KiwiSaver: Strong international stock markets boost New Zealanders' funds

Strong international stock markets have helped boost New Zealanders' KiwiSaver and managed fund balances in recent months, even as the local economy stagnates.

Between January and March this year, KiwiSaver assets grew by about $7.8 billion.

During that period, $2.52b was contributed by members and $0.4b was withdrawn for first homes and hardship reasons. Another roughly $1b was probably withdrawn by people retiring.

That suggests about 80 percent of the growth was due to market returns.

International markets in particular have gone from strength to strength in recent times, in part driven by the AI boom. The S&P500 was up 15.29 percent in the year to the end of June, and up 4.28 percent for the quarter, although there was some volatility this week.

Dean Anderson, founder of KiwiSaver provider Kernel, said it would be a struggle to find a KiwiSaver fund that had a negative result in recent months.

Equity markets were doing well and the returns from fixed income assets had stabilised, while cash investments were generating interest, he said.

"From cash and balanced funds to higher-risk funds, people have probably had a positive result."

Last year was good for KiwiSaver, too, he said.

Stats NZ noted the performance of assets such as KiwiSaver and managed funds in its most recent wealth data, which showed a 10 percent increase in those types of assets for New Zealand households in the year to March.

Anderson said through last year, many funds were returning 10 percent or 15 percent and that had continued into 2024.

New Zealand's local market had been less impressive than international counterparts, broadly moving sideways for three years. The NZX50 was down 0.45 percent in the year to the end of June.

But Anderson said the market was more interest rate-sensitive and could pick up now that things were improving for inflation, and rate cuts were becoming a closer prospect.

"That will help from an NZX performance point of view ... We've seen the US market has been really underpinned by surprisingly strong earnings growth and growth around AI. Locally, good stable companies will naturally benefit from a lower cost of capital with falling interest rates."

He said the prescribed regular investment of KiwiSaver meant that people did not have to overcome any mental hurdles about investing when times felt tough economically.

Long-term, it was not unreasonable to expect growth of 15 percent to 20 percent a year most years in KiwiSaver, he said.

Contributions would bring in 6 percent, and then investors could make "7, 8, 9, 10 percent depending on their risk profile" from market returns, he said.

"Over the long term you will see really strong growth in your wealth from your contributions and also [the impact of] consistently investing and being a holder of investments in the market."

Some commentators have raised concerns about whether the US market in particular might be becoming overvalued, but Anderson said markets would continue to find new highs as companies innovated, developed new products and generated more revenue and profits.

"Who would have predicted Nvidia would be where it is today? Markets are measuring the long term. They will rise over time and we've seen that."

John Berry, founder of Pathfinder, which offers a KiwiSaver scheme and other managed funds, said most growth or balanced KiwiSaver funds would have "reasonably significant" exposure to equities, and within that a large amount in the United States market.

The current situation highlighted how helpful diversification was for investors, he said, because New Zealanders had been able to benefit from offshore market movements while the local market was flat.

He said the US market had already now priced in a victory for Donald Trump, which was expected to support values.

But there were also a lot of expectations priced into tech stocks that had been performing well, he said. "They will have to deliver exceptionally high growth to justify their valuations."

Berry said it was likely that there would be more volatility ahead for KiwiSaver investors. "There will be sell-offs, things don't always go straight up."