KEY POINTS:
Most of the money that has gone into KiwiSaver so far has been snaffled by the default providers and their largely vanilla-flavoured funds.
Yet there are more than 30 KiwiSaver providers, dozens of funds and a growing array of alternative investment options for your retirement pot. They include everything from aggressive funds that are 100 per cent invested in equities, to ethical funds for Christians.
One scheme that really bucks the trend is the ABN Amro Craigs kiwiSTART Personalised, which allows investors to self-select their investments from more than 100 pre-selected Australasian and global securities. This approach is very popular in the UK and Australia.
"Experienced investors are well suited to this option," says Patrick Varley, business development manager for ABN Amro Craigs. The self-select option enables them to complement their KiwiSaver portfolio with other investments. "We envisage New Zealanders ... wanting more control over how their savings are invested."
Many financial planners favour the larger providers. But not all. Financial planner Robert Oddy says his provider of choice is Law Retirement KiwiSaver, which uses tactical asset allocation methods. Law Retirement was set up as a superannuation scheme for lawyers in 1971, but is now open to all New Zealanders. Its returns have tended to outperform the industry average, says Oddy.
Oddy adds that the Law Retirement fund isn't packed full of hidden fees. At most KiwiSaver providers, he says, contributions go into a "collection bucket" that is then invested in other retail or wholesale funds, which may in turn have investments in other funds. What happens, he says, is that the ticket is clipped all the way along.
These fees from the underlying investments aren't always obvious and the investor is none-the-wiser. In order for such funds to grow at the same rate as funds with lower fees they need to take greater investment risks, says Oddy.
For investors with a social or green conscience there are a number of socially responsible investing (SRI) options.
David Yates, project manager at financial planning firm Advice Financial, says there are three main options for such investors, two of which have had little publicity. The three are: Asteron KiwiSaver, ABN Amro Craigs' KiwiSTART Defined, and default provider ASB's First Choice.
Asteron, says Yates, is a negatively screened SRI fund, meaning it excludes the tobacco, defence, alcohol and gambling sectors of the economy, rather than positively including only socially responsible stocks. It invests predominantly on the NZX50 with some exposure to Australian equities. "This is a relatively `high-risk' option suitable for aggressive investors or as part of a broader portfolio."
ABN Amro Craigs' KiwiSTART "Balanced SRI Defined" option invests, according to its investment statement, in companies that "make a positive social or environmental contribution, or that are endeavouring to operate in an environmentally and socially sustainable way, whilst still applying [ABN Amro Craigs'] traditional portfolio investment criteria".
Yates says he particularly likes the ABN Amro Craigs KiwiSaver products because they allow people to take an active interest in their investment.
Although the ASB is a default provider, its SRI fund, called First Choice KiwiSaver Global Sustainability Fund, is little known by the public. "Once again this is a relatively high-risk option," says Yates, "as its investments are international equities and tend to be in the smaller cap area. Nevertheless, it could be incorporated as part of a more diversified portfolio by combining with other single sector options in the First Choice scheme."
Yates says he has been talking to Australian SRI providers and expects there to be more diversified socially responsible options for KiwiSavers in the future.
Another fund for those with a conscience is the Koinonia Fund, a KiwiSaver scheme for Christians run by the New Zealand Anglican Church Pension Board. It offers conservative, balanced and growth options. Koinonia's investment statement says that the pension board, which has been running superannuation schemes since the 1990s, uses its voting powers in companies it invests in to curtail board and management remuneration packages where it considers them to be excessive. It also either votes against unethical activities, or sells its shareholding if voting doesn't work.
Westpac isn't a "small fry" in the financial world, but the bank is not a default provider. It's KiwiSaver Capital Protection Plan, which guarantees your initial capital contributions, has attracted a fair amount of publicity. The most salient point about this fund, says Craig Dowling, Westpac media relations manager, is that it offers investors peace of mind. A percentage of the assets of the fund are deposited with a capital protection provider and 100 per cent of the remaining funds are invested aggressively in equities. The guarantee only kicks in at maturity, not before, which gives the fund plenty of time to grow in the meantime.
Some of the providers favoured by sophisticated investors might include those offered by boutique fund management companies such as Brook Asset Management and Fisher Funds.
These smaller fund managers often employ high-profile portfolio managers. Fisher Funds' flagship investment product, the NZ Growth Fund, outperformed the index for a number of years - although it has come in for some bad publicity of late, with its price dropping sharply along with New Zealand equities as a whole.
Fisher Funds' KiwiSaver product invests in equities - the same stocks as the manager's New Zealand, Australian and international growth funds - not other managed funds, says Carmel Fisher, director of Fisher Funds.
A lot has been said about the future for small providers - with predictions that most won't exist in 10 years. This doesn't mean, however, that investors' money is at risk. What is more likely to happen is that small providers may find they don't have the economies of scale and sell their client books to a larger provider.
Unlike finance companies, money invested in KiwiSaver funds is not mingled with the provider's own capital. It is held by a third-party trust company, which means that if a KiwiSaver provider got into trouble, investors' money could not be touched.
Finally, some of the disadvantages of going with smaller providers are:
The reporting requirements for non-default providers are not as onerous.
For those that are not stock market-listed companies in their own right, the corporate governance may not be of as high quality.
There is key person risk if the investment team is based on one or a small number of people. Should those key people leave, investment returns may suffer.
A full list of KiwiSaver providers is available online at www1.kiwisaver.govt.nz/interact/services/kiwisaver/locateprovider
Providers and products can be compared at www.consumersaver.org.nz
