KiwiSaver

Quotemonster's owner, Quality Product Research, is teaming up with financial research company Morningstar to start offering advisers information on all the various KiwiSaver products now available.

Kiwimonster will offer similar information on the different products in much the same way that Quotemonster provides advisers with information on life insurance and associated products, director Russell Hutchinson told a Quotemonster event in Lower Hutt earlier this week.

His company has decided to start offering the KiwiSaver service because KiwiSaver is now life insurance advisers' second most-offered service, Hutchinson said.

“Our whole business model is about supporting you, but you're the ones giving advice,” he said.

The new service will allow advisers to compare the different characteristics of each KiwiSaver offering as well as allowing them to create statements of service documents for their records so they can show why they recommended a particular product.

The company also wants advisers to provide feedback so that it can collate information on adviser preferences and their perceptions of the service offered to them by the KiwiSaver providers they deal with, Hutchinson said.

Advisers will be able to record things such as their client's risk tolerance, how much gains or losses the client would be comfortable with and they will be able to show how a client's existing KiwiSaver product compares with others.

Generate business development manager Paula Damen told advisers that KiwiSaver has grown to $108 billion in assets under management with 3.2 million people signed up and most of them are under the age of 45.

About 41% are in growth funds, 23% in balanced funds and 22% in conservative funds, but 324,689 haven't made an active choice of fund.

But Generate, one of the KiwiSaver providers, has seen more and more members making an active choice.

“We believe in advisers and we believe in advice and we believe every KiwiSaver member should get advice,” Damen said.

“More and more are moving into growth funds – if you're not advising them, someone else is,” she said.

Damen noted that Australia's superannuation scheme now has A$3.5 trillion in assets under management and that compulsory employer contributions have gone from 3% in 1992 to 11.5% now and that's due to go to 12% from July 1 next year.

“In NZ, we're seeing a lot more discussion about making 3% compulsory,” she said.

More KiwiSaver members are realising that “banks are not the place to save money,” and are moving their accounts to independent fund managers such as Generate, she said.

Putting clients into KiwiSaver can mean additional income for advisers – Generate pays an up front commission of $300 but it also pays a 0.25% trail commission.

Most KiwiSaver providers have filed their first-ever climate reports which detail the emissions from their investments.

Most KiwiSaver have now submitted their KiwiSaver climate reports with the bulk lodged with the Companies Office on July 31.

The Financial Markets Authority says it is working its way through and will report its observations on how the process has gone by the end of November.

Statements have been prepared for each fund in each scheme.

Investment scheme managers with assets under management of more than $1 billion are required to do climate reporting under the Financial Markets Conduct Act.

On July 31, around 35 investment scheme providers and 16 KiwiSaver providers uploaded their reports.

Under the climate financial disclosure framework, reporting entities have to meet three climate standards set by the External Reporting Board (XRB). NZ CS 1 requires climate related disclosure requirements across four thematic areas – governance, strategy, risk management, metrics and assurance requirements for GHG disclosures.

NZ CS 2 has seven provisions which entities adopt, exempting them from having to include current financial impacts, anticipated financial impacts, transition planning, and scope 3 GHG emissions in their first year of reporting. The third standard contains general requirements, principles and underlying concepts such as materiality.

Financial Markets Authority head of audit, financial reporting and climate related disclosure Jacco Moison says; “We’ll then see how far they were able to comply with all the requirements, for example, if they have used some of those early adoption provisions to relieve some of the pressure of the first year of reporting.” At first glance it appears many have chosen to do so.

“Some may have done all the work to disclose it but decided not to disclose but most have had to look at it and think about what they will need to do next year.”

He says while some investment managers indicated in the past that they struggled to get data, all had reported on time.

“With the new lot of managed investments schemes it will be interesting to see because of the vast amount of data required to make their disclosures.

“Looking at underlying managers, if you go to countries that don’t yet have that information available, there will be more uncertainty and assumptions and estimates that have to be made on these sorts of disclosures.”

A team of six FMA staff is collating data and will have some early observations to discuss by the end of the month. Moison says in some cases the FMA may contact reporting entities with direct feedback on improvements.

“Also if we have some indication that something is wrong, we want people with 30th of June or September year-ends to take that into account.

“We have a broadly educated and constructive approach. In a lot of cases, we'll tell people where we believe they haven't complied and set some expectations on what we would like to see going forward.

“We might have picked up some technical issue where, for example, an entity forgot to include a link to the climate statements in their annual report. So these are some of the technical requirements or that you have to date a climate statement and they haven't dated it.”

The FMA is aiming to produce a findings report towards the end of November so that entities with a December year-end reporting period can take that feedback into account.

“It will be mainly based on the reports filed from April to August. We want to provide some observations to the market so people can start thinking about where they are in the process for the next round of climate reports.”

He says with most of the requirements becoming mandatory in the second year the FMA’s focus will be monitoring those new disclosures; current and anticipated financial impacts, transition planning and scope 3 GHG emissions.

“So rather than reviewing whole climate statements, we might be more targeted.”

Although some regulators, such as the UK’s Financial Reporting Council, have reviewed climate disclosures made on a voluntary basis, the FMA is the first regulator to look at climate statements required by law.

“We have a whole framework that people have to comply with, and regulatory tools that we can use, for example, to direct people to make changes or if they don't file on time infringe them.

“We talk to other regulators although mandates sit with different regulators in different countries. So it's not necessarily the same structure as New Zealand where it sits with the security regulator. Sometimes it's with a financial reporting regulator or an audit regulator.

“We have close contact with Australia and Singapore, because they're quite far in implementing their regime as well.”

KiwiSaver assets rose $3.5 billion to $110.8b at the end of the June quarter, up $13.3b from the June quarter last year.

Morningstar’s 2024 Q2 survey of 21 KiwiSaver providers comparing 296 products, estimates annual fee revenue for the quarter at $869 million, up from $779m in the past 12 months, with a projected annual fee revenue of 0.78%. The five largest KiwiSaver providers accounted for approximately 68% of AUM and generated around 69% of the fees.

With 18.7% of the market, ANZ continued to lead with more than $20.7b AUM but was down from 20.2% for the same quarter last year. The biggest of the four banks also topped estimated fee revenue  of $169.8m.

Fisher Funds and ASB pulled into the next two spots in almost a dead heat with 15.1% market share on assets of $16.8b each. Due to rounding Morningstar placed Fisher second and ASB in third place. Fisher outdid ASB for fee revenue with $160.1m compared to $100.3m.

Westpac took the next biggest slice of the market, 10% ($11b AUM), but was relatively low on the fee table – eighth place at $50.3m. Meanwhile Milford with 8.9% market share ($89.6b) came in third with fee revenue of $102.2m.

Across the market average multisector category returns ranged between 0.3 – 0.8% indicating incremental gains for most funds. Many multi sector KiwiSaver funds provided positive returns over the June quarter and many produced negative returns with funds that contained risk assets struggling the most, says Morningstar director of global data Greg Bunkall.

Of the default funds Simplicity and Superlife delivered the best returns (1.2% each) of the quarter, to boost solid annual numbers (10.6% for Simplicity and 10% for SuperLife). Most of the default funds punched out 10% returns for the year, with the notable exception of Fisher Funds on 8.3%.

As with Q1, Quay Street continued to perform well across many time periods in the conservative and balanced categories. Milford delivered consistently high performance within the moderate, balanced and growth categories over the long term, albeit struggling a little recently. Generate showed strong numbers across many time periods.

For conservative funds, BNZ First Home Buyer Fund topped the quarter for the first time with 1.1% annual returns. In the moderate category Pie Conservative had the best performance delivering 1.2%. Pathfinder Balanced Fund topped the balanced category at 1.9% and did it again for the growth category with 2.1%. In the aggressive category Kernel High Growth came in first with 1.9% returns.

For single sector funds, SuperLife NZ Cash delivered the best returns of the quarter with 2%, while for fixed interest Nikko AM Scheme NZ Corporate Bonds came top with 1.1% performance. Kernel S&P Global 100 NZD Hdg topped international shares with 8.9% (top across all fund categories).

The highest 12 month performance for this quarter was 98.4% from koura Carbon Neutral Cryptocurrency, while the lowest was -30.6% from koura Clean Energy. For the quarter, Kernel S&P Global 100 NZD Hedged came in top with 8.9% returns, while koura Carbon Neutral delivered -15.3% at the bottom of the spectrum.

Over 10 years, the aggressive category average has given investors an annualised return of 9.1%, followed by growth (8.2%), balanced (6.7%), moderate (4.7%), and conservative (4.3%).

While the overall tone for Q1 was cautious optimism,Q2 was a period of cautious navigation for investors, says Bunkall.

Global growth was tempered by ongoing domestic challenges. The equity markets delivered moderate gains, mainly through international exposures, while fixed income provided some stability amidst fluctuating yields.

The weakening NZ dollar underscored the importance of currency diversity in investment portfolios. Bunkall says while it was great to be unhedged in the previous quarter, it could be the opposite next quarter and a fully hedged position might have been preferable.

Turning to the current quarter’s volatility, Bunkall says at this stage it doesn’t really point to any growth or decline in growth in AUM over the next quarter.

Financial markets appear to be overlooking any potential volatility from global political and other international developments, according to MJW in commentary attached to its latest survey of fund performances.

“While bond market volatility is above average, it is trending down,” MJW's Ben Trollip said.

“Equity market volatility is not far off 'rock bottom' levels. And all the while we have two major conflicts underway in Ukraine and Gaza,”

His commentary was dated July 18, so before US President Joe Biden decided to withdraw from contention in the November election.

The VIX Index, which measures the volatility of the US stock market, ended July 17 at 14.48 points, compared with over 20 in November last year. It has since risen to 16.52 points on Friday, July 19.

Trollip noted that betting markets had given Donald Trump, the Republican Party's nominee, a 65% chance of winning amid the “disorganised revolt” within the Democratic Party since Biden's poor debate performance three weeks ago.

While Trollip didn't say so, it's notable that Trump didn't appear to suffer from the very high number of lies he told during the same debate. Trollip didn't mention the assassination attempt on Trump either, which some believe boosted his electoral chances.

“However, there are over three months to go and American politics are nothing if not volatile,” he said.

While Biden has nominated vice-president Kamala Harris to be the Democratic nominee, that' is yet to be decided.

He noted similar political turmoil in Europe, particularly in France where the snap election left the governing centrist Ensemble party falling from 42% of the seats in parliament to 2*%, and the British election which saw the Labour Party win 63% of the parliamentary seats with just 34% of the popular vote.

“The potential for a black swan event – an unforeseen risk manifesting in financial markets – would appear to be high,” Trollip said.

His commentary noted that while NZ came out of a technical recession in the March quarter, adjusting for population growth, the 18-month change in GDP fell from negative 0,5% to negative 4.2%.

“The Economist magazine has calculated New Zealand's GDP per person, adjusted for price differences, as US$54,100. This trails Britain, US$58,900, Australia, US$69,100 and the US, US$81,700, and perhaps goes some way to explaining our emigration flows which have been steadily increasing since mid-2021.”