Fund managers under spotlight

More work needs to be done to help investors understand where they are putting their money – and some may be “getting what they pay for” from their KiwiSaver providers, commentators say.

Sunday, October 13th 2013, 6:33PM

by Susan Edmunds

A recent study by the Auckland Centre for Financial Research at AUT found no evidence that KiwiSaver fund managers could time the market to beat a global performance measure.

It looked at growth funds’ returns since the scheme was launched in 2007 and found some funds were able to do better than New Zealand and Australian benchmarks but none could systematically beat a global benchmark.

It also noted that the growth funds had significant differences in risk exposure, so just comparing them on returns was not accurate.

Critics have said the study was skewed because of the global financial crisis and time in the market was more important than timing the market.

Clayton Coplestone, of Heathcote Investments, said KiwiSaver funds were often compared by their fees, and that was detrimental to the managers.

“One of the by-products of fees being a primary characteristic for KiwiSaver schemes, is that they can often ‘price out’ talent, you get what you pay for.”

But Harbour Asset Management managing director Andrew Bascand said KiwiSaver had not been operating long enough to have fund performance measured accurately. “It hasn’t even had a full market cycle.”

Managers would have done well in their first year if they were in bonds and cash but since then would have performed best in equities, he said.

Most studies needed at least 10 or 20 years to prove that a manager was doing well from skill rather than luck. “If you are tossing a coin, and you toss it 10 times, you might get heads seven times and you’d say, ‘I’m brilliant, I’ve got skill’, but to really know you’d need to toss a coin at least 20 times and maybe beyond 12 [heads results] would be significant in a 50/50 situation. But asset allocation isn’t 50/50.”

He said people should look beyond KiwiSaver to teams that had showed asset allocation skill through the 1990s and 2000s. A bigger issue was the number of people who had no idea what KiwiSaver scheme they were in, he said. “I’m in one of the providers that’s all in equities, and that’s returning 12% a year.”

KiwiSaver providers needed to be more proactive about communicating with their members and offer personalised advice. Advisers needed better incentives to offer advice, too, he suggested.

Coplestone said fund managers needed to be able to offer real value to their clients.

”Where the industry is able to make a difference, while differentiating themselves from simply being viewed as index gateways, is by adopting robust research to distinguish talent from mediocrity.”

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