Falling Bitcoin prices have significantly impacted New Zealand’s KiwiSaver funds, with Koura’s Bitcoin fund recording the lowest performance in the latest Morningstar survey. The fund experienced a decline of 9.7 percent over the past year, and a more substantial drop of 22.8 percent in the most recent quarter, highlighting the inherent volatility of cryptocurrency investments.
The downturn contrasts sharply with the best-performing fund, Kernel’s S&P Global Clean Energy Fund, which saw a robust increase of 59.9 percent over the year. The Morningstar survey provides a snapshot of the KiwiSaver landscape, revealing a wide range of returns depending on the fund’s investment strategy. On average, conservative funds yielded 5.8 percent, moderate funds 6.8 percent, balanced funds 9.5 percent, growth funds 9.7 percent, and aggressive funds 12.8 percent.
The price of Bitcoin itself has fallen considerably, dropping from over NZ$200,000 in October to just above NZ$115,000 currently. This price correction underscores the risks associated with investing in digital assets, even for those with a long-term investment horizon like KiwiSaver.
Despite the significant decline in Bitcoin’s value, Koura founder Rupert Carlyon expressed surprise at the limited reaction from investors. “We’ve had very minimal outflows over the last kind of four to six weeks as the price continues to fall,” Carlyon stated. He attributed this stability to several factors, including investor understanding of Bitcoin’s volatility and the limited allocation to the asset within their overall KiwiSaver portfolios.
Koura limits Bitcoin exposure within its fund to a maximum of 10 percent of an investor’s balance, with automatic rebalancing if the allocation exceeds 15 percent. This measure is designed to mitigate the impact of extreme price swings on overall KiwiSaver savings. “Whether it is 3 percent or up to 10 percent it’s meaningful but it’s not as though they’re seeing the whole value of their KiwiSaver drop by 40 percent or 45 percent,” Carlyon explained.
Carlyon acknowledged that the recent price movements were anticipated, given the inherent cyclicality of Bitcoin. “We know that it drops. We’ve seen it go up to 70 percent before,” he said, adding that the ongoing volatility is linked to liquidity issues within the Bitcoin market. “It’s still a small asset without a huge amount of liquidity and therefore you’re always going to see massive price swings.”
The Morningstar survey also highlighted the strong performance of Kernel, a newer provider in the KiwiSaver market. This marks the first survey to include three years of Kernel’s data. Kernel topped the cash and high-growth categories and performed well across most other categories, alongside Quay St. Dean Anderson, Kernel’s founder, emphasized the importance of a disciplined investment process in navigating turbulent market conditions.
“What’s coming through clearly is that when markets are chaotic, the controllables start to dominate,” Anderson said. “The last few years haven’t rewarded clever market calls – they’ve rewarded process. Kernel’s focus has always been on evidence, transparency and cost discipline, with fees in many cases up to 70 percent below category averages.” He urged KiwiSaver members to thoroughly research their investments, understand the associated fees, and ensure their portfolios align with their financial goals.
Greg Bunkall, the report’s author, noted that the quarter was generally positive for most KiwiSaver funds, driven by gains in global equities. New Zealand’s share market experienced only modest growth, while the Australian market remained relatively flat. Simplicity also demonstrated strong performance during the quarter.
The contrasting performance of Koura Bitcoin and Kernel’s Clean Energy Fund underscores the diverse range of investment options available within the KiwiSaver scheme. While Bitcoin offers the potential for high returns, it also carries significant risk, as evidenced by its recent decline. Funds focused on more stable asset classes, such as clean energy, may offer a more consistent, albeit potentially lower, return.
The Morningstar survey serves as a valuable resource for KiwiSaver members, providing insights into fund performance and helping them make informed decisions about their retirement savings. The data highlights the importance of diversification, risk management, and a clear understanding of investment objectives.
