Mary Holm: ASB fund closures hard to fault

I agree with the disgruntled ASB customer in last week's column, and I am sceptical about ASB's reasons for closing some of its investment funds. The fact that ASB is closing several funds - not just one or two - makes me suspicious.

I invested in the emerging markets fund, which is also being closed. Hello!? Surely the name alone suggests this is a long-term investment.

How can any fund manager justify abandoning a fund after such a short time frame when the very nature of the investment is long term? You yourself regularly encourage patience and a long-term mindset - as opposed to the mentality of those folk who panic when fund performances get wobbly.

You say, "No fund manager can be expected to continue all its funds forever". Three to five years is hardly forever.

I can see your point - although the three to five years is actually 13 years. But let's look first at a further explanation of why ASB is closing several of its funds.

"ASB Group Investments Ltd, in common with other NZ retail fund managers, has had both too many product offerings and too many product offerings with little funds under management," says Stewart McRobie, ASB's chief executive for relationship banking.

"Furthermore, in a general sense some products have also not remained contemporary over time. These issues have resulted in a business that has far too much complexity relative to the scale that it has and the growth of overall retail funds under management."

He adds that across the industry, growth in non-KiwiSaver managed funds "has been anaemic at best for many years".

"It is important to note ASB Group Investments is not the only fund manager to have initiated the closure of funds since the advent of PIE and KiwiSaver. It is important to us to offer our investors modern and efficient investment options."

I appreciate why you and others don't like the change. But I don't share your scepticism. McRobie's reasons ring true to me.

It's like, say, a drycleaning company that finds only a few people are using some of its outlets. It closes them down and, in many cases, redirects customers to a newer, flasher outlet nearby. They suffer some inconvenience, but it's no big deal.

In your case, though, it's a bit different. You'll have to move to a new drycleaner.

"The Emerging Market fund was set up 13 years ago, back in 1997, to provide our customers exposure to the emerging markets asset class," says McRobie. "This is a more 'adventurous' asset class with an associated higher risk profile, and our experience shows that only a very small number of New Zealanders appear to have an appetite for these investments."

Because of this, ASB has decided to no longer run an emerging markets fund. I understand your disappointment - although McRobie assures me there are other emerging market funds you could move to.

For example, AXA offers one. And as I said last week, as long as you move to a fund with similar investments, it doesn't affect the long-term nature of your investment.

I was interested in your discussion last week of ASB's decision to close various of its investment funds.

The bank certainly hasn't communicated well, even to its own staff. Further the new "simpler diversified" funds can't be seen as a direct substitute for the funds to be closed. I invested in the World Shares Trust and the Emerging Markets Shares Trust precisely because they targeted those particular sectors, as part of my own wider diversification strategy.

On my analysis the World Shares Trust at least has tracked the relevant index pretty well, and it's a pity it's closing. So, please, are you able to point me in the direction of anyone who offers similarly targeted indexed international shares funds?

An interesting question is why the funds performance page on ASB's website shows "n/a" for periods longer than a year.

Clearly the World and Emerging Markets Shares Trusts both lost value over the past three years and are about static (in nominal terms) over five years. Am I being too cynical if I see that as being a cause for not publishing the results?

On the issue of substitute funds, "ASB Group Investments is communicating with all investors to recommend appropriate reinvestment options based upon their current investment profile," says McRobie.

He acknowledges, though, that the new diversified funds don't always have quite the same investment mixes as some of the old ones. In some cases, this probably doesn't matter much. The new mix might actually turn out to be better.

But, as mentioned above, there is no new version of the emerging markets fund. "Whilst this is regrettable for the relatively small number of customers directly impacted, the vast majority of investors will be offered what we consider to be better alternatives," he says.

You are clearly particularly interested in international index funds. I don't know exactly what your options are, but when I researched my latest book, some fund managers were offering passive KiwiSaver investment - which usually involves index funds. The same fund managers are likely to offer indexed non-KiwiSaver funds.

The providers that use largely passive investment for KiwiSaver, apart from ASB Group Investments, are: Civic Assurance, Smartshares and SuperLife. The providers that use some passive investment are: Craigs Investment Partners, Fidelity, Grosvenor, ING and Mercer. The providers' websites should tell you more.

Turning to your question about the "n/a"s on ASB's fund performance page, McRobie says: "The ASB Unit Trust funds converted to the PIE regime in October 2007. It is industry practice not to report fund performance that crosses the introduction of PIE as the pre- and post-PIE performance results are not comparable and would be both confusing and potentially misleading.

"This is because PIE returns are net of fees and gross of tax, whereas pre-PIE returns were net of both fees and taxes. It's like comparing apples with oranges."

He adds that post-PIE three-year results will be available in October this year.

Lending credibility to his explanation is the fact that the three- and five-year performances of ASB's Easyplan and NZ Mortgage Income Fund - which weren't converted to PIEs - are reported on the website.

I can't help but add, though, that ASB and all the other fund managers may be rather glad that the change to PIE has given them a good reason not to post longer-term results. They wouldn't have looked impressive given what's happened to the markets in the past few years.

However, I might also add that readers unhappy with ASB for closing its funds may not have been so unhappy if their recent returns had been better. Could they be taking out their anger about the global financial crisis on ASB?

Hang in there, everyone - in similar funds to the ones you were in. There are no guarantees, but history does suggest things will come right in the long term.

I have just read your last article online, mainly about ASB closing some of its funds. Combined with my exchange of email with you regarding returns and fees from the Gareth Morgan KiwiSaver scheme, I will no longer waste any time reading your comments in future.

It would appear to me that you are unduly influenced by "being inside the tent" rather than the rights of consumers of the products you advocate. Perhaps you should reconsider your role with the Banking Ombudsman Office. That's about as politely as I can put it.

I'm probably wasting my time answering you, but just in case you take one last, long, lingering look at this column, here goes.

To put others in the picture, in your emails about the Gareth Morgan KiwiSaver scheme, you were unhappy because in the first four months the fees you paid were bigger than the income earned. I pointed out two things:

* While it's clearly not good for fees to exceed returns, that's much more likely to happen at first. All KiwiSaver fees are made up of a fixed amount - say $25 to $50 a year - plus a percentage of your balance. The fixed amount covers the costs of running your account, regardless of its size. When your account balance is low, that fixed amount looms large. But once you have, say, $20,000, it will be minor. And at $200,000 it will be minuscule.

* You had contributed only $1040 but the account had grown to $2031, because of the government's kick-start. You nearly doubled your money in a few months. Not bad.

I've never said that all KiwiSaver funds will necessarily give good returns when you consider all the money that goes into your account - from you, the Government and your employer if you have one. But if you are comparing KiwiSaver with saving elsewhere - in which case you would have only your own contributions - it makes sense to look at the growth of the fund relative to the money you yourself put in.

There's no denying that providers are lucky that KiwiSaver is so good simply because of government and employer contributions. But that's the way it is.

You also wrote to me: "Perhaps you would best spend your time as a 'lower fees' champion rather than recommending 'willy nilly' that people are silly not to invest in KiwiSaver schemes."

I replied, "I have said often that the provider fees are probably too high, and hard to understand (see my book The Complete KiwiSaver, for example), and some of the providers aren't performing well. But from the point of view of the individual, the government money still makes it a really good deal."

Does that - plus last week's column - put me "inside the tent", pushing the views of financial people rather than helping consumers?

When someone complains about how they've been treated, I try to find out whether the treatment has been unfair, incompetent or dishonest. If it has, I write about that. Indeed, I've written critically about some practices at both ASB and Gareth Morgan KiwiSaver.

But sometimes there's been a misunderstanding, or the consumer hasn't stuck to their side of the deal - which might include applying common sense. In that case I try to explain what's happened.

Rather than standing outside the tent and hurling abuse, I prefer to invite the occupants to come out and have a chat. If they refuse, or their explanation isn't satisfactory, then it's time to point that out.

In the long run, I think everyone ends up better off that way. If you disagree, I guess it's good bye - and good luck.

Mary Holm is a freelance journalist, part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.