Passive investing trumps active, according to S&P Dow Jones Indices, but New Zealand is 10 years behind Australia in terms of awareness in this area, one fund manager says.
Active fund managers analyse individual stocks and single them out for buying or selling, while passive managers allocate funds in proportionto stocks' weighting on an index.
S&P DJI does not sponsor financial products, but licenses its indices to funds.
Daphne Van der Oord, head of S&P DJI for Australia and New Zealand, said the data supports passive investing.
"Generally speaking, at the start of every calendar year, there are headlines suggesting that this is the year that active is going to be the difference," Van der Oord said.
"Every year we undertake the analysis - and we do that on a six-monthly basis with mid-year and end-of-year snapshots - and the data suggests otherwise," she told the Herald.
"And it's not just a phenomenon specific to one market - it appears to manifest itself globally.
"Over a short period of time, say a one calendar year snapshot, you may have years where indeed active has been able to outperform the reference index.
"But when you look at three-year, five-year and particularly 10-year snapshot, the proportion swings very rapidly the other way," she said.
Daphne Van der Oord, head of S&P DJI for Australia and New Zealand
Van der Oord noted last year's Financial Markets Authority "Value for Money" report on funds management, which called out some fund managers for not using an appropriate market index as a reference point for the performance of their funds.
"There is a growing expectation from the regulator that active managers need to disclose an appropriate benchmark - and cash is not an appropriate benchmark," she said.
Fund manager Kernel Wealth hosted a series of industry talks across New Zealand this week, along with representatives of S&P Dow Jones.
Kernel Wealth chief executive Dean Anderson said awareness of indexing in New Zealand was growing, helped by Covid-19.
"Obviously there is a lot of commentary around fees from the regulator and the role that they play," Anderson said.
"But there is also knowledge growth in the market that just comes as things come to mature more here."
Anderson said Australia is 10 years ahead of New Zealand in terms of awareness.
"The market is far more sophisticated and aware in terms of what's going on in self-managed superannuation, which is significantly larger."
"We are getting to the point of greater scale and awareness - and Covid has helped that."
He said dynamics of the past two years - very low interest rates, high house prices and individuals dabbling in share trading - had made people engage more when it comes to their money.
"Some of those people have got burned, and have learned a very strong lesson, but for most people it has made them think about what they are doing with their KiwiSaver," he said.
As it stands, 5 per cent of the New Zealand market is in indexed funds, but Anderson expects the proportion to head to US levels, where it is more like 30 to 40 per cent.
Van der Oord was involved with the launch NZ's first ESG (Environmental, Social, and Governance) index - the S&P/NZX 50 Portfolio ESG Tilted - last year.
The index is designed to measure the performance of constituents in the S&P/NZX 50 Portfolio Index that meet sustainability criteria.
Anderson said Kernel was seeing wholesale groups such as iwi and charitable trusts shift towards ESG investing as they consider their broader fiduciary responsibilities.
He said retail demand has also accelerated, as investors become more conscious of the impacts of climate change.
