The latest KiwiSaver returns for the 12 months to Nov 30th show Simplicity, NZ’s lowest cost manager, has ranked #1 in returns for Balanced and Conservative fund returns, and ranked 4th for Growth funds.
Simplicity’s Conservative fund returned 2.9%, after fees and before tax, vs an industry average of 1.65%. Its balanced fund returned 3.31% vs an average of 1.18%, and it’s Growth fund 3.42% vs an average of 1.92%.
Sam Stubbs, Simplicity’s managing director, says the performance numbers, while short-term, highlight the impact of low-fees and a passive investment style. Over time, Stubbs said the low-fee advantage would cast even more doubt over the value of high-fee active managers.
“Many high fee managers, who said they should outperform in bear markets, actually struggled to make 3% this year. But they still charged fees of over 1%. That means for every $3 a member made, $1 was taken away in fees. That’s more like a tax, not a fee, and it’s been a massive drag on returns,” said Mr Stubbs.
“KiwiSaver account holders need to understand fees really do matter, despite what some providers are telling them,” said Stubbs.
“And these returns debunk claims by active managers that they would do better in bear markets. They haven’t.” said Stubbs.
Simplicity’s “KiwiSaver fees clock”, showing its estimate of total industry KiwiSaver fees, is due to finish 2018 at $525 million.
Long-term studies by Standard and Poors shows that most active managers globally underperform passive benchmarks over a five year period, in both bull and bear markets.
Simplicity, NZ’s only nonprofit KiwiSaver fund manager, uses a passive index-tracking investment style, popular in many overseas jurisdictions where there has been a backlash against high fees. It uses low fee Vanguard, the world’s second-largest asset manager, to manage its international investments.
Stubbs says manager underperformance is a direct consequence of managers trying to choose winners and avoid losers in order to justify their high fees.
Passive investing seeks to provide average market returns and focus on lower fees.
“KiwiSaver doesn’t need to be complicated. Keep your costs down by paying the lowest fee, make regular contributions, choose a well-diversified fund that suits your risk profile and time frame for investing, and don’t miss out on the tax credits, which are effectively free money.” said Stubbs.
To see a full comparison of funds click here.