NZ Super Fund teaches KiwiSavers to be better investors

Thursday, 26 September 2019

The rise of KiwiSaver.

OPINION: KiwiSavers could learn some lessons from the government-owned NZ Super fund.

The NZ Super Fund is a $43.8 billion pool of money invested by the grandiosely-named Guardians of New Zealand Superannuation.

The money is wealth set aside to help pay the national bill for NZ Super for an ageing population, and it has delivered good investment returns (within its constraints of not taking 'undue risk'), and it's been a super moral leader.

There are a lot of us KiwiSavers, and we all have lessons we need to learn to be successful.

It was the NZ Super found which formed an international club of fund managers to press Facebook and its social media ilk to stop hosting hate, violence and murder on their platforms after the shootings in Christchurch on March 15.

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NZ Super Fund chief executive Matt Whineray heads the (mostly male) team looking after $43.8 billion.

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KiwiSaver fund managers, who have nearly $60b of our money invested, have tagged along in the footsteps of the NZ Super Fund on that, just as they did on excluding tobacco and controversial weapons like cluster bombs and landmines from their main funds.

One day, when public pressure forces it, the KiwiSaver scheme providers will also emulate the NZ Super Fund in actively working to reduce the carbon footprints of their funds.

But setting aside the lesson in ethical, climate-aware investing (which the Guardians insist has resulted in higher returns) the NZ Super Fund has a very deliberate and well-researched investment strategy.

Everybody who invests needs one of those.

In trying to define how they should invest, the Guardians looked at where their advantages lay. They called these their 'endowments'. They also identified where they had no advantages.

They decided they were onto a hiding to nothing looking for skilled fund managers who could consistently beat the markets, except in New Zealand.

The Guardians concluded that active managers, except in New Zealand's tiny market, were hard to identify with confidence, so why waste money on active fund management fees?

For its overseas money, the NZ Super Fund is invested passively, keeping fees as low as possible, and mirroring the markets.

KiwiSavers should decide whether the active, or passive path is for them. Both options are available in KiwiSaver.

Another endowment is the NZ Super Fund's long-term time horizon.

As its money is not needed for decades, the Guardians can look through market booms and the busts, and simply decide which are the assets that are likely to produce the best return over its long, long time horizon. History suggests company shares and other growth assets provide that, so they are its main focus.

Every KiwiSaver should think similarly as most don't need their money for several decades. For many that means growth funds, not conservative, or even balanced funds.

The great thing about this is once a KiwiSaver has set their 20, or 30 year investment course, they can be like the Guardians and stop worrying about all the ups and downs of the market, at least until they start getting closer to the time they need the money.

Just like ordinary KiwiSavers, the Guardians do not have the ability to predict short-term market movements, so they don't bother even trying.

GOLDEN RULES:

* Work out your investment strategy

* Look through market 'noise'

* Get the best out of KiwiSaver