More and better: what InvestNow members want in a higher-rate world
Article written by InvestNow – 1st June 2023
In the sharpest about-turn on record, the NZ official cash rate (OCR) has jumped from the historical low of 0.25% at the end of September 2021 to a possible plateau of 5.5% in May this year.
Proportionally, the OCR is now 22-times (or 2,200%) higher than the nadir that held for 18 months from March 2020.
Kiwi investors have noticed.
Following years of declining interest, NZ household bank term deposits (TD) have surged in line with OCR increases, rising from a bottom of $80.6 billion in September 2021 to more than $110 billion as at March 31 this year, according to Reserve Bank of NZ (RBNZ) figures.
The TD trend has played out, too, on InvestNow, which has products from six NZ-registered banks offering some of the best rates available across multiple terms.
Mike Heath, InvestNow General Manager, says the TD holdings on the platform have more than tripled in size over the 12 months to the end of March this year.
Heath says the growth has come via new clients who have been attracted by term deposit rates that match, or even better, the advertised sticker returns available direct from the banks.
“The ability to choose the best rate and term from our panel of six banks without opening an account in every institution has proven to be a real hit with new customers,” he says.
And existing clients are also allocating more to TDs, although not at the expense of selling down their managed fund holdings, Heath says.
“Current customers are actively bringing more cash to the platform to invest in TDs, as opposed to switching out of managed funds,” he says. “We think this growth will continue based on the demand and flows to date.”
Cash plus: why TDs and funds complement, not clash
As noted above, InvestNow members are definitely taking advantage of the current TD rates to better-manage cash exposures but the on-platform behaviour suggests their long-term plans remain on track.
“We have not seen any exodus from managed funds despite the tough year for risk assets in 2022 that ended with bonds and equities both down by double-digit percentages,” Heath says. “Our customers understand the relationship between time and volatility, and how tools such as our Regular Investment Plans can help them ride out the volatility, including removing the temptation to sell during times of market stress.
“The dollar-cost-averaging message seems to have sunk home.”
Of course, the return to more positive market conditions in 2023 has eased the tension somewhat with most assets up over the year to May.
While NZ shares finished only about 2% higher over the five months to the end of May, US equity markets have spiked much higher: the Nasdaq rising almost 25% while the broader S&P500 index increased about 10% during the same period.
Indeed, Heath says the Kiwi investor appetite for offshore equities remains healthy with the newly launched Foundation Series US 500 and Total World Funds, “powered by” Vanguard exchange-traded funds (ETFs) are proving to be a particular winner.
For example, since the InvestNow KiwiSaver Scheme rollout of the two super low-cost Foundation Series Funds, structured as unlisted portfolio investment entity (PIE) funds in March this year, more than 90% of new members of the InvestNow KiwiSaver Scheme have invested in either, or both, of the US or global shares index strategies.
“Our house brand Foundation funds are clearly resonating with investors looking for low-fee passive exposure to global shares – driven by the fact that over the long term our new funds offer one of the cheapest and most tax-efficient ways for Kiwi investors to access the underlying Vanguard ETFs,” Heath says.
The Foundation Series Vanguard-powered funds annual management fees range from 0.03% for the US 500 Fund option to 0.07% for the Total World Fund strategy – plus a 0.5% brokerage charge.
KiwiSaver extra: innovation adds up
Heath says the Foundation Series Vanguard-powered funds have also been popular in the InvestNow KiwiSaver Scheme, which provides compelling choice for New Zealanders regardless of their current balances and contribution levels.
Over the 12 months to the end of March, the InvestNow KiwiSaver Scheme has more than doubled in size as members transfer out of less flexible – or more expensive on a like-for-like basis – schemes.
During the first few months of 2023, for example, about half of the InvestNow KiwiSaver Scheme net funds transferred-in have shifted out of bank-based schemes.
In another interesting development, however, Simplicity refugees represent the third-highest group of funds moving to the InvestNow KiwiSaver Scheme this year.
“We think more and more Simplicity members are worried about the manager’s move away from a pure-play index provider by allocating 10 per cent or more to exotic and riskier assets such as direct NZ mortgages or property developments,” Heath says. “Furthermore, while Simplicity has belatedly adopted the tax-efficient model for overseas assets that InvestNow established at inception – and has long championed – the shift also removed Vanguard as the underlying manager in favour of a German provider little-known to NZ investors.”
Meanwhile, he says InvestNow continues to build its product suite, planning imminent releases of investment options at both ends of the risk spectrum.
“We will soon be adding a new aggressive growth fund to the range – we know that these higher-risk strategies are extremely popular among our customers and therefore expect another kick up in growth and switching to InvestNow,” Heath says. “And given the persistent demand for TDs we also expect to sign on two new banks in the next couple of months.”
More and better: what InvestNow members want in a higher-rate world
Article written by InvestNow – 1st June 2023
In the sharpest about-turn on record, the NZ official cash rate (OCR) has jumped from the historical low of 0.25% at the end of September 2021 to a possible plateau of 5.5% in May this year.
Proportionally, the OCR is now 22-times (or 2,200%) higher than the nadir that held for 18 months from March 2020.
Kiwi investors have noticed.
Following years of declining interest, NZ household bank term deposits (TD) have surged in line with OCR increases, rising from a bottom of $80.6 billion in September 2021 to more than $110 billion as at March 31 this year, according to Reserve Bank of NZ (RBNZ) figures.
The TD trend has played out, too, on InvestNow, which has products from six NZ-registered banks offering some of the best rates available across multiple terms.
Mike Heath, InvestNow General Manager, says the TD holdings on the platform have more than tripled in size over the 12 months to the end of March this year.
Heath says the growth has come via new clients who have been attracted by term deposit rates that match, or even better, the advertised sticker returns available direct from the banks.
“The ability to choose the best rate and term from our panel of six banks without opening an account in every institution has proven to be a real hit with new customers,” he says.
And existing clients are also allocating more to TDs, although not at the expense of selling down their managed fund holdings, Heath says.
“Current customers are actively bringing more cash to the platform to invest in TDs, as opposed to switching out of managed funds,” he says. “We think this growth will continue based on the demand and flows to date.”
Cash plus: why TDs and funds complement, not clash
As noted above, InvestNow members are definitely taking advantage of the current TD rates to better-manage cash exposures but the on-platform behaviour suggests their long-term plans remain on track.
“We have not seen any exodus from managed funds despite the tough year for risk assets in 2022 that ended with bonds and equities both down by double-digit percentages,” Heath says. “Our customers understand the relationship between time and volatility, and how tools such as our Regular Investment Plans can help them ride out the volatility, including removing the temptation to sell during times of market stress.
“The dollar-cost-averaging message seems to have sunk home.”
Of course, the return to more positive market conditions in 2023 has eased the tension somewhat with most assets up over the year to May.
While NZ shares finished only about 2% higher over the five months to the end of May, US equity markets have spiked much higher: the Nasdaq rising almost 25% while the broader S&P500 index increased about 10% during the same period.
Indeed, Heath says the Kiwi investor appetite for offshore equities remains healthy with the newly launched Foundation Series US 500 and Total World Funds, “powered by” Vanguard exchange-traded funds (ETFs) are proving to be a particular winner.
For example, since the InvestNow KiwiSaver Scheme rollout of the two super low-cost Foundation Series Funds, structured as unlisted portfolio investment entity (PIE) funds in March this year, more than 90% of new members of the InvestNow KiwiSaver Scheme have invested in either, or both, of the US or global shares index strategies.
“Our house brand Foundation funds are clearly resonating with investors looking for low-fee passive exposure to global shares – driven by the fact that over the long term our new funds offer one of the cheapest and most tax-efficient ways for Kiwi investors to access the underlying Vanguard ETFs,” Heath says.
The Foundation Series Vanguard-powered funds annual management fees range from 0.03% for the US 500 Fund option to 0.07% for the Total World Fund strategy – plus a 0.5% brokerage charge.
KiwiSaver extra: innovation adds up
Heath says the Foundation Series Vanguard-powered funds have also been popular in the InvestNow KiwiSaver Scheme, which provides compelling choice for New Zealanders regardless of their current balances and contribution levels.
Over the 12 months to the end of March, the InvestNow KiwiSaver Scheme has more than doubled in size as members transfer out of less flexible – or more expensive on a like-for-like basis – schemes.
During the first few months of 2023, for example, about half of the InvestNow KiwiSaver Scheme net funds transferred-in have shifted out of bank-based schemes.
In another interesting development, however, Simplicity refugees represent the third-highest group of funds moving to the InvestNow KiwiSaver Scheme this year.
“We think more and more Simplicity members are worried about the manager’s move away from a pure-play index provider by allocating 10 per cent or more to exotic and riskier assets such as direct NZ mortgages or property developments,” Heath says. “Furthermore, while Simplicity has belatedly adopted the tax-efficient model for overseas assets that InvestNow established at inception – and has long championed – the shift also removed Vanguard as the underlying manager in favour of a German provider little-known to NZ investors.”
Meanwhile, he says InvestNow continues to build its product suite, planning imminent releases of investment options at both ends of the risk spectrum.
“We will soon be adding a new aggressive growth fund to the range – we know that these higher-risk strategies are extremely popular among our customers and therefore expect another kick up in growth and switching to InvestNow,” Heath says. “And given the persistent demand for TDs we also expect to sign on two new banks in the next couple of months.”
Leave A Comment