Doing well, doing good: ethical KiwiSaver funds top rankings

KiwiSaver funds emphasising responsible investing were the top performers in the December quarter, according to the latest Morningstar report.

Monday, February 14th 2022, 8:06AM

by BusinessDesk

The quarterly rankings show ethical investors delivered the highest returns in four of the five categories.

Medical Assurance Society led the moderate funds with a 2.1% return, ASB’s new Positive Impact was the top balanced fund at 4.1%, Pathfinder took out the growth category with 5.1% return, and Kiwi Wealth the aggressive growth category at 6.1%.

All these funds are certified by the Responsible Investment Association Australasia, which requires a formal strategy, honest labels, and a minimum exclusion of tobacco and weapons.

ASB Bank itself is not RIAA certified but the active component of its impact fund is run by underlying manager, Mercer, which does have certification.

Ethical investing has become increasingly fashionable in recent years and most managers have incorporated some environmental, social, and governance (ESG) criteria into their products.

Responsible performance

A 2021 research paper by Edhec Business School professor, Abraham Lioui said an “unprecedented” amount of money had been put in responsible funds in recent years.

According to Morningstar, more than US$50 billion flowed into sustainable funds in the United States during 2020. These funds grew to have assets under management of US$240b that year, up from US$30b in 2010.

Lioui said ESG had taken centre stage in financial markets but studies into whether the strategy outperforms others were “at best mixed”.

He also warned the apparent outperformance may be due to funds shifting into responsible investments, and not better performance from the underlying companies themselves.

ASB Positive Impact has been leading the balanced section, returning 12.5% since it was first added a year ago, while Milford’s balanced has the best track record holding the top spot on a five and 10-year basis.

Pathfinder Growth is also a new fund and delivered the second highest returns in 2021, trailing Milford which again is the best performing growth fund on most time horizons.

Milford was only beaten by Juno KiwiSaver on a three-year basis, thanks to a stellar result in 2020.

Swings and roundabouts

However, Juno has been seriously lagging ever since and was the only growth fund to lose money in the December quarter. It manages $582m of assets, up from $299 million last year.

AMP has dropped out of the top five largest providers and has been replaced by Kiwi Wealth which now manages $7b in retirement savings –– up from $5b a year ago.

Kiwi Wealth’s growth fund is classified as an aggressive fund – with a 90% allocation to growth assets – but it topped that category with a 6.1% return in December.

Despite its name, the fund manager has more exposure to international shares which performed much better than NZ shares during 2021.

The US market notched up a strong return for the quarter with the S&P 500 up 11% and 28.7% over the calendar year, Morningstar analyst Tim Murphy said.

Only about 10% of KiwiSaver money is invested in NZ shares, compared to 38% which is invested in international equity markets.

The average growth fund returned 3.1% in the December quarter, bringing the average 2021 return to 11.6%.

Fund managers will be put to the test in the next Morningstar report which will cover the current period with the market correction and rotation away of technology stocks.

Tags: KiwiSaver