has taken Morningstar to task over what he sees as failures in its reporting methodology, including reporting returns before tax is deducted, failing to treat fees consistently and over issues of valuation for investments such as property and securities included in some portfolios.

"It was illustrated with the Huljich affair where Morningstar published their manipulated returns, and tens of thousands of KiwiSaver members flocked to the `best-performing provider'," Morgan said. "Those investors were misled, not just by Huljich but by the Morningstar reports which – because the press regurgitate this rubbish – the public relies upon for comparative returns."

Morgan said many funds hold positions in assets that cannot be valued to the market, so there is scope to manipulate returns. "This has been very common for years by the institutions," he said.

Morningstar's co-head of fund research, Chris Douglas, said Morgan has been very direct in his comments but has struggled to come back with direct feedback when Morningstar answers his complaints.

"We stand by our performance methodology process and if anyone wants to come and see what we do and how we do it, we are happy to take them through it," he said.

"We have repeatedly asked Gareth Morgan to meet him, at his own convenience, and discuss the various issues he has. But he is not prepared to do this – which I guess means it is not in the best interest of Gareth Morgan KiwiSaver. It is better for them from a branding perspective to say that everyone is the devil and they are the one shining light. This is far from the case."

Morgan said that due to a lack of quality control, Morningstar is "no more than a mailbox" to which providers can send whatever numbers they choose.

"Unsurprisingly the result is that its tables continually mislead the public, as some providers endeavour to gross up returns as much as possible in order to boost their numbers. This is totally at odds with the public interest where an apples with apples comparison is essential."

Last week, Morningstar's table (see page D6) showed Gareth Morgan KiwiSaver as the only reported fund to have shrunk over both one and two years of measurement.

On his website, Morgan counters media stories, highlighting that performance with a chart showing his fund was much more stable throughout the global financial crisis.

"Put bluntly, our returns over the collapse and recovery of markets look fine compared to comparable portfolios and were achieved without the volatility," he said.

That chart, however, uses data from another researcher, Fundsource, which he included in his criticisms last week.

Douglas said Morningstar is working in an unregulated market with no performance standards and is actively working with the government to create consistency in performance reporting.

"Many of the things he's pushing for, we agree with," he said.

Morningstar has spoken to the government about creating a consistent framework for KiwiSaver performance reporting and made a submission to the Ministry of Economic Development. Douglas expects to deliver after-tax reports this year, though he points out that internationally, newspapers tend to report before-tax numbers due to the wide variation in personal tax rates investors face.

"Our KiwiSaver Performance Survey is free for all, there is no cost for a fund manager to be on our database, nor is there a cost for people to access it," he said. "It has put a spotlight on the industry and encouraged debate and discussion about what is best practice within funds management. We think this is great."

Morgan said it was an indictment on the industry that his was the only fund complying with the Global Investment Performance Standard.

"Further, it is clear from the recent actions of ISI [the Investment Savings and Insurance Association] that the brotherhood of insurers that dominate this industry do not wish to adopt the global standard and they will need to be dragged kicking and screaming to even that level."

- © Fairfax NZ News