New Zealand Listener - May 26, 2018

MAY 26 2018 LISTENER 15

8000 passive investment funds available

worldwide. Such funds simply follow their

chosen markets up and down, requiring no

day-to-day decisions. Active-fund managers,

by contrast, hire specialist teams to try to

second-guess where global and local markets

will go next.

A debate rages between those who believe

active management is better than passive

investment. The noisiest proponent of the

passive model is also the smallest KiwiSaver

provider, Simplicity. Its founder, long-time

financial markets operator Sam Stubbs,

launched Simplicity’s low-cost business

model 19 months ago, shaking up the sector

with little more in the way of marketing

than a willingness to be quotable about the

easy ride he reckons the biggest KiwiSaver

providers have enjoyed since the scheme

was established in 2007.

So far, he’s attracted more than 14,

people to Simplicity with his non-profit

model, which makes charitable dona-

tions instead of declaring dividends and

now boasts $425 million in “funds under

management”.

That may sound a lot of money, but Sim-

plicity’s share of the KiwiSaver market is

less than 1% of the total $45.6 billion that

was invested up to the end of 2017. Of that

total, 83% is in the hands of the six largest

providers, according to KiwiSaver analyst

Morningstar, and $8.7 billion – nearly one

in every five KiwiSaver dollars invested –

is parked in the default funds where new

KiwiSaver members are sent when they

either don’t know or bother to choose what

sort of fund they want to be in.

Unsurprisingly, the default providers,

which include banking and insurance

heavyweights AMP, ANZ, BNZ, ASB, Booster

and Westpac, are also among the largest

KiwiSaver fund managers.

Yet although Simplicity may be small

beer, competitors care about the shake-up

Stubbs has brought to the market, with his

promise of low fees based on passive funds.

After all, the Treasury estimates KiwiSaver

investments will be worth more than $

billion by 2030. That’s a lot of money to

earn fees on. Not too much work is required

on the part of KiwiSaver providers, which

ANGIE HUMPHREYS

Over a 20- to 40-year

horizon, it’s almost

unheard of for a growth

fund to underperform

a conservative fund.

Fund managers: left, Milford Asset Management’s Brian Gaynor; above, Simplicity’s Sam Stubbs.