Morningstar Releases KiwiSaver After-Tax Performance Survey

Morningstar Releases KiwiSaver After-Tax Performance Survey

Morningstar today released its KiwiSaver After-Tax Performance Survey to 31 March 2012, designed to help New Zealand investors assess the comparative tax efficiency of KiwiSaver superannuation options.

"Tax is an important issue to consider in investing, so we have dedicated resources to analysing the performance of KiwiSaver funds and publishing the outcomes," said Morningstar Australasia Co-Head of Fund Research Chris Douglas. "The results of this survey illustrate what we have stated elsewhere: that after-tax performance does not have a significant impact on relative performance rankings. Investors should ensure that they also focus on the fees they're paying and the appropriateness for their risk profile and time horizon of the KiwiSaver option they've selected."

Morningstar's KiwiSaver database is free for all fund managers to join, and this survey is made freely available to investors and financial services professionals alike.

Key Findings

KiwiSaver funds' pre-tax rankings have not tended to move significantly on an after-tax basis. Only 19 of the 83 options in our multi-sector fund categories moved two or more places in four-year performance rankings to 31 March 2012, and only nine moved by three places or more.

Some areas of the market - such as New Zealand and Australian shares - are significantly more tax-efficient than others. This makes investing in New Zealand and Australian shares very tax-effective, as this survey shows. International assets are taxed differently. Any geographical tilts in the investments owned by KiwiSaver funds will therefore have a meaningful impact on the tax paid.

Other factors that affect tax efficiency include fees and the impact of foreign exchange. Fees, including performance fees, are rebatable for tax purposes. So anyone with high fees actually gets a tax pick-up. Foreign exchange losses are also good for after-tax returns, as they can offset tax liability.

In this report we also introduce the Morningstar Tax Cost Ratio. Like the Total Expense Ratio fee measure, the Tax Cost Ratio represents a cost to a fund. In simple terms, a KiwiSaver fund with a low Tax Cost Ratio has been more tax-efficient, and vice versa.

ENDS

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