Kiwi Wealth has developed its own index fund, which it says will allow its KiwiSaver scheme to have more flexibility to generate better returns, improve tax efficiency and address responsible investment concerns.
All of the Kiwi Wealth KiwiSaver Scheme’s funds are now using a new fund designed, built and directed by the in-house investment management division for implementing their global share index allocations.
The solution is an enhanced index fund which implements Kiwi Wealth’s responsible investing policy, which removes indirect investment exposure in controversial weapons, tobacco and whaling industries and embeds responsible investment at the security selection level.
Initially Kiwi Wealth will also implement in full the New Zealand Super Fund’s current exclusion list and will exclude additional companies with poor track records in environmental, social and governance (ESG) indicators.
Kiwi Wealth can add or drop sectors and companies within the index, driven by what members want. Because it is based in New Zealand, it has better tax efficiency.
Simon O’Grady, chief investment officer, said the enhanced index was tailored to meet the changing views of New Zealanders on responsible investing.
“This new fund gives us the best of both worlds. It retains the benefits of a typical index tracker – such as low cost, good liquidity, and broad diversification of investments – with the added benefits of being more tax efficient and providing greater flexibility and control over these investments.
“Our new fund has been built from the ground up by our investment management team and is tailored for the New Zealand market, with an expectation that the enhanced tracker will outperform passive index funds used by other KiwiSaver providers,” he said.
“In addition, we incorporate responsible investing throughout our process. Responsible investing involves identifying companies that are being irresponsible in the environmental, social and governance areas, and excluding them because poor behaviour in these areas tends to correlate with poor returns.
“It reflects Kiwis’ growing sophistication and financial awareness when it comes to investing – they recognise that there’s a duty to match investors’ ethical and social concerns with good investment returns.”
Kiwi Wealth said, while its new fund cost more than its previous Vanguard ETF, members would have net benefits of more than 50bps.
Meanwhile, Mercer said its managers had almost completely divested from companies manufacturing tobacco products.