{"id":347,"date":"2018-04-22T22:25:08","date_gmt":"2018-04-22T22:25:08","guid":{"rendered":"https:\/\/nestegginvestments.co.nz\/?p=347"},"modified":"2020-11-17T03:42:20","modified_gmt":"2020-11-17T03:42:20","slug":"comparing-nz-passive-funds","status":"publish","type":"post","link":"https:\/\/nestegginvestments.co.nz\/index.php\/2018\/04\/22\/comparing-nz-passive-funds\/","title":{"rendered":"Comparing NZ passive funds"},"content":{"rendered":"<p><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\"><span style=\"color: #000000;\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-349 aligncenter\" src=\"https:\/\/nestegginvestments.co.nz\/wp-content\/uploads\/2018\/04\/comparing-apples-300x142.jpg\" alt=\"\" width=\"300\" height=\"142\" srcset=\"https:\/\/nestegginvestments.co.nz\/wp-content\/uploads\/2018\/04\/comparing-apples-300x142.jpg 300w, https:\/\/nestegginvestments.co.nz\/wp-content\/uploads\/2018\/04\/comparing-apples.jpg 720w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/span><\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\"><span style=\"color: #000000;\">For many investors, their preferred investment style is via passive, index tracking funds.\u00a0 Passive funds are typically characterised by low management fees, as the funds automatically hold all of the shares within the particular index they track, and don\u2019t need to employ a fund manager\/research team to pick stocks that they believe will outperform (this is the domain of Active funds).\u00a0 Hence the management costs for Passive funds are low compared with Active funds \u2013 a significant advantage they hold (for a more detailed look at Active v Passive funds, see my earlier blog post <\/span><a href=\"https:\/\/nestegginvestments.co.nz\/index.php\/2017\/09\/21\/active-v-passive-better\/\">here<\/a><\/span><span style=\"color: #000000; font-family: Calibri;\">).<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">For Passive investors investing in NZ equities, until recently the only choice available (outside of KiwiSaver) was via SmartShares, which offer a range of funds including the NZ Top 50 Fund which, as the name suggests, invests in the 50 biggest NZ companies.\u00a0 The management fee is 0.5%.<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">However this position has changed recently, with KiwiSaver\/investment fund provider Simplicity introducing the NZ Share Fund.\u00a0 This also invests in the top 50 NZ listed companies, but significantly, the management fee is a mere 0.1% &#8211; one fifth of the fee charged by SmartShares.<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">On the surface favouring the Simplicity fund looks like a no-brainer.\u00a0 However, there are some important differences in the two offerings worth noting:<\/span><\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\"><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\">The SmartShares fund has a 5% cap on any individual stock, the Simplicity fund doesn\u2019t.\u00a0 SmartShares argues that the performance of the \u201ccapped\u201d index has been better than the uncapped index by 0.63% pa over the last 10 years.<\/span><\/span><\/span><\/li>\n<li><span style=\"color: #000000;\"><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\">For SmartShares, investors can choose to have dividends paid in cash.\u00a0 For Simplicity, dividends are reinvested.<\/span><\/span><\/span><\/li>\n<li><span style=\"color: #000000;\"><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\">The minimum investment is $250 for SmartShares, $10,000 for Simplicity.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">What is my view?<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\"><span style=\"color: #000000;\">One of reasons I have favoured (good) Active fund managers for NZ investments is that the management fee of the SmartShares passive funds is too high and does not provide a significant enough cost advantage over the (good) Active fund managers.\u00a0 The Simplicity offering with its 0.1% fee is much more in line with overseas passive fund costs.\u00a0 It will be interesting to see how SmartShares responds, and if they lower their fees.\u00a0 <\/span><\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"font-family: Calibri;\"><span style=\"color: #000000;\">As it stands today, I favour Simplicity over Smartshares for NZ passive investments in the top 50 NZ companies (assuming the investor has the $10k minimum). \u00a0The ability to have dividends paid in cash with SmartShares is nice, but of secondary importance.\u00a0 And I\u2019m not sold by the historical outperformance of the 5% stock cap (this doesn\u2019t mean the capped fund will outperform over the next 10 years).\u00a0 \u00a0\u00a0<\/span><\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">As they have done with KiwiSaver, it\u2019s great to see Simplicity also entering the NZ passive investment market, and giving it a good shake up!<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">\u00a0<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">Dean Edwards<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">\u00a0<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">Note: I am a fully independent Financial Adviser and do not receive any commissions, payments or incentives from any product providers.<\/span><\/span><\/p>\n<p><span lang=\"EN-AU\"><span style=\"color: #000000; font-family: Calibri;\">\u00a0<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>For many investors, their preferred investment style is via passive, index tracking funds.\u00a0 Passive funds are typically characterised by low management fees, as the funds automatically hold all of the shares within the particular index they track, and don\u2019t need&hellip; <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-347","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts\/347","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/comments?post=347"}],"version-history":[{"count":3,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts\/347\/revisions"}],"predecessor-version":[{"id":351,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts\/347\/revisions\/351"}],"wp:attachment":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/media?parent=347"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/categories?post=347"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/tags?post=347"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}