KiwiSavers beware - study

Academic finds no evidence of market timing skills among local fund managers.

An academic is warning savers to be wary of promises made by KiwiSaver providers after his research found no evidence local fund managers could time the market to their favour or systematically beat a global performance measure.

Bart Frijns, director for the Auckland Centre for Financial Research at Auckland University of Technology, compared the performance of growth KiwiSaver funds with benchmark sharemarket indices for New Zealand, Australia and globally. New Zealanders have more than $15 billion invested in KiwiSaver schemes.

Frijns found some funds were able to do better than the New Zealand and Australian benchmark indices but none could systematically beat a global benchmark. He also found no evidence that local fund managers increased their investment in shares when returns were going up.

"When we assess the market timing skills of KiwiSaver fund managers, we observe no evidence for significant positive market timing skills, and in several cases we find significant negative market timing skills," Frijns said in his analysis.

He said the two findings were not unique to New Zealand and were in line with international research.

But KiwiSaver proponents say the research did not span a long enough time frame and there was still a case for active fund managers - those who pick which companies to invest in.

Anthony Quirk, managing director of Milford Asset Management, whose active growth KiwiSaver fund was not included in the research but has been one of the top performers, said the retirement savings scheme had been running only since July 2007.

"In academic terms that is quite a short period of time."

Quirk said that in a perfect world research would be done over 20 to 30 years. "But that's not practical."

He said the research did not mean all fund management was bad. "Active management still has its place - particularly when things turn ugly." He said savers needed to ensure their KiwiSaver manager added value.

Peter Neilson, chief executive of the Financial Services Council, which represents the insurance and savings industry, said the past six years was a difficult period to analyse because of the global financial crisis.

Neilson said most fund managers would not promote timing the market but having time in the market as the best way to get returns. "Most managers in New Zealand would say time in the market will outperform timing of the market. Timing the market - very few people would claim that is something they could do."

Frijns' research also revealed a lot of risk variation between the growth funds, making it difficult to compare the funds based solely on returns.