We recently identified an administrative error, made by ourselves and our global portfolio manager - DWS, which affected the Hedged Global Bond Fund (HGBF) from its launch on 28 April 2023 until 4 November 2025. 

While the error had no material financial impact, it did mean that until recently the HGBF held some bonds that should have been excluded under our Responsible Investment Policy. The issue also had a flow on effect for the KiwiSaver and Investment Funds Growth, Balanced and Conservative Funds, and the KiwiSaver Default Fund which all include the HGBF as the international fixed income part of their asset allocation.

What happened?

In 2023, when Simplicity moved its global bond investments from Vanguard funds to custom-built global portfolios managed by DWS, we obtained a new ESG-screened index from Bloomberg specifically designed for the HGBF. However, when the HGBF was set up in DWS’s system, it was mistakenly linked to the previous Vanguard index which had a very similar name, composition and screening rules to the new Bloomberg index.

Both indices apply ESG screening, but the new Bloomberg index uses stricter exclusion criteria, including:

• Minimum ESG rating requirements for corporate issuers

• Exclusions for companies: 
  - with indirect involvement in weapons-related activities.
  - with any involvement in oil and gas related activities (e.g. distribution, transportation, or equipment and services)

Because the incorrect index was used, the HGBF ended up holding a small number of securities (326 bonds from 149 issuers which were part of an optimised portfolio 4,600+ securities from 950+ issuers) that should have been excluded.

The error came to light when DWS queried why the index wasn’t reflecting the recently implemented exclusion of Israeli government bonds. After checking with Bloomberg, DWS identified that the portfolio had been linked to the wrong index since inception.


What has been done?

As soon as the issue was identified, DWS:

• Corrected the index linkage immediately

• Identified all bonds that should have been excluded

• Fully divested those holdings by 12 November 2025

We also reviewed and corrected the few places where the incorrect index name appeared in our documents. Updated Scheme Investment Policies (SIPOs) will be filed by 28 November 2025.

What was the impact?

Financial impact: DWS’s analysis shows the HGBF actually outperformed the correct index by 0.11% (11 basis points) over the period, so members were not financially disadvantaged by the error.

ESG impact: Some securities did not meet the ESG rating or business-involvement exclusions in our Responsible Investment Policy. These securities have now been removed. For most members, particularly those in diversified funds, the exposure to the excluded securities was extremely small.

Who was affected? Members with investments in the KiwiSaver and Investment Funds Growth, Balanced and Conservative Funds, members in the KiwiSaver Default Fund, and most members with investments in the HGBF, had only minor exposure. A small number of investors with larger investments in the HGBF had more noticeable exposure.


What happens next?

Updated KiwiSaver and Investment Fund scheme SIPOs will be published by 28 November 2025.


Our commitment

We sincerely apologise for this error. We take our Responsible Investment Policy extremely seriously and are working closely with DWS to ensure this one-off transition issue does not happen again. Maintaining transparency and high standards for our members remains our priority.

If you have any questions, please get in touch with the team at info@simplicity.kiwi. We’re here to help.