Fund Manager Diversification – The power of ‘And’
Article written by InvestNow – 3rd July 2023
Kiwi consumers have a long history of getting the short end of the stick.
Perhaps it’s our small size, or the fact that we’re tucked away at the bottom of the world, but the general lack of innovation and competition in NZ has struck retail shoppers here with fewer and more expensive options compared to offshore counterparts.
Take the $22 billion local supermarket duopoly, for example, that has foisted over-priced everyday items on consumers such as $20 1kg cheese blocks while the industry pockets $1 million of excess profits every day.
Unsurprisingly, Aucklanders queued in droves when US discount retailer, CostCo, opened its debut NZ store last September, bringing much-hyped competition to the scene.
Despite the welcome entry of a global heavyweight to rival NZ-owned Foodstuffs (New World and Pak’n’Save) and Australian player Woolworths (Countdown) in the supermarket space, CostCo does not yet offer a serious check-out challenge to the incumbents.
The CostCo model rests on a limited range of mainly in-house ‘Kirkland’ branded grocery items that typically must be purchased in bulk, which is likely ill-suited to the needs of the average Kiwi shopper.
While the super-sized products might measure up as attractive deals on a per-unit basis, a regular-sized NZ household is unlikely to get through a 5kg container of maple syrup or a tray of 60 eggs before hitting the expiry date limit, rendering any potential ‘savings’ moot.
CostCo’s reliance on an in-house product range to the detriment of consumer choice combined with its annual membership fee for the privilege of shopping in-store has striking parallels to another operating model that has a similar reputation for being inflexible: KiwiSaver.
Catering to Kiwi needs: the importance of choice
Most KiwiSaver schemes to date have followed the CostCo approach of offering members limited pre-packaged investment options carrying the house brand.
But as institutional investors have long known, relying on a single manager to shoulder all portfolio duties introduces some unwanted risks into the equation.
Manager concentration risk is real – who’s to say that this one provider will continue to perform well relative to its peers or the market forever?
Furthermore, managers tend to be experts in one particular investment approach, which is why professional asset-owners (such as global pension funds, for example) have favoured diversified strategies to control for such style risk.
With the KiwiSaver regime now almost 16 years old, many New Zealanders have accumulated substantial account balances and are looking for tailored investment solutions akin to the flexible institutional portfolios.
Unfortunately, most self-select multi-manager KiwiSaver solutions remain hidden behind a ‘paywall’, gatekept by schemes that have high minimum balance requirements and additional administration fees.
Unleashing the power of ‘And’ a.k.a Fund Manager Diversification
Launched in 2020, the InvestNow KiwiSaver Scheme provides 38 investment options across 15 leading local and international managers – all in one easy-to-use platform – including diversified, single sector, ethical, active and passive solutions with many of these being unique to the scheme.
Feedback to-date suggests that seasoned investors fully appreciate the innovative design that’s unlocking the benefits of manager diversification within the InvestNow KiwiSaver Scheme.
“Our retail investors have really leaned into the power of “and”” says Jason Choy, InvestNow Senior Portfolio Manager. “They can now have investments from multiple managers in their KiwiSaver portfolio – for example Milford and Fisher and Pathfinder. There is no longer the need to have all their eggs in one basket, hoping to have selected the single-best manager for their needs.”
The benefit of investing your KiwiSaver investment across a number of different fund managers is the potential for reduced volatility across your total portfolio, and therefore better investment outcomes.
For example, a single growth fund managed by a single fund manager may see the value of your entire portfolio swing up and down. Compare that to investing across three different growth funds from three different fund managers, noting that all three will almost certainly not move in the same direction, up or down, all the time – which should have a smoothing impact on the value of your KiwiSaver portfolio over time.
The InvestNow KiwiSaver Scheme also empowers investors to better-tailor investment strategies based on their specific needs, for example, adding active or ethical satellite exposures to a core passive portfolio.
We believe as KiwiSaver matures, manager diversification, amongst other opportunities to personalise, will transition from a great-to-have to a must-have in order for investors to reach the full potential of their KiwiSaver portfolios.
FundRock NZ Ltd is the issuer of the InvestNow KiwiSaver Scheme and Foundation Series Funds. Product Disclosure Statements are available at www.investnow.co.nz
Fund Manager Diversification – The power of ‘And’
Article written by InvestNow – 3rd July 2023
Kiwi consumers have a long history of getting the short end of the stick.
Perhaps it’s our small size, or the fact that we’re tucked away at the bottom of the world, but the general lack of innovation and competition in NZ has struck retail shoppers here with fewer and more expensive options compared to offshore counterparts.
Take the $22 billion local supermarket duopoly, for example, that has foisted over-priced everyday items on consumers such as $20 1kg cheese blocks while the industry pockets $1 million of excess profits every day.
Unsurprisingly, Aucklanders queued in droves when US discount retailer, CostCo, opened its debut NZ store last September, bringing much-hyped competition to the scene.
Despite the welcome entry of a global heavyweight to rival NZ-owned Foodstuffs (New World and Pak’n’Save) and Australian player Woolworths (Countdown) in the supermarket space, CostCo does not yet offer a serious check-out challenge to the incumbents.
The CostCo model rests on a limited range of mainly in-house ‘Kirkland’ branded grocery items that typically must be purchased in bulk, which is likely ill-suited to the needs of the average Kiwi shopper.
While the super-sized products might measure up as attractive deals on a per-unit basis, a regular-sized NZ household is unlikely to get through a 5kg container of maple syrup or a tray of 60 eggs before hitting the expiry date limit, rendering any potential ‘savings’ moot.
CostCo’s reliance on an in-house product range to the detriment of consumer choice combined with its annual membership fee for the privilege of shopping in-store has striking parallels to another operating model that has a similar reputation for being inflexible: KiwiSaver.
Catering to Kiwi needs: the importance of choice
Most KiwiSaver schemes to date have followed the CostCo approach of offering members limited pre-packaged investment options carrying the house brand.
But as institutional investors have long known, relying on a single manager to shoulder all portfolio duties introduces some unwanted risks into the equation.
Manager concentration risk is real – who’s to say that this one provider will continue to perform well relative to its peers or the market forever?
Furthermore, managers tend to be experts in one particular investment approach, which is why professional asset-owners (such as global pension funds, for example) have favoured diversified strategies to control for such style risk.
With the KiwiSaver regime now almost 16 years old, many New Zealanders have accumulated substantial account balances and are looking for tailored investment solutions akin to the flexible institutional portfolios.
Unfortunately, most self-select multi-manager KiwiSaver solutions remain hidden behind a ‘paywall’, gatekept by schemes that have high minimum balance requirements and additional administration fees.
Unleashing the power of ‘And’ a.k.a Fund Manager Diversification
Launched in 2020, the InvestNow KiwiSaver Scheme provides 38 investment options across 15 leading local and international managers – all in one easy-to-use platform – including diversified, single sector, ethical, active and passive solutions with many of these being unique to the scheme.
Feedback to-date suggests that seasoned investors fully appreciate the innovative design that’s unlocking the benefits of manager diversification within the InvestNow KiwiSaver Scheme.
“Our retail investors have really leaned into the power of “and”” says Jason Choy, InvestNow Senior Portfolio Manager. “They can now have investments from multiple managers in their KiwiSaver portfolio – for example Milford and Fisher and Pathfinder. There is no longer the need to have all their eggs in one basket, hoping to have selected the single-best manager for their needs.”
The benefit of investing your KiwiSaver investment across a number of different fund managers is the potential for reduced volatility across your total portfolio, and therefore better investment outcomes.
For example, a single growth fund managed by a single fund manager may see the value of your entire portfolio swing up and down. Compare that to investing across three different growth funds from three different fund managers, noting that all three will almost certainly not move in the same direction, up or down, all the time – which should have a smoothing impact on the value of your KiwiSaver portfolio over time.
The InvestNow KiwiSaver Scheme also empowers investors to better-tailor investment strategies based on their specific needs, for example, adding active or ethical satellite exposures to a core passive portfolio.
We believe as KiwiSaver matures, manager diversification, amongst other opportunities to personalise, will transition from a great-to-have to a must-have in order for investors to reach the full potential of their KiwiSaver portfolios.
FundRock NZ Ltd is the issuer of the InvestNow KiwiSaver Scheme and Foundation Series Funds. Product Disclosure Statements are available at www.investnow.co.nz