In NZ we have a kiwisaver industry which now manages $138 billion for more than 3.4 million kiwis.
Investors can choose which manager they will entrust this important task to and which fund of that manager they invest in. Most provide a range of funds with labels such as conservative, balanced and growth and these names convey the percentage each fund will invest in growth (equities) versus income (bonds and cash). Some may have a scattering of other categories like property, infrastructure and even venture capital, but these are all growth assets that tend to behave like equities.
Under the FMA’s KiwiSaver categories, conservative funds hold 10–35% in growth assets, balanced funds 35–63% and growth funds 63–90%.
Many kiwis also invest in funds outside of KiwiSaver and place their money with one or more NZ advisers or managers such as Milford, Fisher Funds and a cohort of brokers like Craigs, Forsyth Barr, Shaw and Partners and the like. Non-KiwiSaver investors tend to invest larger sums and all at once rather than over time like KiwiSaver investors. The selection process then becomes more important, because you don’t have the advantage of averaging which regular savings provides.
How then do you select which adviser/manager to entrust with your capital.
There are many reasons investors choose one manager over another. We have discussed in a previous newsletter that familiarity, relationship and connection are a large part of it.
The problem with chasing past performance
For others selection will be based on past performance, as this provides a simple way to compare one option with another. Why would you select a fund which has performed less well than another? But herein lies the dilemma. Is past performance a reliable guide to future performance?
The answer is yes and no.
If by past performance you mean one point in time, when you compare one fund with another, then past performance is a very poor predictor of future performance. This is the approach taken most commonly by investors and dare I say, advisers. Decisions will be made by comparing one year, three-year, five year and perhaps since inception returns. It is this type of past performance which misleads, is mis-used and is the reason for the ‘warning on the package’.
Past performance is not a reliable guide to future performance
Unfortunately, warnings on packages are seldom effective. When a fund manager has, through luck or skill, a good year, they will place past returns prominently in their promotional material, knowing the human tendency to chase returns, in a version of ‘make hay while the sun shines’. The hay in this case however belongs to the fund manager, not the investor. The FMA to their credit are looking at this very issue as we speak, with KiwiSaver providers and other local fund managers guilty of promoting recent strong returns as markets surge.
Focusing on KiwiSaver for a minute, we are seeing large sums of money being moved around from one fund manager to another. In the year to 31 March 2026, a record $7.4bn of KiwiSaver savings moved between providers, up from $5.5bn the year before, according to the FMA’s latest KiwiSaver annual report. The concern is that these investors are ‘chasing returns’, switching into the fund with the best recent past performance.
Compounding this problem, we now have advisers, generally mortgage and insurance brokers, steering investors into KiwiSaver funds which are prepared to pay them a commission. Their analysis seems to be heavily skewed to recent past performance. Beyond the glaring conflict of interest commissions create, chasing last year’s winners is also at complete odds with well researched advice.
Further, research by Morningstar (2024) indicates that fees are one of the strongest determinants of long-term returns amongst traditional managers, but of course none of the low-cost providers can afford to pay commissions. I would guess very few clients of commission-based ‘advisers’ are steered towards low-cost funds despite substantive evidence that they are likely to be the long-term winners.
The question is, how unreliable is this type of performance reporting?
Do the winners stay winners?
S&P Dow Jones Indices publishes the annual S&P Persistence Scorecards to answer a simple question: if a fund is a winner today, does it remain a winner?
The results are striking.
In the S&P US Persistence Scorecard for year-end 2025, not a single fund among the 505 top-quartile US domestic equity funds at the end of 2021 remained in the top quartile during each of the subsequent four years. (through 2025). Among large-cap funds, only 4.5% of those in the top half in 2021 stayed in the top half in every year through 2025 – less than the 6.25% you would expect from chance alone.
Of 199 Australian funds investing in Australian or global equities that were in the top quartile in 2023, only 20 (10.1%) remained in the top quartile in both 2024 and 2025. The best result was in global equities, where 12 of 75 funds (16.0%) held on; among Australian Equity General funds it was just 5 of 70 (7.1%). Extend the horizon and the picture is starker: of the equity funds ranked top quartile in 2021, not one remained in the top quartile in each of the following four years.
And looking at three-year periods, in three of the four Australian equity categories a top-quartile manager over 2020–2022 was subsequently more likely to fall into the bottom quartile or disappear than to remain top quartile over the next three years (2023-2025). Among Australian Equity General funds, 29% of top-quartile managers stayed there, while 41% fell to the bottom quartile or were merged or closed.
S&P don’t cover the NZ market, so we did some analysis of KiwiSaver funds based on five years of data from the FMA archives, 2018 through 2022. Our conclusions were: Raw performance reverses, it doesn’t persist. Ranked on headline returns, last year’s best quartile is the single most likely to become next year’s worst.
Where there was mild persistence was in defensive/conservative funds which aligns with the Australian data in which bond funds showed greater persistence than equity funds (41% of top-quartile Australian bond funds in 2023 stayed there in both 2024 and 2025, against 10% of equity funds), although this may largely reflect lower fees and a narrower spread of returns rather than skill.
It is very clear that switching your KiwiSaver on the strength of simple 1-, 3- and 5-year results at a single point in time is a bad idea.
So that’s the NO to the original question – “Is past performance a reliable indicator of future performance”.
Looking beyond the headline numbers
Now for the ‘YES’. I often say when having conversations about fund managers and advisers that everyone has a score. Your score is your past returns. These of course matter and matter a lot. However, to use past returns in your decision-making process, you have to go much deeper than simply 1-, 3-, and 5-year numbers at a single point in time.
Rolling returns tell a different story
A good place to start is to look at rolling returns over the life of the fund. It would be useful if fund managers provided this information. If a fund has a three-year track record, then it will have 25 one-year rolling periods beginning at the end of 1 year then another from the end of month one to month thirteen, month two to fourteen and so on. The same applies to three year and five-year observations.
A useful way of analyzing this data set is to chart the best and worst rolling returns of the fund over multiple periods. Here is a real example from our own database, selecting one NZ fund which we don’t invest in but track for comparative purposes. Returns are to August 31, 2026.
To begin with, imagine that you are making your decision based on the single point in time data.
| 1 year | 20.0% |
| 3 years | 12.6% p.a. |
| 5 years | 7.9% p.a. |
| 12 years
(Since Inception) |
8.9% p.a.
(Aug 2014) |
You would, I am guessing, expect returns around the long-term average and if in two or three years your returns were materially lower, you would be surprised and disappointed.
Now look at this fund’s rolling returns below. What you now observe is the best and worst returns you could have experienced in this fund over periods of time. You would discover that your 5-year returns may have been as low as 4% p.a. and there was a 12-month period where you would have been down more than 10%. While you would never have lost money over any three-year period, your returns could have been no better than cash or bonds.
Having this performance data provides a much better understanding of what you might expect when you invest in this fund. It also sheds light on the single point in time numbers. The past year’s 20.0% is near the top of the fund’s range (its best was 25.1%), more than double its median 12-month return of 9.8% and flows through to all previous periods lifting the average. It would be reasonable to assess these numbers as flattering relative to what you might expect to achieve going forward.
Understanding risk, not just returns
Another important view of past performance is captured by comparing the periods when the fund is experiencing losses versus the equity market. We use the MSCI World Index as a proxy for the equity market and equity market risk, which is the main risk sitting in all traditionally managed portfolios, conservative, balanced and growth.
The chart shows this fund tends to lose money when equity markets fall, but not as much: its biggest loss, around 12–13%, was roughly half the 25% fall in global equities to September 2022. This tendency to move with equity markets is called the correlation of the fund and can be measured, in this case the correlation to global equities is 0.7 with 1 being perfectly correlated and zero being no measurable link to the direction of equity markets, up or down.
Again, a simple chart like this provides some guidance as to what you should expect and how exposed you are to what happens in equity markets.
Past performance is only the beginning
This type of analysis of past performance can significantly improve your understanding of the performance of the advisor/manager/fund you are thinking of placing your capital with.
To summarise, we pay attention to past performance. Every manager and advisor should be able to show you their score – how they have performed, as measured by rolling returns, best and worst years, volatility and correlation to equity market risk.
And this is just the beginning. Once you have filtered managers based on past returns, your work has just begun. Understanding how those returns were generated, by whom and in what market backdrop are all part of process when selecting managers/advisers.
If you’d like to discuss the topics covered in this article, please get in touch with Mark or Sam or contact us for a discussion on how we could support your wealth journey.
Read more of our Investment Insights here.