New KiwiSaver products are likely this year as providers move beyond plain vanilla offerings, Morningstar says

Wednesday 20th January 2016

New KiwiSaver products are likely in the market this year as providers have largely dealt with increased regulatory and licensing demands that tied up their resources in 2015, says investment research firm Morningstar.

The firm’s latest KiwiSaver survey for the December quarter 2015 said no new KiwiSaver funds were added during the quarter and there had been a lull in new products brought to market last year as providers focused their efforts on the additional regulatory burden imposed by the Financial Markets Conduct Act.

Morningstar manager research analyst Elliot Smith said most of the current KiwiSaver funds were plain vanilla because the industry has been in growth phase since it was introduced in 2007 and simplicity had worked well in the New Zealand market as it matured.

But he thinks providers, who have been consolidating, will now turn their attention to new products such as the First Home Buyers Fund the Bank of New Zealand introduced last September. The new fund is aimed at those looking to save funds for their first home over the next three to five years with 85 percent of the assets invested in a mix of cash and bonds to avoid volatility.

Smith said target date products, which are common overseas including Australia, may also gain momentum.

The only provider offering a target date fund is Aon Russell with its LifePoints Target Date 2015 Fund. Target date funds are similar to standard ones but gradually change the mix of investments from growth to conservative as you age rather than people having to change funds to suit their new risk profile. Several local providers give investors options to change funds at certain target dates as they age but not to change assets within the fund itself.

David Boyle, general manager investor education of the Commission for Financial Capability, said KiwiSaver was still relatively young with $30.48 billion of assets, up from $954 million in mid-2008.

The six largest providers account for 86.3 percent of assets on Morningstar’s database compared to just 78.9 percent three years ago.

Boyle said providers should be doing more work on making sure investors are in the right fund, are getting their tax credits, and ensuring their contribution rates will meet their future needs.

“A lot of those elements need to happen in conjunction with new product development,” he said.

But he expects there will be a lot more alternative options within the next five years as people’s balances grow and they get closer to retirement. That's when they will require more of a yield return than wealth accumulation while still keeping their savings scheme going given the large number of years they're likely to require an income above superannuation.

The quarterly KiwiSaver survey showed New Zealand investors ended last year in better shape than the global commentary suggested with growth asset classes producing double-digit gains during the year while bond markets produced a modest but satisfactory return.

A strong rebound in equity markets from the September quarter meant that KiwiSaver funds with a bias to growth assets outperformed their conservative peers during the December quarter and funds with greater exposure to New Zealand stocks increased the most.

Average returns were strong across the board, ranging from 0.69 percent for the conservative category to 4.4 percent for aggressive funds.

Smith said he doesn’t expect double-digit gains to continue in 2016 though due to the low interest rate environment, global concern over the slowdown in China’s growth, and market volatility.

“That level of performance is unsustainable,” he said though returns are likely to remain positive across the board.

BusinessDesk.co.nz

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