NZ Fund Managers

[Snoopy]

I have just noticed that one of my like with like comparisons is not as 'like with like' as it could have been.

I was looking at the "Kiwi Wealth KiwiSaver Scheme - Growth Fund"
https://www.kiwiwealth.co.nz/assets/...-June-2021.pdf

When I might have been better to consider the "Kiwi Wealth Managed Funds - Growth Fund"
https://www.kiwiwealth.co.nz/assets/...-June-2021.pdf

What is the difference between the two? Apart from the first being part of the Kiwisaver scheme and the other not (meaning you can withdraw your funds from that second entity at any time)? The top ten constituents (as at 30th June 2021) line up alongside each other as follows:

	Kiwiwealth Kiwisaver Scheme Growth Fund	KiwiiWealth Growth Fund
Microsoft Corp	2.78%	3.31%
Apple Inc	2.50%	2.95%
Westpac NZD cash account	2.37%	2.07%
Alphabet Inc	1.89%	2.26%
Amazon.com Inc	1.86%	2.22%
Two Trees Global Macro UCITS	1.52%	?%
GMO Systematic Global macro Trust	1.50%	?%
facebook Inc	1.20%	1.45%
ISAM Systematic Trend Q-Sep19	0.98%	?%
ASML Holding NV	0.91%	1.11%
Nestle SA	?%	0.98%
Visa Inc	?%	0.92%
United Health Group	?%	0.91%

Observations

1/ If we follow down each list top to bottom, then the individual international stocks held rank in the same order (from higher percentage held to lower percentage held).
2/ The Kiwiwealth Kiwisaver Growth Fund held a slightly higher holding of cash at the comparison date.
3/ The Kiwiwealth Kiwisaver Growth Fund held three hedge funds in their top ten holdings, while the straight 'Growth Fund' held none in their top ten holdings.

Discussion

New Zealand managed investments are rated on a 1 to 7 scale. A fund rated '1' carries the least risk while a fund rated '7' carries the most. A hedge fund on its own would normally be seen as the most risky class of investment of all (class 7). 'Cash in the bank' gives an entirely predictable return (class 1). Superficially then, it seems odd that the fund with the highest declared holdings of hedge funds (Kiwisaver) has a lower risk profile of 'Class 4', compared to the fund with no declared hedge fund holdings (Managed Growth) with a 'Class 5' risk profile. One explanation of this could be hedge funds and ordinary share funds tend to operate in negatively correlated cycles. This means it can be good news for a hedge fund when markets go down, whereas clearly this is not good news for a fund that holds only company stocks. That in turn means that 'taken together', the volatility of a managed fund that includes hedge fund components may be less than the volatility of a fund that holds only shares.

What actually happened to returns over the years ended 30th June 2021 and 30th June 2022?:

Returns	Year Ended 30th June 2021	Year Ended 30th June 2022
KiwiWealth Kiwisaver Growth (after tax & fees)	23.91%	-10.80%
KiwiWealth Kiwisaver Growth fees	1.11%	1.12%
KiwiWealth Managed Growth (after tax & fees)	28.10%	-11.10%
KiwiWealth Managed Growth fees	0.95%	0.96%

This is pretty much as expected. The fund with the most hedging produced a moderated annual return in good times. But when market conditions turned sharply negative, the losses on the annual return were also moderated.

SNOOPY