KiwiSaver

Key personnel changes in the KiwiSaver industry could have important implications for investment processes and organisational culture.

Financial advisers National Capital say management disruption in the past six months means financial advisers need to remain alert in the coming quarters.

The comments came in Auckland-based National Capital’s first KiwiSaver Value for Money Report. Founder and co-director Clive Fernandes says it is the first rating of KiwiSaver funds which looks beyond performance to qualitative data.

National Capital rated KiwiSaver funds against six pillars; performance after fees, assessment of the value provided for fees, fund management capability, provider stability, portfolio composition and processes, and ethical investing.

Fernandes says In the past two quarters the industry has seen more personnel disruption than usual. This impacted ratings for the management capability and stability pillar with the report noting the departure of industry veterans including ANZ co-head of diversified funds Alan Clarke who left the bank in March. A search for Clarke’s successor is still underway.

“The presence of CIO Paul Huxford and Maaike Van Tol provides some stability during the transition. ANZ’s fund-of-funds approach also helps mitigate immediate impacts since the underlying fund managers remain unchanged,” the report says.

It also mentioned Smartshares’ QuayStreet acquisition which resulted in two senior fund managers exiting as having the potential to cause changes in investment processes. “While Smartshares CIO Stuart Miller brings his experience as an asset allocator, we remain watchful for any modifications that may arise during the integration phase.”

Likewise Fisher Funds’ acquisition of Kiwi Wealth which saw the majority of the latter’s senior investment team leaving, means National Capital will continue to assess how the organisation will adapt its investment capabilities in the future. The departure of George Carter from Nikko Asset Management as chair of the investment committee and dedicated portfolio manager for its diversified funds, with Stuart Williams taking over both as well as his role as co-head of equities was also worth watching.

Unlike Australia, New Zealand fund managers (including KiwiSaver providers) are not rated on qualitative matters. Last November, Australian investment giant Magellan was downgraded by rating house Morningstar on underforseen management disruptions and underperformance.

Fernandes says on management capability if there is a broad amount of personnel change for a provider plays a role in the amount of points National Capital allocates for its stability pillar. “A provider with a lot of movement will have a slight negative impact on the overall rating.”

Domestic focus

On process and portfolio management, the report found that KiwiSaver funds have decreased their average net cash holdings from 10.96% to 9.26%.

“As most funds are New Zealand domiciled with limited access to international fixed interest and shares, there is a degree of passive underlying investments.

“This suggests these funds rely on passive investment strategies for certain asset classes, potentially due to constraints imposed by their predominantly domestic focus.”

The report noted that most managers have an equity style where they invest somewhere in the middle between growth and larger value companies.

Overall there was evidence of more focus on ethical investment, research found. Booster’s Socially Responsible High Growth fund topped the charts for this pillar with Nikko, Juno, Pathfinder and Simplicity also rating highly.

On fees, Simplicity kept its position as the provider with the lowest fees among the growth, balanced and conservative categories. The average fees varied greatly across different categories. High growth had the highest average fees at 1.12%, while conservative the lowest at 0.61%. On performance fees, NZ Funds and Milford still include performance fees in their product disclosure statements.

Overall the report found that KiwiSaver members contributed 4.3% to their retirement savings in the last quarter, well below what it says is an optimal index requirement of 6.3%.

The report also looked at how KiwiSaver members are invested with an asset allocation index in which higher the index, the higher growth allocation. For the last quarter this was 56 compared to an optimal rating of 68.8. The gap represents a potential $48 billion in lost earnings and Kiwis are not investing their money in the best way for their life stage.

Comparing age groups, those aged 18 to 24 had the highest contribution rate at 5.45%, while those aged 35 to 44 were the lowest contributors at only 4.2% of their income.

To read the full ratings download the full report on the National Capital website.

Another growth manager added to the InvestNow KiwiSaver Scheme.

The Generate Focused Growth Managed Fund has been added as another option for investors to use on the InvestNow KiwiSaver scheme.

Under the scheme investors can put together their own KiwiSaver scheme using a variety of managers.

Generate is a popular boutique KiwiSaver manager with more than $3.8 billion in funds under management across its KiwiSaver and retail product suite since launching in 2013.

InvestNow general manager Mike Heath says the firm’s KiwiSaver members have a “clear preference” for growth-oriented strategies.

Adding the Generate Focused Growth Managed Fund is a logical step.

“The Generate fund is a great fit in our product range and meshes with our vision of creating a one-stop-shop where Kiwis can access high-quality investments from an easy-to-use online platform,” Heath said.

He says InvestNow KiwiSaver Scheme members, in particular, appreciate the ability to combine different growth managers to create bespoke, diversified portfolios.

InvestNow offers several growth funds from both external managers while also providing low-cost, tax-efficient options through the in-house Foundation Series.

Generate chief executive Henry Tongue says the move would open up a complementary client base for the firm, which to date has typically attracted members through a wide network of internal and independent advisers.

“We recognise that not all New Zealanders will want to use a financial adviser – and InvestNow has attracted many of these self-directed, sophisticated investors who are comfortable in creating their own portfolios,” Tongue says.

“We’re looking forward to engaging with this increasingly important sector of the New Zealand investment market.”

For more on the InvestNow KiwiSaver Scheme watch Good Returns TV.

Rebounding share markets in the March quarter helped all the multi-sector KiwiSaver funds produce positive returns.

Rebounding share markets in the March quarter helped all the multi-sector KiwiSaver funds produce positive returns and total KiwiSaver assets rose 6.2%, or by $5.4 billion, to $91.9 billion compared with the December quarter, according to Morningstar's latest survey.

While the collapse of the Silicon Valley Bank on March 10 dented confidence globally, the benchmark S&P/NZX 50 Index still gained 3.58% in the latest quarter and the key US index, the S&P 500, was up 5.2%.

ANZ remained KiwiSaver market leader with assets of $18.7 billion but it grew at the slower pace of 5.6% in the latest three months – it lost its default status in December 2021 – but the top six providers retained their 69% share of the market.

Among the six default providers, Kiwi Wealth, which is now owned by Fisher Funds, produced the best quarterly return of 5.7%, followed by Simplicity with 5.4%, but both funds were the worst performers over year ended March with negative 3.5% returns.

The worst performing default fund in the quarter was SuperLife with 3.8% returns but it was the least worst peformer for the year with a negative 2% return.

Simplicity's conservative fund was the best performer among multi-sector funds in the quarter with a 3.7% return but it was the worst performer over a one-year and three-year periods with negative 3.5% and positive 0.3% respectively.

The opposite was true of QuayStreet's income fund which was the worst performer in the quarter with a 2% return but the best one-year performer at 2.7%.

Among balanced funds, Juno's was the best quarterly performer at 6.5%, though it ranked 10th out of 34 funds for the year with a negative 2.3% return.

The InvestNow Castle Point balanced fund was the worst performer with an 0.7% return and a negative 1.8% return for the year, ranking at fifth.

Juno's growth fund was the best performer in that category with an 8.2% return for the quarter, beating the best of the aggressive funds, FANZ Lifestages High Growth with 7.8%, but it ranked 17th out of 26 funds for the year with a negative 4.1% return.

Morningstar said the most appropriate measure of a KiwiSaver scheme's performance is its long-term returns and noted the aggressive category average has delivered annualised returns of 8.4% while the most conservative funds have delivered 4.1% a year.

Online investment platform Sharesies will have a DIY option in its KiwiSaver scheme which it plans to launch this quarter.

The impending KiwiSaver scheme was announced last December and now has a waiting list of 18,000. Sharesies joint CEO Leighton Roberts says the scheme will roll out to select staff and clients from next week.

Once it is available, members will have a choice of five base funds as well as the option to customise their portfolios from a range of individual company shares and exchange traded funds (ETFs).

The initial DIY offering will cover 40 ETFs and 60 individual stocks which will be PIE-wrapped to limit the top tax rate of 28% and allow members to buy fractions of shares. 

Sharesies head of KiwiSaver Matt Macpherson says the ETF range isn’t fully finalised but all ETFs bar one from Salt, will be Smartshares including Smartshares S&P 500, Total World and Total World Bonds.

As the scheme is developed, access to US markets will be added later in the year followed by ASX listings, he says.

Other self-select KiwiSaver schemes which allow members to customise their portfolios with individual stocks and ETFs are available from Consilium and Craigs Investment Partners although their individual equity offerings are not structured as PIEs.

Online investment platform InvestNow also lets KiwiSaver members build their own portfolios from a range of funds not including individual shares.

At least 50% of Sharesies KiwiSaver portfolios will be required to include one of five base funds chosen from among Sharesies Pathfinder Ethical Growth Fund, Sharesies Smartshares Growth Fund, Sharesies Pie Global Growth 2 Fund,

Sharesies Smartshares Balanced Fund and  Sharesies Smartshares Conservative Fund. This extends the partnership Sharesies already has with Pathfinder, PIE and Smartshares which are available on the Sharesies platform.

Sharesies says there will be no additional management or administration fees on top of the fund managers’ own fees. Although self-selected shares and ETFs won’t attract management fees there will be an administration fee of 0.15%, and a transaction fee of 1% for investments up to $1000, and 0.1% for investments of more than $1000.

Guardrails

Would-be members will have to sign up to Sharesies to join the scheme which will be on the Sharesies app and will have to complete an investment plan. Members will be able to update the plan at any time to suit their changing risk profiles, goals, or values.

The KiwiSaver scheme will include built-in limits and tools (guardrails) to promote diversification so investors can manage their risk. As well as having to allocate at least half their KiwiSaver investment to a base fund, members will not be able to allocate more than 5% of their total KiwiSaver investment to any single share or ETF. To assess the risk before locking in their investment plan, members will see a risk indicator from 1 (low risk) to 7 (high risk).

Roberts says just over 10% of current members use the platforms’ autoinvest feature and Sharesies members have proved to be sophisticated in their investment decisions including steering clear of panic selling.

“Kiwis have told us they want to feel more connected to their KiwiSaver investments, and have more control and confidence over how and where they invest,” he says.