Tech stocks end long-time top KiwiSaver performer's golden run

Simplicity's growth fund has knocked Milford out of the top spot for returns over 10 years, in new Morningstar data.The latest quarterly update for the September quarter shows that Simplicity's growth fund returned 9.9 percent a year over 10 years. It is the first time the fund has a sufficient performance history to report a 10-year return.Milford, which has traditionally been top of the table with its active growth fund, slipped to third at 9.6 percent a year, behind Quay Street's Growth fund at 9.7 percent.Milford returns have slipped in recent months as a result of its approach to the recent tech boom.Milford recorded growth of 0.9 percent over three months compared to 1.7 percent for Simplicity and 2.7 percent for Quay Street. AMP delivered 13.6 percent over a year and Simplicity 11.7 percent, compared to Milford's 3.4 percent.It recently produced a webinar for investors that tackled the question of the active growth fund's performance.Chief investment officer Wayne Gentle said while people talked about sharemarkets delivering very strong returns recently, that was driven by a few very large tech companies."The striking feature of markets is that it has a narrow set of drivers. There has been a narrow set of US companies dominating returns. Those companies have been responsible for a disproportionate amount of that return. Mathematically they've been pulling the market up on their own."When we're talking about 'markets hitting all-time highs', that's not the average performance of the average company," he said.Milford said it was achieving its returns with less risk than the other funds.Gentle said over 10 years the active growth fund had captured 91 percent of market gains but only 77 percent of market falls.While Milford remained heavily invested in technology stocks - including exposure to the AI theme - concerns about concentration, geopolitics, inflation and debt meant it was not invested in the same proportion as markets such as the US."Over the last 12 months, we've been quite cautious about that outlook. That caution has not been rewarded in equity markets to this point," Gentle said.Bonds and traditionally defensive equities had also disappointed."Our traditional diversifiers over the last 12 months have not done the job they have done in the past in terms of protecting and providing that superior risk-return outcome."He said bonds had come under pressure following the oil price spike and had not rebounded as strongly as technology stocks, while safer equities had also suffered.He rejected suggestions Milford had "missed" the AI theme."We have been heavily invested in technology firms and continue to be," he said.Head of KiwiSaver Murray Harris said passive funds would have much larger exposure to tech stocks because they made up a larger part of major indices."Nvidia I think is about 9 percent of the index ... we've got 3 percent, 3.5 percent exposure to it as at the end of September. It's one of our largest holdings but we're not going to hold it at an index weight."So by the very nature of the more diversified mix of our portfolio and managing that risk we're a bit slower because we wanted to really understand the theme around tech, that's impacted our one-year returns and they're not where we would want them to be."But we would rather be in that situation than having made a wrong call or going too big into a theme without doing all the research we wanted to do."REcent results such as the Alphabet announcement on Friday highlighted that potential disappointments could cause worry in the market, he said.He said he expected the top performers in each category to move around more in future."There's been a bit more convergence now across sort of probably the top four or five providers."And just depending how things play out quarter by quarter and who's got more exposure to what or how they're managing risk, or if the index continues to climb and the passive funds will continue to do better, then you're going to see those rankings move around a bit. But like I said at the start, we've never set out to be number one and don't expect to be number one forever."But we've been very proud of our long-term returns."Quay Street was the top balanced and conservative fund over 10 years, MAS the top moderate fund, and Generate the top aggressive fund.Overall, Morningstar said conservative funds had returned 3.8 percent a year over 10 years, moderate funds 4.6 percent, balanced funds 6.8 percent, growth funds 8.6 percent and aggressive 10 percent.Over the year, SuperLife's Australian Resources fund had the highest performance, up 43.3 percent. Koura's Bitcoin scheme was the poorest performer, down 25.1 percent."Despite persistent losses in market share over the past five years, ANZ continued to lead with a 15.9 percent market share at $23.8 billion in assets at the end of the quarter, marginally down in terms of assets in the scheme from last quarter. ASB was in second position, with a market share of 14.7 percent. Fisher, Milford, and Westpac rounded out the top five," Morningstar said."We estimate that KiwiSaver providers will charge more than $1.22 billion from KiwiSaver members in the next 12 months to manage their KiwiSaver funds, at an average fee of around 0.81 of a cent per dollar invested."Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make and spend money