KiwiSaver

KiwiSaver providers made big cuts in investments that harm people, animals and the planet last year according to new data from Mindful Money.

This included some of the largest KiwiSaver providers resulting in the biggest fall in harmful investment since Mindful Money started tracking ethical investment trends five years ago.

In the six month period to September 2023, there was a 72% reduction in investment in tobacco companies, 35% reduction in weapons, 29% reduction in gambling, 25% reduction in companies that test products on animals or cause animal suffering, 24% reduction in alcohol, 16% reduction in pornography/adult entertainment and a 7% reduction in environmental damage.

Mindful Money CEO Barry Coates says until now, most of the shift towards ethical investment has come from the smaller and medium-sized funds including Pathfinder, Medical Assurance Society (MAS), Simplicity and Always Ethical.

“However, over the past six months we have seen significant reductions in harmful investment by many of the largest KiwiSaver funds.”

This includes an overall reduction of 37% by ASB, a 22% reduction by AMP and a 16% reduction by ANZ. Meanwhile the fastest growing fund, Fundrock-owned Aurora, recorded a 23% decline in issues of concern. 

“Most of the reductions have been a result of changes that KiwiSaver managers have put in place over recent years to reduce carbon emissions in their portfolios and increase investments in companies with higher social and environmental standards,” says Coates. “Funds such as ASB and Aurora have also changed their external fund providers to reflect a more ethical approach.”

He says overall the reductions are even more significant as a proportion of the total because KiwiSaver investment was 4.8% higher in September 2023 (a record $101 billion) than in March 2023. He puts it down to customer demand and transparency aided by the Mindful Money website which has been visited by more than 300,000 people since its launch four years ago.

“The most common reaction has been ‘I didn’t sign up for this’,” he says. “Many have complained to their KiwiSaver provider or switched funds. Consumer power is changing the practices of the investment sector.”

Fossil fuels

However, the reductions in harmful stocks didn’t include fossil fuels and companies cited for human rights violations, says Coates.

“Investment in fossil fuel companies is at the highest level ever, at $3.29 billion. Over one third (37%) of that investment is in global companies that are still expanding their exploration and production, and a smaller amount (34%) in companies (like Contact Energy) that are transitioning to renewable energy on a 1.5°C pathway.

“This is hard to understand at a time when hundreds of thousands of Kiwis are suffering from the impacts of extreme weather related to climate change. KiwiSaver investors are still supporting the fossil fuel companies that are contributing to the flooding, wildfires, sea level rise and droughts that are causing massive suffering in our communities and in the poorest and most vulnerable communities, including our Pacific neighbours.”

Coates is calling for providers to divest from fossil fuel companies that are not transitioning to renewable energy on a net zero pathway.

“Companies like Exxon Mobil and Shell have been promising to make the transition for over 30 years since the climate convention was signed in 1992. It is time to stop the greenwash.

“These investments are also financially risky. The companies still increasing their production, and the KiwiSaver providers investing in them, are risking huge losses from a decline in production and from stranded assets – the infrastructure and reserves that will become unusable in the future. The International Energy Agency predicts fossil fuel demand will decline after 2028, a few short years away. The rate of decline is likely to be steep.”

He says the impact on share prices has already started. “Despite the increase in oil prices caused by Russia’s invasion of Ukraine, the value of fossil fuel companies, measured by the US Oil & Gas index, is still 6.7% below the level 10 years ago. During that time the S&P 500 index has risen 260.1%.”

Israel and Palestine

Mindful Money is also calling for providers to divest from companies that support Israeli settlement in Palestine. Included in Mindful Money’s violation of human rights category are Israeli and global companies that have a direct involvement in developing and maintaining Israeli settlements in occupied Palestine – a total investment across all KiwiSaver funds of $124 million.

In 2016 the New Zealand government cosponsored the UN Security Council’s resolution 2334 declaring that Israeli settlements were a violation of international law, says Coates. Overall  $7.9 billion worth of KiwiSaver remains invested in fossil fuels, weapons, animal cruelty and human rights violations.

Fisher Funds chalked up very sluggish growth in its KiwiSaver funds under management (FUM) through the first quarter of owning Kiwi Wealth but the wholesale side of its business is growing at double-digit rates.

The latest MJW survey showed Fisher's wholesale FUM grew 14.6% to $18.36 billion between the September and December quarters of 2023.

MJW's Ben Trollip says his company's data covers all the wholesale funds its clients invest in, so the total may not include all Fisher's wholesale funds, but it does include the vast bulk of its wholesale FUM.

Not all Fisher's wholesale vehicles showed growth in the quarter – its NZ fixed interest fund, for example eased from $2.75 billion on Sept 30 to $2.73 billion – but others grew at a fast clip, including the international select equities fund which near doubled to $3.2 billion.

Fisher's KiwiSaver FUM grew just 0.38% in the year ended March 2023 – the year-earlier comparison is the sum of Kiwi Wealth's funds and Fisher's.

Among the top 10 KiwiSaver managers, that was the most sluggish growth with the exception of AMP, whose KiwiSaver FUM shrank by 0.63% to $5.8 billion.

At $14.42 billion, Fisher was the third-largest KiwiSaver manager, behind ANZ with $18.71 billion and ASB with $14.47 billion.

Growth does tend to be slower the larger a manager gets – ANZ's growth in the year was 1.03% and ASB's was 3.33%, while fourth-largest player, Westpac grew FUM at a 2.9% pace.

Milford Asset Management was the fastest growing of the top 10, increasing FUM by 17.3% to $5.65 billion.

Milford's wholesale FUM, as measured by MJW, grew 5.1% in the December quarter to $8.67 billion.

Fisher's investment style has always been a “buy and hold” strategy while Kiwi Wealth, which was started by Gareth Morgan and later sold to the Kiwibank group, was run on the belief that because most of the assets most New Zealanders own are concentrated in NZ, the KiwiSaver strategy should be to invest offshore to provide diversification.

Which is somewhat ironic since most of Kiwi Wealth's clients probably were also Kiwibank customers and had chosen to go “local” in choosing their bank.

“Swings and roundabouts” on investment returns

The results shown in MJW's survey show very much a “swings and roundabouts” returns from Fisher's own funds and the Kiwi Wealth funds.

For example, the Fisher growth fund was the second-best performer in the December quarter out of 15 funds with a 7.3% return while the Kiwi Wealth fund was fifth best performer with a 7.1% return.

The Fisher fund was 11th out of 15 funds over three years with a 3.2% annual return but third out of 13 funds over 10 years with an 8.2% annual return while the Kiwi Wealth fund was second over three years with a 5.2% annual return and seventh over 10 years with an 8% annual return.

Fisher didn't answer the question directly about how its Kiwi Wealth customers were feeling about the change in strategy, but did say both the Fisher and Kiwi Wealth funds had been run together since March 2023.

“The performance of each fund has been right near the top of the pack, driven by strong outperformance in our active equities strategies,” Fisher said.

“Fisher Funds has been very pleased with the returns generated for Kiwi Wealth clients since taking over the ownership, both on an absolute and relative-to-competitor basis,” it said.

“Given both Fisher Funds and Kiwi Wealth funds are now all invested into the same assets by the same investment team, any recent differences in performance between the two brands can be attributed to modest differences in strategic asset allocation of the funds.”

Fisher noted that growth funds are long-term investments and do experience short-term volatility.

“We are focused on delivering long-term results for our clients and we believe our active investment philosophy and approach will continue to do this.”

Fisher bought Kiwi Wealth for $310 million in November last year.

Fisher Funds chalked up very sluggish growth in its KiwiSaver funds under management (FUM) through the first quarter of owning Kiwi Wealth but the wholesale side of its business is growing at double-digit rates.

The latest MJW survey showed Fisher's wholesale FUM grew 14.6% to $18.36 billion between the September and December quarters of 2023.

MJW's Ben Trollip says his company's data covers all the wholesale funds its clients invest in, so the total may not include all Fisher's wholesale funds, but it does include the vast bulk of its wholesale FUM.

Not all Fisher's wholesale vehicles showed growth in the quarter – its NZ fixed interest fund, for example eased from $2.75 billion on Sept 30 to $2.73 billion – but others grew at a fast clip, including the international select equities fund which near doubled to $3.2 billion.

Fisher's KiwiSaver FUM grew just 0.38% in the year ended March 2023 – the year-earlier comparison is the sum of Kiwi Wealth's funds and Fisher's.

Among the top 10 KiwiSaver managers, that was the most sluggish growth with the exception of AMP, whose KiwiSaver FUM shrank by 0.63% to $5.8 billion.

At $14.42 billion, Fisher was the third-largest KiwiSaver manager, behind ANZ with $18.71 billion and ASB with $14.47 billion.

Growth does tend to be slower the larger a manager gets – ANZ's growth in the year was 1.03% and ASB's was 3.33%, while fourth-largest player, Westpac grew FUM at a 2.9% pace.

Milford Asset Management was the fastest growing of the top 10, increasing FUM by 17.3% to $5.65 billion.

Milford's wholesale FUM, as measured by MJW, grew 5.1% in the December quarter to $8.67 billion.

Fisher's investment style has always been a “buy and hold” strategy while Kiwi Wealth, which was started by Gareth Morgan and later sold to the Kiwibank group, was run on the belief that because most of the assets most New Zealanders own are concentrated in NZ, the KiwiSaver strategy should be to invest offshore to provide diversification.

Which is somewhat ironic since most of Kiwi Wealth's clients probably were also Kiwibank customers and had chosen to go “local” in choosing their bank.

“Swings and roundabouts” on investment returns

The results shown in MJW's survey show very much a “swings and roundabouts” returns from Fisher's own funds and the Kiwi Wealth funds.

For example, the Fisher growth fund was the second-best performer in the December quarter out of 15 funds with a 7.3% return while the Kiwi Wealth fund was fifth best performer with a 7.1% return.

The Fisher fund was 11th out of 15 funds over three years with a 3.2% annual return but third out of 13 funds over 10 years with an 8.2% annual return while the Kiwi Wealth fund was second over three years with a 5.2% annual return and seventh over 10 years with an 8% annual return.

Fisher didn't answer the question directly about how its Kiwi Wealth customers were feeling about the change in strategy, but did say both the Fisher and Kiwi Wealth funds had been run together since March 2023.

“The performance of each fund has been right near the top of the pack, driven by strong outperformance in our active equities strategies,” Fisher said.

“Fisher Funds has been very pleased with the returns generated for Kiwi Wealth clients since taking over the ownership, both on an absolute and relative-to-competitor basis,” it said.

“Given both Fisher Funds and Kiwi Wealth funds are now all invested into the same assets by the same investment team, any recent differences in performance between the two brands can be attributed to modest differences in strategic asset allocation of the funds.”

Fisher noted that growth funds are long-term investments and do experience short-term volatility.

“We are focused on delivering long-term results for our clients and we believe our active investment philosophy and approach will continue to do this.”

Fisher bought Kiwi Wealth for $310 million in November last year.

Performing well in the December quarter was at odds with KiwiSaver funds' longer-term performance and vice versa, according to the latest MJW survey.

For example, ASB's Positive Impact fund was the best performing balanced KiwiSaver fund in the quarter with an 8.1% return, but it was the worst performer out of 17 funds over calendar 2023 with an 8.3% return and the worst performer over three years with a negative 1.2% annual return.

The fund hasn't been going long enough to record five or 10-year returns.

In sharp contrast, Milford's balanced fund was the worst performer in the quarter with a 4.8% return and the second-worst performer over calendar 2023 with a 9.1% return, but it was the best performer over three years with a 4.7% annual return, over five years with an 8.3% annual return and over 10 years with an 8.6% annual return.

MJW noted that because KiwiSaver is a long-term savings vehicle, “one should not put too much weight on the short-term results.”

It also cautioned that past performance “is not a perfect predictor of future results.”

And it reminded investors that performance tends to come in cycles.

The best performing growth fund in the latest quarter was ANZ's with a 7.5% return, but it was third-worst out of 15 funds over 2023 with a 12.7% return, seventh-best out of 15 over the three years with a 3.6% annual return and fifth best out of 15 over five years with an 8.4% annual return.

Milford's growth fund fared relatively poorly over three months, ranking eighth out of 15 funds with a 6.7% return, and was also eighth over 2023 with a 13.7% return, but it was the best performer over three, five and 10 years with annual returns of 7.4%, 10.6% and 10.4% respectively.

Among conservative funds, Kiwi Wealth's conservative fund was the best performer over both the latest quarter and 2023 with returns of 6% and 10.5% respectively and fifth out of 18 funds over three years with an 0.8% annual return and third over five years with a 3.8% annual return. It ranked sixth out of 13 funds over 10 years with a 4.3% annual return.

Kiwi Wealth's default conservative fund was twelfth out of 18 funds in the December quarter with a 5.2% return but second over 2023 with a 10.5% return, but it ranked number one over both three and five years with respective annual returns of 2.1% and 4%.

Kiwi Wealth is now owned by Fisher Funds which plans to merge its funds into existing Fisher products.

Milford's conservative fund was the best performer over 10 years with a 5.9% annual return, but ranked seventeenth out of 18 funds over the December quarter with a 4.2% return.

The worst performing conservative fund in the latest quarter was BNZ's first-home buyer product with a 3.5% return and it ranked seventeenth out of 18 over 2023 but was second best over three years with 1.6% annual returns.

Over five years, AMP's defensive conservative fund was the worst performer with 2.5% annual returns while AMP's conservative fund was worst out of 13 funds over 10 years with 3.3% annual returns.