Bitcoin’s Volatility Rocks KiwiSaver, But Is It a Buying Opportunity?
Recent market turbulence has seen Koura’s Bitcoin KiwiSaver fund land at the bottom of the latest Morningstar survey, down 9.7 percent over the year and a steeper 22.8 percent in the last quarter. This downturn, fueled by a significant drop in Bitcoin’s price from over NZ$200,000 in October to just over NZ$115,000, highlights the inherent risks associated with investing in cryptocurrency through retirement schemes.
The Performance Divide: Kernel Leads, Koura Lags
While Koura Bitcoin struggled, Kernel’s S&P Global Clean Energy Fund emerged as the top performer, boasting a 59.9 percent increase over the year. This stark contrast underscores the diverse performance landscape within the KiwiSaver ecosystem. On average, conservative funds saw returns of 5.8 percent, moderate funds 6.8 percent, balanced funds 9.5 percent, growth funds 9.7 percent, and aggressive funds 12.8 percent.
Koura’s Perspective: Volatility is Expected
Despite the poor performance, Koura founder Rupert Carlyon expressed surprise at the limited investor reaction, noting “very minimal outflows” in recent weeks. Carlyon emphasized that investors were informed of Bitcoin’s volatility before investing and that the fund’s allocation limits – up to 10 percent, rebalanced if reaching 15 percent – prevent significant portfolio damage. He believes the current price swings are part of a predictable cycle, acknowledging Bitcoin’s liquidity issues contribute to these fluctuations.
The Rise of Low-Fee Providers and Process-Driven Investing
The Morningstar survey also highlighted the success of low-fee providers like Kernel and Quay St. Kernel, a newer entrant, topped the cash and high-growth categories, alongside Quay St in most others. Founder Dean Anderson attributes this success to a focus on “evidence, transparency and cost discipline,” with fees often 70 percent below category averages. He stresses the importance of understanding investment fundamentals, particularly in uncertain markets.
Market Trends: Global Equities Drive Positive Returns
Report author Greg Bunkall noted that the quarter was generally positive for KiwiSaver funds, largely driven by global equity performance. New Zealand’s share market experienced only modest growth, while the Australian market remained relatively flat. Simplicity also demonstrated strong performance during the period.
Navigating the Future of Crypto in KiwiSaver
The Koura Bitcoin fund’s recent struggles raise important questions about the role of volatile assets like cryptocurrency within long-term retirement savings plans. While some investors may be attracted by the potential for high returns, the risk of significant losses is undeniable.
The Liquidity Question: A Persistent Challenge
Carlyon’s observation about Bitcoin’s liquidity issues is crucial. Unlike established asset classes, Bitcoin’s relatively compact market size can lead to dramatic price swings with even moderate trading volume. This inherent instability makes it a challenging investment for risk-averse individuals, particularly those nearing retirement.
The Appeal of Diversification – With Caution
Koura’s approach of limiting Bitcoin exposure to a maximum of 10 percent offers a degree of protection. Diversification is a cornerstone of sound investment strategy, but it’s essential to understand the risks associated with each asset class. For many, a small allocation to Bitcoin may be acceptable, but it should never constitute a significant portion of their retirement savings.
The Importance of Fee Transparency
The success of low-fee providers like Kernel underscores the impact of costs on long-term investment returns. High fees can erode gains over time, particularly in periods of modest market growth. KiwiSaver members should carefully compare fees and understand how they affect their overall returns.
FAQ
Q: Is Bitcoin a good investment for my KiwiSaver?
A: It depends on your risk tolerance and investment goals. Bitcoin is highly volatile and carries significant risk.
Q: What percentage of my KiwiSaver can I invest in Bitcoin?
A: Koura allows up to 10 percent, rebalancing if it reaches 15 percent.
Q: Are low-fee KiwiSaver providers better?
A: Lower fees generally lead to higher long-term returns, but it’s important to consider the fund’s investment strategy and performance.
Q: What drove the strong performance of Kernel’s S&P Global Clean Energy Fund?
A: The fund benefited from positive market conditions for clean energy investments.
Did you know? Kernel is the first provider to have three years of data included in Morningstar’s KiwiSaver survey.
Pro Tip: Before making any investment decisions, carefully review the fund’s Product Disclosure Statement (PDS) and consider seeking advice from a financial advisor.
What are your thoughts on including cryptocurrency in your KiwiSaver? Share your opinions in the comments below!
