Whether you choose Aggressive, Growth, Balanced or Conservative funds for your KiwiSaver, it is best to buy and hold. By switching to the highest performing fund, you are likely to have missed the wave. The most likely direction for the best performing fund of today, is the average performing fund of tomorrow.
By diversifying your funds within a single fund manager, you are not fully diversified. All fund managers have strategies and ways of handling things. The markets are always changing. What was a good strategy one year, may not be the best the following year.
Diversify your KiwiSaver right through to having multiple fund managers. We allow up to 5 fund managers to split your investment between all of them – so if you choose Growth, Balanced or Conservative, you will most likely get the average of all fund managers, and no spikes or troughs as they do well, or don’t do so well.
Diversification helps you sleep well at night. For more information, contact us here.
You cannot eliminate all risk, but ever since you were young, you’ve probably been told to spread your risk. Diversify. Up to now it has been hard to do that with a KiwiSaver. Sure you could trust in one fund manager that is going to put it in a diverse portfolio, but what about the one fund manager.
In an aeroplane, you have at least two of everything. If the pilot fails, the co-pilot knows what to do. If the engine fails, there is another one. If the wing falls off – well let’s not go too far with this analogy, but you get the idea.
With Fusion Investments, we have a Multi-Manager Strategy – more than one fund manager, in fact up to five. This is the Fusion advantage, and it means you are truly diversified.
But only one calculator works out the savings by not switching all the time and having an average that is very close to the average across all fund managers – it is so similar because it is diversified across up to five different fund managers.
When it comes to choosing the KiwiSaver that is right for you, there is so much to consider.
Fund managers will put your life savings in all kinds of different investments and they all have their own strategy on how best to pick them. But who is right, what is the best answer.
Sometimes it is best to leave it up to the professionals – and yes, I had a plural “professionals” there for a reason. By having multiple fund managers, if they get it wrong, and they do, then the other five fund managers are unlikely to also get it wrong.
So if you would like to spread your risk and not have to choose between stocks, properties or bonds when deciding on your KiwiSaver fund manager, pick five!
There is a lot of talk about who is performing the best at any given moment.
Who am I going to switch to to maximise my KiwiSaver investment?
If you have all your eggs in one basket, you are probably dead keen to know the answer. The problem is, the answer changes regularly. Are you going to pick the best performer – the more likely way is down when they are at the top.
If you have five experts investing your Kiwi Saver dollars using different strategies, you can use a “buy and hold” strategy, and you can probably sleep better at night too!
I surveyed some of my clients recently about why they switched to the Fusion KiwiSaver strategy. “It’s a no brainer” they said, which struck me as slightly ‘short’ at the time, as I’ve dedicated years now to making this work. All that researching, analysing and designing a multi-manager strategy which will stand the test of time, only to have it so abruptly described, is a little unnerving. But then the magic of those four words struck me. The concept really is that simple. Why would you leave such an important part of your lifetime planning, to just one fund manager and investment method, when you can spread your risk across five or six, and participate in many more opportunities? It’s just smarter.
The fact that you can eliminate two of the biggest risks to your outcome (both human), potentially save yourself tens of thousands of dollars, give yourself many times the investment options and never again have to worry what your fund manager is doing, were summed up by that simple phrase. Another simple way to illustrate it is the following diagram;
And the great thing is, it can be applied to any type of investing, whether you’re a KiwiSaver, portfolio investor, or you’ve brought your UK pension fund over to NZ.
Right now, if you have one manager or adviser, your hopes and dreams for the future are in the hands of a few individuals, in one company, with one investment approach, and they’re as likely to underperform the industry as outperform it. But you can replace that uncertainty with the reliability of five or six of New Zealand’s top investment managers simultaneously trying to do their very best for you.
It’s called a Multi-Manager Strategy. Managers are chosen for their different approaches but when they’re combined, you replicate industry median returns. To be able to engineer this median result means you can virtually eliminate underperformance. Median results have been quite sufficient to achieve your retirement needs and now you can accurately target them. Now you can rely on an outcome, rather than hoping for one. Now that’s a no brainer!
Industry observations by Martin Jago, AFA, Founder and Director of Fusion Investing Ltd.
The funds management and investment advisory industry is an exclusive club, and I don’t mean their green fees are high. They really are exclusive in the way they operate. Each manager and adviser wants to be the only choice for investors, and like old Louie, they don’t like sharing. No adviser is going to recommend their competitor looks after half your money alongside them, and only a few KiwiSaver managers allow other managers to help invest your savings. Therefore, 90% of investors tend to slot into single strategies, with narrow investment approaches. This creates a hierarchy, or performance table, of advisers, managers and methods, where investors must choose between them and then accept the outcome. Being the top dog (or monkey) in those rankings tends to attract the most new funds, so every manager and adviser sells a good story.
The problem for New Zealand investors is there’s so little long-term proof of performance. The industry was handed a golden reprieve when PIE tax was introduced. All the old records could be thrown out and the hit parade started again. That meant anyone who was sitting on poor returns got a second chance with a clean slate. Unfortunately though, we’re seeing the old problems creep back in. Let’s take the KiwiSaver industry. We’ve now had 10 years of performance results but when we compare the players even just five years ago, with today’s field, there’s some interesting developments.
Five years ago in September, there were 14 managers to choose from in the Growth profile selection. Whether investors made choices from performance, defaults or loyalty, many have been rewarded with discontinued funds, non-reported funds and taken-over funds, with only 50% continuing today in the same format. From a persistency viewpoint, these didn’t just fall from grace, they fell off the map!
Now let’s look at the September 2017 results. Here we see new managers coming into the field (Generate, Fisher, Booster, Milford, BNZ and Nikko), old ones disappearing and some performance worries for former stars.
The darling of the last four years, Milford Asset Management, has produced steady, top notch returns. But this last year, they’ve dropped to 23 out of 26. Aon Russell have been steady at the top throughout but BNZ and Mercer, with very credible results, weren’t even in the field a couple years back. ASB’s looking good this last year, but you wouldn’t have touched them on performance five years ago.
So, investors are left with little solid data to make decisions with, and they can’t simply say “they’re all the same”. The last five years results have shown massive disparities in returns (4.2% to 13%), so they’re definitely not the same. Is it any wonder so many savers are confused about who to choose?
Lessons to learn
The first thing an investor needs to realise is, no manager can stay at the top forever. There really is only one way to go. Added to this, fund managers and investment teams are simply collections of individuals, who move around between companies, retire and/or establish new companies, ‘stirring up the mud’ for investors, making clear indicators difficult to see. So, choosing a manager or adviser because they’ve had a good recent run is not an effective way to choose the team looking after your future. They probably won’t be there in five to ten years and the investment approach you bought into, will have ‘changed with the guard’. An academic study in the US in 2010, stated the following:
“Rather than focussing on top ranked funds within each peer group, close attention should be paid to style drifts and other hidden determinants of funds behaviour, not indicated in the self-reported manager style.”
In other words, don’t make decisions based on recent performance, and don’t believe what the marketing blurb says.
The next thing to realise is that managers and investment methods are just tools to help you achieve a good investment outcome. You need a strategy that you’re comfortable with. Then choose the manager or managers to execute it for you.
And finally, stop falling for the “exclusive story”. There’s nothing to stop you using multiple managers simultaneously, side by side. There’s no reason why you can’t have Milford and Fisher together in one portfolio, with ANZ, IOOF and AMP alongside them. You don’t need to rely on one asset allocation, one manager or one hedging policy. That singular behaviour, is what the industry wants you to do, so they don’t have to share your revenue stream. But imagine the reliability and safety of five great managers together! For one thing, it means your advisory fees can be reduced and, second, you won’t wake up one day and say “why did I choose that manager? If you use multiple managers, some will do well, others not so well but you’ll achieve a good average outcome, and, it probably won’t cost any more than using just one.
You’ve probably got decades of investing ahead of you. Your chances of success are increased when you diversify between managers, styles and philosophies, as well as asset types. Stop chasing returns and start investing in a reliable lifetime strategy.