KiwiSaver

Ethical investing is a growing trend and one KiwiSaver Scheme believes its Responsible Investment Association Australasia (RIAA) certified socially responsible investment (SRI) funds will drive business.

Grosvenor’s two SRI KiwiSaver funds became the first to gain certification under the RIAA’s recently revamped certification standards last week.

SRI funds, which don’t invest in companies that trade in such things as alcohol, tobacco, gambling and fossil fuels, have been around for a while.

However, as the global drive towards more ethical practices is growing, so too is the desire among some investors for such practices and funds.

Grosvenor chief executive David Beattie said they have had a very positive response to their SRI funds and he would expect that to increase with the RIAA certification.

“A particular subset of investors is dedicated in wanting to follow their ethical beliefs through into their investment practices.

“We think this certification will encourage such investors.”

Investor interest in SRIs has grown significantly since fossil fuel companies have been filtered out, he said.

After applying fossil fuel filters to their funds, 30 companies were dropped off the Grosvenor SRI funds register.

“There has been a good response to that. Such SRI strategies are only getting more popular and more attractive to investors.”

Beattie added that, on a broader scale, many investors are still getting their head around ethical investing.

“But both our analysis and RIAA analysis show it a growing trend globally.

“So we are optimistic that growing numbers of New Zealand investors are going to be attracted to SRI funds.”

Grosvenor is the only KiwiSaver provider with SRI funds certified by the RIAA. It already has three RIAA certified “Investment Series” SRI funds.

The RIAA, which is an Australasian body, is building its RIAA certified product list into a fund-finding web tool that is scheduled for launch in mid-2016.

A KiwiSaver provider offering members the ability to pick the assets their retirement savings are invested in says only a small percentage of investors want to take such a hands-on approach.

NZX-owned Superlife gives investors more control of their KiwiSaver accounts, if they want it.

As well as funds that will be familiar to most KiwiSaver members, such as a life stages option that de-risks the investment as the saver gets closer to retirement, and a fund designed for those saving for a first-home deposit, Superlife also offers investors a more active option.

Those who want to create their own investment strategy can use 14 sector funds to do so.

Investors who want to get to a more detailed level can use 23 exchange-traded funds to create their own portfolios,  the same range on offer from Smartshares,which is also owned by NZX.

Superlife founder Michael Chamberlain said: “Superlife is a vehicle that allows you to implement what you want to do in a cost-effective and efficient way. We are not trying to sell you a product, we are just providing a vehicle and equipping people with education and information.”

But he said the appeal of the option would probably always be limited.

Only about a third of KiwiSaver investors would want something that was not mainstream, he said.

“Out of 100 people, 85 aren’t going to be interested, don’t have the confidence and want to be told what to do, to be able to opt out and leave it to someone else. Of the remaining 15 I would expect two or three to really want to build a portfolio. Ten might want to put together their own strategy , the others don’t know what they want, they just know it’s not standard.”

But he said there would be growth.

“Not necessarily because of investor education improving because generally across New Zealand I don’t think it does improve but within New Zealand people are coming into the workforce, others are retiring. As balances get bigger people tend to take more notice. Many people still won’t be interested because they prefer to leave it, to trust the experts.”

Self-managed super funds have been an area of growth in Australia. 

Chamberlain said there was always a risk that investors would do something ill-advised with their investments, such as cementing losses by moving out of equities during periods of market volatility.

But he said Superlife had a clear philosophy communicated to its members that if they were investing money in the sharemarket it should be money they did not plan to spend within the next 10 years.

Chamberlain said Superlife dealt with advisers who catered for clients on a fee-only basis but because it did not pay commission, was not marketing widely to them.

New Zealand’s only shariah-compliant fund manager has amassed $8.5 million across its KiwiSaver and unit trust in its first year in business.

Founder Brian Henry said it had accumulated 700 members.

“We’re pretty pleased with that growth. We only started marketing it heavily in September. There have been so many other things to organize and get settled down with licensing and so on, that’s very distracting from our marketing efforts.”

He said members had been recruited from around New Zealand.

Most were Islamic but he said non-Islamic New Zealanders were attracted by Amanah’s very defined investment strategic. “They know where their money is exactly. It’s a simple, long-term growth strategy.”

Investors can put their money in the KiwiSaver scheme or the unit trust if they do not meet the residency requirements for KiwiSaver. The KiwiSaver fund had about half Amanah’s total FUM at the end of December.

The fund invests in line with Sharia law and requires interest “purification payments”.  Sharia law dictates investments must involve a shared risk, such as shares that rise or fall with the company’s fortunes.

Amanah aims to provide long-term investments of up to 50 US listed stocks that are conservatively selected and managed

Henry said Amanah wanted to keep growing as fast as possible and to get to the point where it was self-sustainable, without needing cash input from shareholders. He estimated that would be at about $20m FUM.

More settled markets would help too, he said.

In the year to December 31, the fund delivered a return of 9.7%. Members fees represented 2% of investments.

The amount of money being withdrawn from KiwiSaver accounts to fund first-home purchases soared in the year to January, new data from Inland Revenue shows.

Members have pulled about $470 million out of the scheme over the year to purchase a first home.

Changes introduced in April allowed members to withdraw their member tax credit too and made HomeStart grants accessible to more people.

That led to an increase in withdrawals, which continued through the year. The amount withdrawn for first homes fell to just under $30 million in January, compared to $45 million in August and November.

More than 120,000 members were on a contributions holiday in January, of whom about 90 per cent had not been contributing for 60 months.

Just over $400 million was contributed to schemes from employers and members in January.

More than 1.8 million members have now made an active choice about their KiwiSaver fund, compared to just over 0.5 million in a default fund.