Capital Markets: Market volatility hits KiwiSaver, experts advise long-term focus

Sharemarkets have been volatile since Donald Trump announced his tariffs but fund managers' classic saying still holds true: “Don’t try to time the market." Photo / Getty Images

• KiwiSaver balances fell by up to 5% due to global market volatility but have since recovered.
• Investors are advised to stay calm, think long-term, and ensure their fund matches their risk profile.
• Fund managers emphasise not timing the market and highlight buying opportunities during downturns.

Over the past three months, KiwiSaver members have seen their balance accounts fall by up to 5% or more as global markets swung wildly. By early May, the accounts were recovering and recouping much of the losses.

It was a stark reminder for scheme members, and other investors, that during a time of market volatility and uncertainty, they should stay calm and think long-term.

One balanced KiwiSaver account sat at $190,756 on February 5 and a month later was down to $185,889. On April 11, the account was $179,745, falling more than 5%, as the tariff tremors reverberated. On May 5, the account recovered to $184,830. That balanced fund had returned 11.91% over 12 months ending February.

Fund managers have a saying: “Don’t try to time the market. It’s the amount of time spent in the market that counts. Don’t reduce your contributions and miss out on the crucial upswings in the market.”

Their catch-cry is: “The current volatility is not abnormal, don’t look at your balance every week and stick to the long-run. The important thing is to make sure you are in the right fund based on your age, stage in life and risk appetite – whether it’s a conservative, moderate, balanced, growth or aggressive fund.”

Mark Lister says it's not worth trying to time the market and nervous KiwiSaver members will get it wrong by switching funds. "Trust the fund manager that all will be fine over time."

Mark Lister, investment director with Craigs Investment Partners, said it was only natural that some KiwiSaver scheme members would worry about a volatile market. But they shouldn’t over-react and feel they need to move out of, say, a growth fund and into a conservative fund.

“The fund managers have big, professional teams with lots of experience and resources,” said Lister.

“They are well-equipped for what they are seeing out there and can take opportunities as they emerge. Their job is to position [investment] portfolios appropriately.”

His advice is: if members are worried, make the fund managers work for their money by getting on the phone and asking an adviser to re-evaluate their situation.

Lister said the golden rule for KiwiSaver schemes is:

● If you are calling on funds within the next five years, then you should be in a lower-risk conservative or balanced fund.

● If you are not calling on funds for five, 10 years or longer, then you should be in a growth fund and not be too worried.

“Trust the fund manager that all will be fine over time,” he said. “Moving long-term money [savings] around on volatility is a risk. Don’t trade KiwiSaver by trying to time the market; you will get it wrong by switching funds.”

Lister said it was a good time to get information from fund managers about whether the fund matches members’ financial objectives. “It is important that their fund choice and risk profile matches their time horizon and objectives. They may switch funds if their long-term objectives have changed or they may be planning to remove funds in one to three years for a house deposit.

“But whether you are 25, 35, 45 years [old] or even 55, scheme members are still in a buying phase of their investment journey.”

Lister said a volatile market actually provides investment opportunities. “Money is coming out of your wages and stocks are falling — this is a time to buy stocks at cheaper prices.

“We are not using our money for another 10 years and you are hoping for periods when markets are weaker and you are picking up bargains. This is not the time when you want markets to be at an all-time high; you want that time when you are ready to move out of your scheme.”

Lister said that over the past three months, fund managers will have moved some money away from the United States because of the tariff risks and into markets such as Europe.

Gold is regarded as a safe haven and the managers will have added that commodity as a diversification asset. “KiwiSaver schemes will have benefited from fund managers picking up some bargains when markets are suffering.”

"The more money you put in, the more you will get out of it. Long-term, the markets are a weighing machine," Simplicity New Zealand's Sam Stubbs says. Photo / Janna Dixon

Sam Stubbs, co-founder and managing director of Simplicity New Zealand, said in the short term, when markets are on a rollercoaster ride, the first rule is don’t get off when they are moving.

Scheme members investing for the long term should like it when markets go down and present buying opportunities.

“The more money you put in, the more you will get out of it. Long-term, the markets are a weighing machine.”

Stubbs said one of the effects of the recent events may be some degree of permanent change in trust for the US dollar and stocks. There may be a reallocation of investment funds out of the US and into Europe and Japan and a re-rating of the US dollar and interest rates.

“The US has been the world benchmark for interest rates and currency, but it may become more risky. No doubt, we are in uncharted territory because the world has trusted US markets and assets. A few years ago, it was thought the New Zealand economy was riskier than the US. I wonder about that now.”

How long will the rollercoaster ride continue? “I have no idea,” said Stubbs. “We don’t know what President Donald Trump will say tomorrow. We are passive long-term investors and we aren’t changing anything in terms of our core strategy.”

Stubbs did think more money may be invested in New Zealand assets that provide solid, reliable returns.

In a webinar to its KiwiSaver members, the AMP investment team said at present it was impossible to predict the direction of markets. They like certainty around the performance, forecasts and future plans of companies, and they like to understand the economy and how it is impacted by monetary policy.

What Trump is doing, almost on a daily basis, is putting uncertainty into the markets.

The news is not always bad but challenges remain. To overcome the volatility, the AMP investment team is providing further diversification to its KiwiSaver funds and adding asset classes such as New Zealand corporate bonds and listed infrastructure.

Kiwi retirement savers invested a total of $121.19 billion in 309 KiwiSaver funds at the end of March, which was steady from the end of last year with market drawdown replaced by inflows, according to the latest Morningstar quarterly survey. KiwiSaver funds under management increased $3.4b in the December quarter and rose $24b for the whole of last year.

The average multi-sector category returns for the March quarter ranged significantly between flat for conservative and -3.7% for aggressive funds.

The April turmoil was yet to come when Trump announced his sweeping reciprocal tariffs on 60 countries and the European Union, reducing the higher ones to 10%, except for China – and then put a hold on them for 90 days while countries negotiated.

The markets ebbed and flowed with the US administration announcements. The benchmark US S&P 500 index fell from 5670.97 points to 4982.77 after Liberation Day on April 3 (NZT) and on May 3 had recovered to 5686.67. The S&P 500 had nine consecutive days of gains up till then – its longest winning streak since November 2004.

The Nasdaq Composite, laden with high-growth technology stocks, fell from 17,601.05 points to 15,267.91 and was back at 17,844.24 on May 5.

On the day Trump paused the tariffs (April 9 UST) the US indices had big single-day rises – the S&P 500 was up 9.52%, its best since 2008; the Nasdaq Composite was up 12.16%, its best since January 2001, and the Dow Jones Industrial Average was up 2962 points or 7.87%, the biggest points rise on record and its best day since 2020.

The S&P/ASX 200 Index fell from 7859.1 points to 7343.3 and was before May 5 at 8157.8. The S&P/NZX 50 also recovered strongly, after falling from 12,338.57 points to 11,775.88 and reaching 12,421.25 on May 5.

Morningstar data director Greg Bunkall again reiterated: “Ignore the short term. While markets move up and down in the short term, long-term results continue to be strong.

“Individual headlines on indices don’t really give you the best sense of how KiwiSaver funds would have returned because they are more diversified. They’ll be invested in different markets, asset classes and regions, which often mitigate some of the return downdraft you read and see online,” he said.

There are 21 KiwiSaver providers, with ANZ leading the market share with almost $22b under management, followed by ASB, Fisher Funds, Westpac and Milford Asset Management.

Morningstar estimates the providers will collect $983 million in annual fees based on an average fee of 8c per dollar invested. The Big Five providers account for 66% or $81b under management.

The highest three-month performance was a gain of 9.7% in the SuperLife Europe fund and the lowest was -23.1% in the Kernel S&P Kensho Moonshots Innovation fund.

The highest 12-month performance was a gain of 26.1% in the Kernel Global Infrastructure fund and the lowest was -16% in the Kensho Electric Vehicle Innovation fund.

The main KiwiSaver asset allocations, according to Morningstar, were: International shares $48.8b or 40.2%; cash and New Zealand bonds $28.9b or 23.8%; international bonds $19.6b or 16.2%; New Zealand shares $13.2b or 10.9%; and Australia shares $5.2b or 4.3%. The income assets represented $48.5b or 40% and growth assets $72.7b or 60%.

Over 10 years, the aggressive category of KiwiSaver schemes on average has given investors an annualised return of 8.3%, followed by growth 7.5%, balanced 6.1%, moderate 4.3%, and conservative 3.9%.