This article was published on 27 March 2021. Some information may be out of date.

QI am writing to ask about the Quaystreet NZ Equity KiwiSaver fund. On’s KiwiSaver Fund Finder this scheme is rated as having 15 per cent returns over the last five years (and similar since inception), double that of the average growth fund.

I know we can’t rely on past returns, but this seems as reliable as it’s possible to get in a KiwiSaver fund.

What puzzles me though, is why commentators aren’t applauding this fund. One article on wasn’t overly enthusiastic, and Morningstar have nothing to say in their awards for best KiwiSaver scheme.

What am I missing? I have tried searching your website and the Internet for explanations.

ALet’s say you’re comparing the performance of different yachts in a long-distance yacht race.

Over several days of light breezes, yachts with a particular type of rigging do best. Then the winds rise, and those boats drop back.

Different share funds are like that. Some funds specialise in a certain type of investment, and when that type is having a good run, they star.

The QuayStreet NZ Equity Fund has done superbly in recent years because it invests only in New Zealand shares. And our share market has been one of the best performing in the world — something lost on many New Zealanders who think only property prices have risen fast lately!

It seems that the QuayStreet fund is the only KiwiSaver growth fund that specialises in local shares. When you click on other growth funds in the KiwiSaver Fund Finder, and scroll down to their Top 10 Investments, you see a mix of countries.

So, has the QuayStreet fund topped the KiwiSaver growth fund list because its managers have chosen great investments, or simply because of the market it invests in?

“Over the five years it has performed at 15.33 per cent after fees and tax, and this compares to the market index after tax of 15.42 per cent,” says an expert. “What that tells you is that it has delivered index returns over five years after fees.

“So the real question is do you want NZ shares and no others? And if yes do you go to QuayStreet or do you go to any of the other (non-KiwiSaver) funds that do NZ shares — Investnow, Simplicity, SuperLife etc?”

When you look at the median performance for all these funds, the QuayStreet fund has been about average.

So where are we? Within KiwiSaver, if you want only local shares in your growth fund, QuayStreet is your only option. Is that a good choice? Will the light breezes that favour New Zealand shares continue, or are we in for rougher weather?

Nobody knows. But my long-term savings are in funds that invest in shares in many different countries. Diversification usually wins in the long run.

For more on whether top-performing funds are likely to stay at the top, read on.

QYou’ve mentioned several times, when referring people to the Sorted website, to sort their query about funds by lowest fees.

I’m afraid that this irks me. By driving readers down this route you are suggesting that they should choose a fund manager that, for example, returns 4 per cent after tax and fees of 0.5 per cent rather than one that returns 6 per cent after tax and fees of 1.5 per cent.

Now I know that you will say that the only certainty is fees and that returns are not guaranteed. However, I believe that if you shortlist several fund managers and then go to their websites and research their ten-year history, you will get a good feel for their reliability.

Nothing in life is guaranteed. Not the quality of funds, houses or health. But making choices based on fear is a sure road to poor performance no matter the subject. Love to hear your thoughts.

AThe only certainty is fees, and returns are not guaranteed. That’s what you predicted I would say, so I’ve said it! And I stand by it.

You don’t have to go to fund managers’ websites to see their ten-year history. In the KiwiSaver Fund Finder, click “Show yearly returns” and you’ll get them back to April 2010 if the fund has been around that long.

And I agree, it’s worth looking at yearly returns over several years — preferably at least ten. They show you two things:

  • Whether a fund has performed worse than average most of the time — in which case I would give it a miss.
  • How volatile the fund is. Are its highs higher and its lows lower than average for that type of fund? That doesn’t necessarily mean you should avoid a fund, but be aware that you might be in for a rocky ride.

However, I suggest you don’t choose a fund because it has performed better than most over any period — even ten years.

Over the years, I’ve seen several studies that show funds that do well over a decade often do badly over the following decade.

Most recently, I read that in 2010 five US stock fund managers were nominated for fund manager of the decade. How did they do in the following decade? Considerably worse than average. And the top 2000–2010 performer was one of the worst in 2010 to 2020.

It’s not that surprising when you think about it. Funds that do really well often specialise, perhaps in small companies or fast-growing companies or certain industries or regions — such as New Zealand shares in the previous Q&A. Next time around, those choices might not work so well.

Even if a fund manager really is exceptional at picking shares over the long term, they are likely to be hired away by another manager — probably unbeknownst to most investors in their funds.

To show you how much research has been done on all of this, let me quote from the Think Forward Initiative, a European organization that aims to “empower people to make better financial decisions”. For “mutual funds” read “managed funds, such as KiwiSaver and similar funds.”

“Despite being warned by regulatory-mandated disclaimers that past performance does not predict future returns (Barber, Odean, & Zheng, 2005; Choi, Laibson, & Madrian, 2010; Pontari, Stanaland, & Smythe, 2009), investors tend to pick their mutual funds based on past performance.

“That’s a poor fund selection strategy: long-term analyses have confirmed that mutual funds cannot consistently return better-than-average performance (Carhart, 1997; Jain & Wu, 2000; Malkiel, 1995).

“Any individual over-performance can mostly be attributed to luck (Mercer, Palmiter, & Taha, 2010), so investors would receive considerably better returns if they picked mutual funds with lower fees (Carhart, 1997; Haslem, Baker, & Smith, 2008). Still, most investors seem to disregard fees when choosing funds (Fisch & Wilkinson-Ryan, 2014; Wilcox, 2003).”

There are more than a few famous names amongst those researchers. To sum up their findings: go for low fees.

Need more convincing? Every quarter Morningstar publishes a report on KiwiSaver funds’ performance. At the start it always says:

“Please note:

  • Past performance is not a guide to future performance. This year’s best performers can easily be next year’s worst.
  • Understanding your risk profile, and the mix of growth and income assets is critical.
  • Fees are the one constant that will always eat away at your returns. Take a close look at the cost of your KiwiSaver Scheme.”

QLast week’s column asked if pressure from property managers is why rents rise. No it’s not.

Supply, demand and response to increased costs — both property-related and regulatory — cause rents to rise and fall, but supply and demand is the main driver.

It’s the property manager’s job to advise their client of market rent. They would be remiss if they didn’t. If the client chooses for social reasons not to increase the rent so be it, but to condemn the manager or suggest they are doing something wrong for telling them how to get the best out of their investment is an extraordinary response from a financial commentator.

Most property manager clients will soon move to other property management firms if they believe their properties are being under-rented.

Property management companies try and increase their revenue. Any business that doesn’t is a business that won’t last. Keeping clients happy and getting referrals is how they grow their business and most clients expect market rent, not discounts being given out in their name and with their money.

Some reasons for increasing rents are the increasing costs and regulations forced onto residential landlords by this government. Investors want to recoup some of these costs. But many are leaving, and quite a few prospective new landlords aren’t impressed by one-way fixed-term tenancies and the end of 90-day “no reason” notices to end a tenancy.

Instead of incentivizing people to provide accommodation this government constantly does the opposite — fewer rentals, more demand, higher rents, harder to save for a deposit.

AYour letter arrived before the government announced further changes that landlords won’t like. And nobody knows how it will all shake down.

Will house prices fall? Will rents rise? Will many more people buy their first home? How will more new-builds affect all this? There are arguments running both ways on all these questions.

Meanwhile, back to your letter. Yes, supply and demand are always important in setting prices for anything, and rising landlord costs feed into that. But decisions to raise rent are made by individuals, and other pressures also apply. I hadn’t realized, until I read the letter discussed last week, that some property managers don’t just suggest rent increases but push for them.

If rents rise, property managers get more. I’m not saying they shouldn’t try to boost their income. And many of their landlord clients will appreciate being told they “should” raise the rent. But the landlords who wrote the letter were subjected to “ongoing money drumming”. That’s different.

It’s just another piece of the rental property jigsaw, and worth being aware of.

QThis is a response to the letter which referred to greedy property managers.

As owners of a rental property, our philosophy has been that we would not raise the rent for a valued tenant for the duration of their tenancy. Over fifteen years, we have only had three tenants and in that time, the rent for this property has remained the same. (Some might argue that this is a poor business approach!)

For the second tenant, we used a property manager, and I can happily report that they respected our wishes not to raise the rent, even though their policy was to review rents on an annual basis. In fact, when their system automatically raised the rent by 10 per cent, a refund was provided to the tenant at our request.

So yes, property managing companies do have regular rent reviews built in, but in our case, we found them very obliging and willing to forego the rent rise.

Perhaps there needs to be an option on listing documentation that asks landlords whether they want to pursue rent rises on a regular basis. This way, landlords like ourselves and the writers quoted in your column could make that choice prior to entering into a contract with the property manager.

AGood suggestion, although I would have thought a landlord could just say to a property manager, “No rent rises please.”

On whether your unchanged rent is a poor business approach, many landlords rate getting along with their tenants, and keeping them, as more important than optimising the rent. In the long run, treating tenants well must be good business practice — and, by the way, good citizenship.

QI was interested to read about property managers pushing Whangarei landlords to raise their rents. Our daughter has a rental in Whangarei and she has the same problem. She usually ignores them as she doesn’t see any reason to. I’m sure it’s not just Whangarei, is it?

AWho knows? Do landlords elsewhere feel this pressure from property managers — not just suggestions to raise the rent but pressure to do so?

More on this topic next week.

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Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.