No negative returns for KiwiSaver funds in 2017, Morningstar research shows

All 146 KiwiSaver products offered by 16 providers generated a positive return for their investors in 2017, a year that delivered strong gains on equity markets with the local benchmark S&P/NZX 50 Index jumping 22 percent.

Morningstar's quarterly KiwiSaver survey shows the smallest annual return in 2017 was 1.6 percent after fees from the AMP Cash Fund, with $82.5 million of funds under management as at Dec. 31, and delivering an annual return of 3.3 percent over the past 10 years. The highest return in 2017 was 24.2 percent after fees from OneAnswer International Share Fund, with $45.9 million under management. That fund has delivered annual returns of 7.5 percent for the past decade.

Other funds to post returns greater than 20 percent in 2017 were the Generate Focused Growth Fund with $299 million under management at 23.9 percent, the Mercer Shares Fund with $16.8 million under management at 21 percent, the NZ Defence Force Shares Fund with $5.2 million under management at 20.8 percent, the OneAnswer Sustainable Fund with $7.2 million under management at 20.6 percent and the OneAnswer Australasian Share Fund with $28.3 million with a 20.4 percent return after fees. Four of the five Westpac Capital Protect Plans posted annual returns of about 21 percent.

"It was a great finish to 2017 for KiwiSaver funds, with all options producing positive results," Morningstar manager research ratings director Chris Douglas said in his report. "The strong performance of equity markets during the fourth quarter of 2017 resulted in KiwiSaver funds with a bias to growth assets outperforming their more defensive-minded counterparts."

Morningstar included 10-year annualised returns last year, which it rates as a better barometer for rating KiwiSaver funds due to their mandate to encourage long-term savings habits for people to improve their living standards in retirement.

Milford Asset Management's Milford Active Growth KiwiSaver fund, with $846.1 million under management, topped the list with annualised returns after fees of 12.8 percent.

"This approach started off with a much greater bias to Australasian equities, but it has become more diversified as it has grown," Morningstar's Douglas said. "Asset allocation does move around, and the strong performance has come from a bias to growth assets and exposure to Australasian credit."

Fisher Funds-managed Fisher Growth, with $1.5 billion under management, was the second-best at 7.9 percent annualised returns.

Douglas said multi-sector growth and aggressive funds have outperformed their more conservative peers in seven of the past 10 calendar years, underpinning the notion that those funds will deliver a better return for members over the long-run.

"Ideally, if you have a very long time until retirement, you should be looking at a growth-orientated KiwiSaver scheme (those in our multisector growth and aggressive categories)," Douglas said. "The performance may exhibit more ups and downs, but over the long term these funds should provide you with a better return."

The best performing conservative fund over a 10-year period is Aon Russell Lifepoints Conservative with $75.2 million under management, generating annualised returns of 7.2 percent, while the top moderate fund was Aon Russell Lifepoints Moderate with $20.8 million under management and generating after fees returns of 7.4 percent. The best balanced fund was the AON ANZ Balanced with $29.6 million under management, delivering annual returns of 7.7 percent, while the top aggressive fund was Kiwi Wealth Growth, with $1.24 billion under management, with returns of 6.6 percent.

Funds under management for all KiwiSaver funds rose to $45.6 billion as at Dec. 31 from $35.7 billion a year earlier, with ANZ Bank New Zealand and OneAnswer the biggest provider with $11.63 billion, up from $9.45 billion at the end of 2016. ASB Bank was the second largest with funds under management growing to $8.36 billion from $6.74 billion. Non-for-profit fund manager Simplicity has attracted $259.8 million of funds under management, up from $68.6 million a year earlier.