Are you Balanced? Part Two of How to Choose a Fund
In part One of this series, we took a closer look at what's in our Conservative fund and some criteria for selecting such a fund.
In part two here, we'll break down the Balanced Fund.
Let's start with brief overview of Simplicity's Balanced Fund. As of our most recent fund update, we had more than $17 million invested among 592 members.
Performance wise, the fund (according to Morningstar league tables) returned about the same as its peer group with 0.21% That's for the quarter ending Dec.31st, 2016. This is only a very short period of time in the life of what would be regarded as a long-term investment.
The Balanced fund provides investors with an exposure to a mix of growth and income assets. Consequently, the returns are likely to be lower (over the long-term of 10 years or more) than the Growth Fund. In comparison to the Conservative fund, it's likely see higher growth but more volatility because it holds more international and domestic shares.
All Simplicity's funds contain more than 9,000 investments spread across 23 countries. The reason for this is so there is no exposure to any single stock, or country that could adversely impact the fund.
As you'll see from the pie chart below, it's a broad mix.
In the last fund update, the Balanced fund had 35.7% international equities, 14.4% of New Zealand fixed interest, 26.2% international fixed interest, 18.2% Australian equities and 5.4% cash and equivalent.
With this this kind of diversification, you might wonder what drove the performance last quarter.
Our Balanced fund did slightly better than its peer group reflecting the impact of lower fees, our 100% hedging to the NZ dollar, and the good performance of share markets overall.
We expect this fund to perform a little better than the average each quarter, which will add up to significant outperformance over time.
What are you invested in within this fund?
The graph below shows the top 10 holdings, listed as a percentage of net assets.
|Asset Name||% of fund net assets||Type||Country||Credit Rating|
|Vanguard Int Shares Select Exclusion Fund Hedged NZD||35.71%||International Equities||AU||N/A|
|Vanguard International Fixed Interest Index Fund||13.12%||International Fixed Interest||AU||N/A|
|Vanguard International Credit Securities Fund||13.10%||International Fixed Interest||AU||N/A|
|Vanguard Australian Shares Index Fund||8.24%||Australasian Equities||AU||N/A|
|Cash on call||5.41%||Cash & Cash Equivalents||NZ||A-1+|
|New Zealand govt bond 5.0% 15 May 2019||3.31%||New Zealand Fixed Interest||NZ||AA+|
|LGFA bond 6.0% 15 May 2021||2.29%||New Zealand Fixed Interest||NZ||AA+|
|New Zealand govt bond 3.0% 15 April 2020||2.09%||New Zealand Fixed Interest||NZ||AA+|
|New Zealand govt bond 5.5% 15 April 2023||1.87%||New Zealand Fixed Interest||NZ||AA+|
|LGFA bond 5.0% 15 May 2019||1.56%||New Zealand Fixed Interest||NZ||AA+|
So what kind of an investor does this fund suit?
What fund you are invested in depends on a number of factors. One size does not fit all in KiwiSaver. Some of the considerations are time, risk tolerance, and your purpose for investing. In KiwiSaver, there are two reasons for investment: retirement savings and or first time home purchase.
For those with a medium term time frame, (i.e. saving for a home that you plan to buy) the Balanced fund might appeal. You are less exposed to the volatilities of the share market compared to the Growth Fund, however the asset allocation still gives you the prospects of better long run returns than a Conservative fund.
On the risk scale, it's rated a 4 out of 7 with 7 being the highest risk and 1 the lowest.
By comparison the risk of Growth fund is 4 and the Conservative fund 3.
The rating reflects how much the value of the fund’s assets goes up and down. A higher risk generally means higher potential returns over time, but more ups and downs along the way.
To help you clarify your own attitude to risk, Sorted.org.nz has some helpful tools on its website here.
Next week, we'll dive a little deeper in our flagship Growth fund.
Amanda and The Team at Simplicity