National Capital serves first KiwiSaver rating report

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.

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