Fund manager diversification: unlocking better risk-adjusted returns in KiwiSaver

The same principle can be applied to fund managers as well, as the performance of any one manager can often differ significantly from their peers, even if they operate within the same asset class or utilise similar investing approaches.

For example, a Russell Investments study found that the difference in the 10-year performance between a top- versus bottom-performing global equities manager was around 5.7% per annum. While the difference between a bottom manager and a median manager was around 2.7% per annum.

Compounded over 10 years these annual return differences could mean an opportunity cost of a 30% lower KiwiSaver balance for selecting a bottom-performing single manager compared to investing in an average manager and a 70% differential as measured against the best-performing managers.

Of course, the potential for a 70% swing in gains may sound enticing to some investors, but picking the single best-performing manager is no easy feat and it also comes with the added risk of inadvertently selecting a manager that ends up at the bottom of the pack.