Beyond the Boom: How Emerging Markets and AI are Reshaping the Future of KiwiSaver Returns

Despite widespread predictions of a market downturn, 2025 delivered surprisingly robust returns for KiwiSaver investors, with the median balanced fund achieving 9.8% growth. But looking beyond the headlines, a significant shift is underway. While US tech giants continue to dominate the narrative, the real story lies in the surging performance of emerging markets and the increasingly concentrated influence of the AI thematic – trends poised to redefine investment strategies for the next decade.

The Rise of the Global South: India and Beyond

The MJW investment survey for the December quarter revealed that developed markets drove much of the positive performance, with Japan (up 12%) and the UK (up 6.2%) leading the charge. However, the standout performer wasn’t in the developed world. The MSCI Emerging Index, encompassing countries like China, Brazil, Taiwan, and crucially, India, soared by 30% – significantly outpacing the Nasdaq’s 20% gain. This signals a fundamental rebalancing of global economic power and a compelling argument for diversifying beyond traditional investment havens.

Simplicity’s Success: A Glimpse into the Future of Fund Management?

The performance tables saw some notable changes. Simplicity topped the growth, conservative, and balanced fund categories for the quarter, a departure from the usual dominance of established players like Generate and Milford. This success appears linked to Simplicity’s higher global allocation and a unique approach to fixed interest investments, including a portfolio of home loans. This highlights a growing trend: active fund managers who can strategically navigate global markets and embrace alternative asset classes are likely to outperform in the years ahead.

The AI Concentration Risk: A Looming Threat to Diversification

While the overall market performed well, a growing concern is the increasing concentration of global equity markets around the Artificial Intelligence (AI) thematic. US equities, already representing 70% of global indices, are further amplified by the dominance of AI-driven companies. This creates a significant risk: a correction in the AI sector could have a disproportionately large impact on global portfolios. A little diversification would seem welcome, and investors should carefully consider their exposure to this increasingly concentrated market.

New Zealand Equities: A Potential Rebound on the Horizon?

For the past three to five years, New Zealand equities have lagged behind their global counterparts, acting as a drag on overall portfolio performance. However, with the potential for a turnaround in the New Zealand economy and falling interest rates, the question arises: is a rebound imminent? While timing the market is notoriously difficult, the long-term benefits of New Zealand equities – diversification, local expertise in active management, and potential tax advantages – shouldn’t be overlooked. The MJW report suggests a home bias may be strengthening its case, despite recent underperformance.

The Role of Active Management in a Changing Landscape

Milford’s impressive growth – from $3.3 billion in December 2022 to $8.5 billion – underscores the value of skilled active management. In a world increasingly dominated by passive investment strategies and AI-driven algorithms, the ability to identify and capitalize on emerging opportunities will be crucial. Investors should prioritize funds with a proven track record of active management and a clear understanding of global market dynamics.

The Sharesies Factor: Democratizing Investment and Shifting Power

The emergence of new players like Sharesies, capturing 10% of all KiwiSaver scheme transfers in October, is another significant development. This signals a democratization of investment, empowering a new generation of investors to take control of their financial futures. The traditional dominance of established providers is being challenged, forcing them to innovate and offer more competitive products and services.

Looking ahead, the key to successful KiwiSaver investing will be a strategic blend of global diversification, active management, and a willingness to embrace emerging market opportunities. The lessons of 2025 are clear: ignoring the global south and the power of AI is no longer an option.

Frequently Asked Questions About the Future of KiwiSaver

What impact will AI have on KiwiSaver returns in the next 5 years?

AI is expected to be a major driver of growth in global equity markets, but its concentration also presents a risk. KiwiSaver funds with exposure to AI-driven companies are likely to benefit, but investors should be mindful of diversification to mitigate potential downside.

Should I increase my KiwiSaver contributions given the positive returns?

Increasing your contributions, even by a small amount, can significantly boost your long-term returns. Take advantage of employer matching and consider increasing your contributions if your financial situation allows.

Is it still worth investing in New Zealand shares?

While New Zealand shares have underperformed in recent years, they still offer diversification benefits and potential for a rebound. Consider a balanced approach, allocating a portion of your portfolio to New Zealand equities alongside global investments.

How does the performance of Simplicity compare to other funds long-term?

Simplicity’s recent success is notable, but it’s important to consider long-term performance. While they’ve excelled in the past quarter, a longer-term track record is crucial for evaluating their consistency and ability to deliver sustainable returns.

What are your predictions for the future of KiwiSaver? Share your insights in the comments below!