Kiwisaver in crisis: Why are growth funds performing so badly?

By Paul de Klerk
Investment Specialist

• Kiwisaver providers charge management fees to manage your money and make asset allocation decisions to achieve a certain performance result.
• At the very least, one would expect professional money managers to meet the wider market index such as the S&P500 and Nasdaq100, which have both returned over 33% before tax growth since October 2023. But they are not.
• Latest performance results indicate that only ONE Kiwisaver provider is matching the S&P and Nasdaq. All others are grossly underperforming.
• With performance like that, one would have achieved better performance buying a passive Vanguard or BlackRock iShares index fund.
• Kiwisaver members should regularly do their research and review their Kiwisaver provider.

Much has been said in the media about the importance of bringing down Kiwisaver management fees in the last few years. They lay out a good case that fees can erode the future value of your retirement funds and eat away at it's overall performance. Which is true. 

But why do Kiwisaver providers charge these management fees? The obvious answer is to meet the costs of running the fund such as salaries, administrative costs, expenses and so on. 

However, management fees also carry with it an expectation that good investment decisions will be made on the Kiwisaver members behalf. Members expect to receive as much growth as is reasonably possible without undue risks, within the context of the goals of the Fund. This is especially true for growth funds.

It is therefore reasonable to ask one question:
"How has my Kiwisaver performed against passive index funds this year?"

In other words, is my Kiwisaver provider delivering the goods for the fees they are charging as investment professionals?

Consider that the U.S.A's S&P500 and Nasdaq100 have both returned over 33% before tax growth for 12 months to  October 2024. This is one of the best growth markets we have ever seen! At the very least one would expect Kiwisaver providers to have met this performance in their growth funds.

It is critical that Kiwisaver providers don't miss out on bull runs like these because they don't come around very often. A Kiwisaver provider who underperforms in these markets can dramatically impact how much money is availabe to you at retirement.

But the truth is, Kiwisaver providers have not come even close to achieving 33% performance in their growth funds. All  Kiwisaver providers are dramatically off the pace - except for ONE. Outside of this one provider, the next best growth fund performer is sitting at 25% after tax return for 12 months since October 2023.

To me, this raises very serious questions. And I seem to be the only one asking! "Is Kiwisaver in crisis?" If not, why are they so grossly underperforming a normal passive index fund from Vanguard or iShares that one could easily buy?

If there was ever a time to review your Kiwisaver provider, it is now in the midst of a fantastic growth market. If your Kiwisaver is not performing against the wider market, I suggest that you seriously reconsider the value of your provider. 

As an investment adviser and Kiwisaver specialist, I can help you with free guidance and provide you with more information to keep you better informed.

If you want to receive my free TOP 10 Kiwisaver Growth Funds report (including reference sources), enter your details below and I'll send it to your inbox. Or contact me at www.pauldeklerk.co.nz/contact

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PAUL DE KLERK

Paul de Klerk (FSP110367) is a Kiwisaver and investment specialist working for the Financial Advice Provider known as De Klerk Business Services Ltd (FSP1105978). Nothing in this article should be considered as personal financial advice. Speak to an investment adviser before making financial decisions. If you need personalised investment advice, speak to Paul for free at www.pauldeklerk.co.nz/contact. For a disclosure statement visit www.pauldeklerk.co.nz/disclosure