As KiwiSaver approaches its twelfth anniversary there is growing interest from people in the performance of their funds. A new online tool launched by the Government this year called Smart Investor has made it easier than ever to compare how well your fund is going against others. In the second of a three-part series Money Editor Tamsyn Parker looks at what to do if your KiwiSaver fund is a poor performer.
Finding out your KiwiSaver fund ranks at the bottom for its performance is not a reason to panic but is a warning sign that you need to be looking into why, experts say.
Tom Hartmann, managing editor at the Commission for Financial Capability - the Government's financial education arm - says the general rule is past performance isn't a guide to future performance but that doesn't mean you should ignore it completely.
"What you're looking at is information that has already happened. Results that are historic. We are not going to see exactly that same thing going forward."
But, says Hartmann, if your fund has been consistently underperforming against its peers for a significant period of time you should look deeper because it could be a sign of high fees or poor management.
"Consistent underperformance in the past does not bode well for the future."
Deborah Carlyon, a financial adviser at StuartCarlyon, said it was important not to just take the return at face value.
"Delve into it and get an understanding of why."
Carlyon said fees and asset mix were some of the biggest drivers of returns.
"Fees are a big hurdle. It [high fees] is always going to be a drag."
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Ayesha Scott, a finance professor at AUT University, who specialises in KiwiSaver research said a poor-performing fund might be making the same returns before fees as everyone else but investors were getting less in the hand because the fund was charging higher fees.
"That is something investors can decide to switch upon."
The Government's new Smart Investor tool allows people to rank funds based on their fees and compare them to the average across the sector.
But it is also important to compare like for like.
Many of the funds with the cheapest fees use an index tracking investment approach which is based around computer algorithms.
The alternative and the approach used by the majority of KiwiSaver providers is active management in which the fund manager picks which companies they invest in.
Scott said she followed the academic literature which pointed to no advantage over the longer term for active management.
"I personally don't see paying for an active manager as value for money."
But she said there may be an argument for paying more in fees if a manager is doing something specific like ethical investment.
"If you are investing in ethical companies, that really research intensive stuff, there is perhaps an argument for paying for that."
Scott said for some people where the money was invested was a bigger concern.
"Not everyone is chasing returns. Many people want to know if their money is invested ethically."
Carlyon said the asset mix of a fund could also make a big difference.
KiwiSaver funds with a higher exposure to the New Zealand share market and listed property funds would have had a better return in recent years as these sectors had done very well.
KiwiSaver provider KiwiWealth has argued that the reason for its conservative fund's poor performance has been down to it having a smaller exposure to growth assets - investments in shares and property - compared to other funds.
A recent review has resulted in the fund manager increasing the amount it invests in growth assets in the fund, although the change has yet to feed through into performance data.
But experts said investors should also avoid choosing a fund manager based solely on it having the top returns.
"What people shouldn't do is just move to a fund that did well last year," Carlyon said.
The fund could have invested in a sector that did really well last year and is now headed for a lower growth period.
"You cannot predict the future," says Hartmann.
"Trying to predict the future [performance] is like being a fortune teller."
Up next: Should poor-performing funds be weeded out?
Part one: KiwiSaver: The best and worst performers