Should you choose a KiwiSaver fund based on its past performance?

When it comes to investing, academic research has proven that immediate past performance is no reliable indicator of future performance, but what about long term past performance? Surely if you chose a top performing KiwiSaver provider/fund over the long term, you would have a far better retirement outcome.

So Rachelle decided to take a closer look at Milford KiwiSaver’s Active Growth Fund, which according to the research company, Morningstar, is the top performing growth fund for the ten years to 31 March 2020. What we found was quite unexpected.

Yes, this fund has existed for 10 years, but has it been a growth fund for all that time? According to Morningstar’s quarterly KiwiSaver reports, it was only classified as a growth fund in the second quarter of 2017. Prior to that, it was classified as an Australasian Equity fund. But, after a single quarter of being classified as a growth fund, Morningstar reported the fund as ranking for first place for three and five years.

And the past top performance of this fund – when did a lot of that take place? Well, according to Morningstar, back when the fund was an Australasian Equity fund. So, people who joined this fund in the past three years missed out.

We approached Morningstar and asked whether it was appropriate for them to include the fund’s past performance in their rankings when it had a different investment mandate and a different fund classification. While Morningstar never responded to us directly, you can read both their response and Milford’s at www.goodreturns.co.nz. Both responses were an attempt to justify their current actions. Note: KiwiSaver providers pay Morningstar to be included in their ratings, so a conflict of interest exists.

To directly quote Rachelle’s reaction to this:

“If you want to be an apple, be an apple. But, if, later on down the track, you decide to be a banana, then of course you can do that. But don’t advertise on the radio that you were the best banana for the whole time when actually you were an apple for most of it – doing that just makes you a rotten banana!”

A much better way to choose a KiwiSaver fund is select one that matches with your investment philosophy, risk tolerance, risk capacity and timeframe. If you’re unsure about where to start or would like to get personalised financial advice about your KiwiSaver from a qualified, independent financial adviser, book a free, no-obligation meeting here.

August 2020