Saving for the future: How KiwiSaver managers navigate market turmoil

Preparation is key

When markets are volatile, and uncertainty lingers, it can be tempting for investors to panic and make rash decisions. However, some KiwiSaver managers have been preparing for such events by shifting some of their growth fund investments into more defensive assets, such as cash. For instance, Pie Funds’ chief executive Ana-Marie Lockyer said its growth fund had 11.3 percent cash and cash equivalents at the end of March, compared to a target of 5 percent. This proactive approach can help protect investors from the full extent of the market downturn, but it is crucial to determine the effectiveness of these strategies. The next steps will be vital in deciding the impact of market volatility on KiwiSaver balances.

• Active managers have been taking proactive steps to mitigate downside risk, such as reallocated capital, sector weight adjustments, and the use of cash or hedging tools.
• Passive managers, on the other hand, focus on tracking an index, and may not have the same level of flexibility to respond to market changes.

Lessons from the past

History has shown that periods of policy unpredictability, such as those experienced during the Trump presidency, can create opportunities for active managers to earn their fees. By being nimble, selective, and risk-aware, these managers can capitalize on market fluctuations and protect their investors’ balances. For example, Pie Funds’ growth fund had moved to 13 percent or 14 percent cash before the turmoil hit, and some of that cash had been invested in “buying the dip” in the past week. This demonstrates the ability of active managers to adapt to changing market conditions and make informed investment decisions.

ANZ and ASB’s approach to market volatility

ANZ and ASB, two prominent KiwiSaver providers, have taken different approaches to managing market volatility. ANZ Investments’ chief investment officer George Crosby said that investors should stay focused on their long-term goals and continue making regular contributions if they can. “We understand that markets do go up and down, and changing your investment fund now could cost you, as you might miss out on any rebound when markets recover. And trying to time the market can lead to buying high and selling low, which can hurt your long-term returns.”
ASB, on the other hand, has diversified its portfolios across different asset classes and regions of the world. Its investment committee member Frank Jasper said that the allocation to gold has been a great diversifier in the portfolio, with 40 percent of the growth fund invested in gold.

Gold as a diversifier

Frank Jasper agreed that gold can be a valuable addition to a portfolio, providing a hedge against inflation and market fluctuations. He noted that gold has performed well in recent years, and its correlation with other assets is low, making it a useful diversifier. Lockyer also highlighted the importance of staying the course in funds that align with an investor’s investment goals. She said that individuals should resist the urge to react emotionally and instead focus on long-term investment principles that have consistently proven successful over time.

Conclusion

The key to navigating market volatility is to have a well-diversified portfolio and a long-term perspective. By understanding the strengths and weaknesses of different investment strategies, investors can make informed decisions that help them achieve their financial goals. Ultimately, it is crucial to stay calm, disciplined, and patient, and to avoid making emotional decisions that can harm their investments.

“Investors in all products should resist the urge to react emotionally and instead focus on long-term investment principles that have consistently proven successful over time.”

– Ana-Marie Lockyer, Pie Funds
The article highlights the importance of having a well-diversified portfolio and a long-term perspective when navigating market volatility.