If you’re one of the roughly 850,000 Kiwis invested in a conservative KiwiSaver fund*, you’ll have felt the sting of a particularly poor performance throughout 2022.
According to Morningstar, the average conservative fund lost 8.1% of its value in the 12 months to 30th September 2022. Yikes.
Now, any managed fund can lose money once in a while – that’s just the nature of investing. But what’s intriguing is that with the five-year average return on conservative funds having dropped to 1.80% p.a. (after fees and before tax), this performance is well below that of a rolling one-year bank term deposit – which averaged 2.44% p.a. over the last five years.
Take a step or two up the risk continuum, and the results weren’t a hell of a lot better.
Moderate KiwiSaver funds (often still considered ‘conservative’) generated a five-year return of just 2.40% p.a., while balanced funds delivered five-year returns of 3.80% p.a.
In other words, you’d have been better off having your money in a regular old term deposit with an AA-rated bank – which generated a 33% higher five-year return than the average conservative fund, and around the same return as a moderate fund.
How does that stack up?
Top 5 Conservative KiwiSaver Funds – five-year total returns (after fees and before tax)
Looking into a bit more of the nitty gritty, listed below are the Top 5 performing KiwiSaver Conservative funds, based on the last five years.
Not all funds are directly comparable, so we’ve only looked at those that have at least $100m under management (i.e. they’re well established) and with less than 30% in equities.
(Generate Kiwi’s Conservative Fund would have topped the list at 3.90%, but we’ve excluded it from the table as it has 37% in growth assets, so is technically considered “moderate” or conservative/balanced.)
| Fund name | Total return (% per annum) |
| Milford Conservative | 3.06% |
| Kiwi Wealth Conservative | 2.28% |
| Fisher Conservative | 2.18% |
| Westpac Conservative | 2.00% |
| Simplicity Conservative | 1.70% |
If we expand those results out to a 10-year average (rather than five-year) the relative performance looks a little better.
While there aren’t many KiwiSaver funds that have been going for that long, those that have - again, according to Morningstar - have averaged a return of 3.90% compared to a 10-year rolling 1-year term deposit rate of 3.75%.
So, do the fees charged on conservative KiwiSaver funds deliver fair value?
The 2022 KiwiSaver Annual Report (produced by the FMA) shows Kiwis now have $89.7 billion in KiwiSaver funds under management, with fund managers taking $692.6 million in fees. So, it’s a highly profitable business once a fund manager achieves scale.
The good news is there was a significant reduction in fees charged in 2022, with many conservative funds removing membership fees altogether, and a small reduction in percentage-based management fees.
Morningstar reports the average asset fee on conservative funds fell from 0.68% p.a. to 0.66% p.a. between September 2021 and September 2022. In dollar terms, that’s about $1.8million more in KiwiSaver accounts (and not going into the pockets of fund managers).
Interrogating fund performance and fees is a good way of encouraging better consumer outcomes – so we’ve reflected current fees for the highest cost funds below, as found within their respective disclosure statements.
Top 5 Conservative KiwiSaver Funds – Highest fees
At the other end of the scale, the lowest cost conservative fund is managed by Simplicity – a not-for-profit which charges 0.31% plus a $20 per year membership fee. The five-year return on Simplicity’s Conservative Fund (after fees and before tax) was 1.70% p.a.
Meanwhile, the lowest cost from a major bank was ASB at 0.40% with a five-year return of 1.60% p.a.
And how did KiwiSaver Cash Funds perform in 2022?
Kiwis have roughly $3.5 billion sitting in KiwiSaver cash funds, which are invested into short-dated debt securities and cash investments.
Over the last five years, managed cash funds have averaged 1.50% p.a., after fees and before tax. That’s a staggering 39% lower than if you’d been invested directly into term deposits, which delivered 2.44% returns over the same period.
And looking even further back, over the last 10 years these funds have averaged a return of 2.20%, compared to 3.75% on a rolling one-year term deposit.
If even the most conservative of KiwiSaver funds aren’t performing right now, what else is out there for investors?
Last month, Squirrel’s peer-to-peer investment platform delivered average returns to investors of 7.06% p.a.
When you invest with Squirrel, you’ve got the feel-good factor of knowing your money’s going directly to fund loans and help people around Aotearoa with their residential housing needs – whether that’s buying, building or renovating.
We’ve got a bunch of security built into our platform to help protect your money, and (while past performance is no guarantee of future performance) to date, we haven’t lost a single cent of investor funds. We’re pretty proud of that track record, especially considering the way a lot of other investment classes, including KiwiSaver, have gone in recent months.
You can choose to sell your investment at any time (with no penalties) via Squirrel’s marketplace. Over the last 12 months, it’s taken 1.1 days on average for investors to sell and get their money out – but there’s no guarantee other investors will be willing to buy your investments, and you may need to hold them to term.
And we're also now paying interest on funds held in the Squirrel On-Call account, so you can still earn returns just for holding money with us - you don't even have to invest it! At launch the On-Call account offers returns of 3.50% per annum, making it the highest paying "no strings attached" interest rate of any savings account in the New Zealand market***.
Find out more about investing with Squirrel on our website, and get started with as little as $100.
Footnotes:
- Performance and fees data is sourced from Morningstar and from individual fund disclosures available on sorted.org.nz.
- Where a fund has reduced its fees during the year, we have taken a forward-looking view using the current fees.
* Figure sourced from the 2022 KiwiSaver Annual Report.
** Accurate at time of writing. Interest on the Squirrel on-call account launched on 24th January 2023.