Article written by Anthony Edmonds, Director, Business Development and Clients at Aurellan Asset Management

At Aurellan Asset Management Limited our predominant focus is on active management. The two Aurellan Global Shares Funds that are available on InvestNow provide investors with exposure to three specialist active managers who we selected with input from our global investment consultancy and research partner, Wilshire.

However, for our large wholesale clients that we manage diversified portfolios for, we also offer passive funds, because good portfolio construction starts with what each client wants, not with a fund manager’s preferred narrative. Here is how we approach managing both active and passive global shares, where we think investors should be careful, and why we don’t take the most-quoted scorecard in this debate at face value.

How we build our active global shares funds

The Aurellan Global Shares Fund, available unhedged and fully NZ dollar hedged, is built on a simple idea: the belief that highly skilled analysts can pick individual companies and add value over time. However, we highlight that this only if the fund is genuinely active. Research on “Active Share” by Cremers and Petajisto found that managers who meaningfully diverge from their benchmark tend to outperform, while “closet indexers” tend to underperform after fees.

Even really skilled active managers only get around 50% of their individual stock selection decisions right in terms of deciding which are the best companies to invest, so outperformance tends to come from making lots of independent decisions, not a few big positions or bets. We also work hard not to confuse style with skill. Value and growth move in multi-year cycles, and a manager riding the right one can look brilliant for reasons that have little to do with their ability.

So, working with Wilshire as our manager research partner, we have appointed three active managers with deliberately complementary styles, being: Causeway (value), Loomis Sayles (growth) and LA Capital (core quantitative). Wilshire monitors the combined portfolio for style drift, overlap and unintended bias. The managers run segregated portfolios on our independent custodian’s platform, so we can change a manager with a custodian instruction rather than a more costly fund-to-fund switch.

The global share portfolios the underlying managers run for us are concentrated, as demonstrated by looking at Causeway Capital’s portfolio which comprises of between 40 and 50 individual companies. The role that LA Capital plays within the Aurellan Global Shares Fund is one of a ballast, which means that their portfolio contains a greater number of individual shares.

Because the fund is a PIE holding global shares directly, investors keep the non-resident withholding tax credit and the tax deductibility of fees, benefits that are often lost when the same shares sit inside an offshore fund structure, including many passive ETFs that are popular with Kiwi investors.

Why we also offer passive

For our large wholesale clients with a tight fee budget or a genuine preference for indexing, we do use passive PIE funds that follow Vanguard founder Jack Bogle’s original advice, which was “don’t look for the needle, buy the haystack”. By this he meant own the whole market, not just a slice of it.

The fund we use for passive global shares exposure tracks the MSCI All Country World Index and is ultimately managed by State Street. This fund is about as close to the broad market global shares exposure as you can get, with the same PIE tax advantages as our active funds.

Where we urge caution – the new trend of actively managing a range of index funds

When it comes to index funds, we believe investors are only truly ‘passive’ if the index covers the broad market. Once you narrow it to a theme like clean energy, robotics or healthcare, or a top 100 fund, then actually choosing that theme is an active decision, and building a portfolio from several themed ETFs is a series of active bets that just happen to use index funds.

The evidence of this being a smart approach for investors has been mixed. For example, one clean energy fund we looked at returned around 4.8% a year over the five years to 30 September 2026 while the S&P 500 returned over to 18%, illustrating how returns from individual themes can differ materially from broader market indices. Meanwhile, Morningstar research found thematic fund investors as a group earned roughly a third of what the funds themselves returned, likely due to investor attempts to opportunistically ‘time’ the market or investment theme. We explored these issues further in a recent article titled Passive investing with a large dash of active hypocrisy.

Why we’re dubious about the SPIVA NZ Scorecard

The S&P DJI SPIVA New Zealand Scorecard is widely quoted as proof that active managers fail. We think its methodology can’t support that claim. It measures funds against benchmarks many of them don’t use. For global shares it relies on the S&P World Index, created only in 2024, with earlier results back-tested, and we aren’t aware of a single New Zealand global shares fund that actually uses that index as a benchmark.

To further test this, we applied SPIVA’s own method to 11 passive New Zealand equity funds. Nine of them (82%) “underperformed” the S&P/NZX 50, almost exactly the rate SPIVA reports for active managers. We also ran the same SPIVA methodology on 14 passive global shares funds offered in New Zealand and discovered 86% of those “underperformed” for the 3 years to 31 July 2026, with half of them “underperforming” by more than 2% per annum.

Now to be clear, at Aurellan we don’t believe that this is actual underperformance, rather we think it’s a simple practical demonstration that the SPIVA methodology is flawed. We believe this type of activity may be actively misleading when assessing the relative success or otherwise of active and passive funds being promoted in the market. You can read more about the analysis Aurellan did in Index-washing: how dirty data pollutes the NZ active (and passive) environment and The SPIVA NZ Scorecard’s own methodology, applied to passive NZ equity funds, produces the same flawed result.

The bottom line

Broad-based index funds are a sound, low-cost choice. We believe genuinely active, well-structured funds can add value on top of the market. What investors should be wary of is active bets dressed up as passive, as well as headline statistics and claims that don’t necessarily hold up under scrutiny.

If you’d like to learn more about the Aurellan Funds, please refer to the Product Disclosure Statements and other disclosure material available on Aurellan landing page on InvestNow.

Disclaimer:

All information and opinions contained in this publication are provided by Aurellan Asset Management and are based on sources that InvestNow Saving and Investment Service Limited (“InvestNow”) believes are reliable and accurate. InvestNow, its directors, officers and employees make no representations or warranties of any kind as to the accuracy or completeness of the information contained in this publication and disclaim liability for any loss, damage, cost or expense that may arise from any reliance on the information or any opinions, conclusions or recommendations contained in it, whether that loss or damage is caused by any fault or negligence on the part of InvestNow, or otherwise, except for any statutory liability which cannot be excluded. All opinions and market commentary reflect the views of the author and/or identified third-party content provider on the date of this publication and are subject to change without notice. This disclaimer extends to any entity that may distribute this publication. The information in this publication is not intended to be financial advice for the purposes of the Financial Markets Conduct Act 2013, as amended by the Financial Services Legislation Amendment Act 2019. In particular, in preparing this publication, InvestNow and Aurellan Asset Management did not take into account the investment objectives, financial situation and particular needs of any particular person. Professional investment advice from an appropriately qualified adviser is recommended before making any investment decision. All investments involve risk. Examples of specific fund performance are for illustrative purposes only and are not intended as a recommendation. Any projections, scenarios, or modelling presented are illustrative only and are not forecasts or predictions of future performance. Past performance is not a reliable indicator of future results.

* The issuer and manager of the Aurellan Global Shares Fund and Aurellan Hedged Global Shares Fund is FundRock NZ Limited. A Product Disclosure Statement is available at https://investnow.co.nz/fund-manager/aurellan/.