Unpicking the short-term noise in growth fund performance

NZSA Disclaimer

There have been some interesting changes in relativity between some of New Zealand’s best known Growth funds over recent weeks.

Growth funds, whether KiwiSaver or retail managed funds, are a staple diet for many long-term investors. Often, movements in fund unit prices are similar – unsurprising in the context of a typical growth fund’s exposure to a parcel of global equities and the commensurate currency impact of the Kiwi dollar.

Occasionally, however, retail investors notice a difference. In recent weeks, it appears that the market rebound that followed easing concern around the Iran conflict has created the conditions for a marked divergence between some of the better-known Growth funds available for NZ investors.

The Milford Active Growth Fund is the largest growth-focused fund in New Zealand, with funds under management (FUM) of just under $6 billion. But as shown in the table below, the fund has not shared the same “bounceback” in investment values experienced by comparator funds offered by its smaller competitors.

Table sources: For April 30^th returns, from Milford monthly fact sheet; Generate Managed Funds page; InvestNow managed fund performance table for Generate and Fisher comparative periods; Fisher Funds performance page; Simplicity Investment Funds performance page; Kernel High Growth Fund page.

YTD figures are author-calculated from daily unit prices and may not be directly comparable with manager-published monthly return series.

There are a few observations to take from this data.

The first is that investors in the Milford Active Growth Fund or the Fisher Funds Growth Fund have not enjoyed quite the same level of market recovery as investors in other funds. For Milford in particular, this is further accentuated when examining daily unit pricing, which shows a further slight decline during May, at a time when the broader market has continued its recovery from March lows. In fact, investors in the Milford Active Growth Fund have suffered a return of just over -2% so far in 2026 (to May 15^th). Compare this with the over 6% returns enjoyed by investors in the Generate Focused Growth Managed Fund or the Kernel High Growth Fund.

There is another nuance available from the daily unit prices: significant divergence only started to appear sometime around April 9^th. Prior to that, both the Milford and Fisher Growth funds had tracked similarly or even slightly better than all other funds noted in the table above.

It’s worth looking at the context surrounding such a weirdly specific date. The catalyst for the market resurgence from early April was a sharp bounce after investor concern surrounding the Middle East shock began to ease. Generate described April as a strong month for global equities, with the MSCI World up 9.5%, Nasdaq up 15.3% and the S&P 500 up 10.4%. Milford’s own commentary showed the same structure: the US share market rose 10.5%, while New Zealand was down 0.1% and Australia was up 2.2%.

So, the rebound was not simply a generic recovery in all risk assets. It was disproportionately a global equity, US market and technology-led rebound.

Portfolio Mix

This perhaps leads to a second observation: that longer-term portfolio construction and underlying equity exposures can make a real difference in the short-term. In its April fact sheet for the Active Growth fund, Milford offers commentary that “during the month, the Fund continued to increase the weight towards US shares and reduced holdings in New Zealand, Australian and European shares”. That could imply that the Fund has not reaped the benefit of the surge in US-based, AI or technology related shares to date, leaving it with relatively less exposure to the strongest parts of the rebound, and relatively more exposure to regions and asset classes that did not participate as strongly.

That allocation could be construed as either positive or negative, depending on your individual point of view as an investor as to whether the current AI-fed boom is sustainable. It’s worth noting that over 2% of the fund is allocated to the Taiwan Semiconductor Manufacturing Company (TSMC), a leading player in the AI sector that has generated strong investment returns.

In contrast, Generate notes a strong exposure to US-based technology, including most of the well-known ‘Magnificent Seven’ stocks. Kernel’s exposure is similar, but for different reasons with its exposures more driven by its index-based approach (more on that below).

Portfolio allocation doesn’t begin with geography or sector, however. Milford Active Growth has 78% of its fund allocated to ‘growth assets’, compared with over 98% for the Kernel High Growth Fund, and 95% for the Generate Focused Growth. That makes it important for investors to be very aware of the underlying allocation of a growth fund, regardless of the label on the tin. For some investors, Milford Active Growth may still offer a “complete” solution, whereas other providers, such as Kernel, encourage their clients to invest in a mix of their funds to best match their own investment objectives.

At a stretch, the “mix and match” approach may also be further evidence that the level of investor capability is growing in New Zealand.

Active or index

Milford, Fisher and Generate are active managers, relying on portfolio construction, security selection and asset allocation decisions to add value over time. Kernel and Simplicity sit closer to the low-cost, “index”-based end of the spectrum, although neither approach is entirely free of manager judgement.

An index-based approach is not the same as having no investment view at all. Managers still choose the asset allocation, benchmarks, exclusions, currency-hedging settings and rebalancing rules that shape investor outcomes. For example, Kernel’s Statement of Investment Policy and Objectives (SIPO) for its High Growth Fund outlines the portfolio allocation and the relevant benchmark index for each allocation.

From an investor perspective, each comes with advantages and disadvantages. Arguably, an active manager is more able to respond to market opportunities, while an index approach is subject to market momentum (positive or negative). Investors should also be aware of the relationship between fees and returns: higher-fee active managers carry a higher hurdle, because the value of their decisions must show up after fees over the long term.

Investor approach

The short-term divergence observed since April does not make any one of these funds better or worse than any other. But it does show the impact of very different strategies and investment approaches that should be at the forefront of investors’ minds when selecting a fund.

Investors who thought they were simply choosing between similar growth funds may find that they actually chose very different portfolios.

Funds with high exposure to global shares, US technology and AI infrastructure may continue to do well if earnings growth validates current valuations. But those same funds carry concentration and valuation risk if the AI trade cools, the US dollar weakens for New Zealand investors, or oil-led inflation keeps interest rates higher for longer. More diversified active funds may look dull in a momentum rally, yet may provide useful resilience if market leadership broadens or reverses.

Despite a significant divergence since early April, it may well be that the lower-returning funds are doing what they were designed to do: reducing exposure to a narrow momentum trade, preserving flexibility, and avoiding concentration risk.

The investor test is simple: do not chase the fund that ‘won’ April. But by all means, be attentive to what is going on.

Oliver Mander