NZ-headquartered investment firms Booster and Simplicity have indicated support for a new Vanguard global bond fund due to launch in August.
In a statement last week, Booster said it had locked in about $200 million into the prospective Vanguard international fixed income fund that would exclude “a range of controversial sectors, including weapons, gambling, fossil fuels and tobacco”.
Sam Stubbs, Simplicity head, said the $450 million KiwiSaver and investment fund provider would also allocate to the Vanguard global corporate bond fund – revisiting an asset class it abandoned last year citing environmental, social and governance (ESG) concerns.
In April 2017 the manager dropped the Vanguard International Credit Securities Index Fund, which retains exposure to controversial sectors that Simplicity had vowed to avoid. Post the credit sell-down, Simplicity split its fixed income allocation between a Vanguard global sovereign bond fund and a handful of NZ corporate issues.
According to Stubbs, after re-entering the global bond asset class Simplicity would see the scheme’s total underlying security holdings jump from the current 6,000 or so to 20,000 plus despite a new ESG-related cull slated for this year.
After consulting with members, Simplicity would remove cut investments in firms involved in fossil fuel extraction, pornography, alcohol, weapons and gambling across all its portfolios this year, he said.
While the move would cut about 2,800 firms from the Simplicity investment universe, Stubbs said it would have “almost no discernable effect on [the portfolios] volatility”.
He said in general the process would exclude companies that generate at least 5 per cent of their revenue from the so-called ‘sin sectors’.
“We’re still working through the details [of the exclusion thresholds] with Vanguard,” Stubbs said. “We think most of the changes can happen within a couple of months but it might take until the end of the year to complete.”
Simplicity would reweight to the healthcare, consumer goods, technology and financial sectors following the portfolio clean-out.
Stubbs said Simplicity was also consulting with Vanguard on building other products for the NZ market including an Australian equities fund. The Australian-domiciled Vanguard global equities product used by Simplicity excludes holdings in its home country.
Likewise, Booster chief investment officer, David Beattie, said in a statement that the Wellington-based firm was exploring ‘several other exclusion-type funds and positive ESG funds across a broad range of asset classes’.
“We have enjoyed a 15-year relationship with Vanguard, and working in partnership reflects the strength of that relationship. We are delighted to continue our work with Vanguard to ensure our core investment strategy aligns with New Zealander’s values,” Beattie said in the statement.
The Booster release says the new global bond fund would “issued and managed by Vanguard Australia”. However, it’s unclear whether the mooted fund would be structured as a portfolio investment entity, which would require Vanguard to formally set up under NZ regulations.
Booster is one of four KiwiSaver schemes to be accredited by the Responsible Investment Association of Australasia (RIAA) as ESG-friendly.
Last week Mercer was the latest KiwiSaver scheme to earn the RIAA stamp of approval, joining Kiwi Wealth, the Medical Assurance Society and Booster.
At the end of May Booster also upped its KiwiSaver and investment fund offering with the new ‘Shielded Growth Fund’. The new Booster fund includes an options overlay on a portfolio of mostly growth assets “partially shielding the fund against some of the short-term downside risks”, the offer document says.
“This is achieved by using a strategy which will typically involve, but is not limited to, holding put options which provide protection on around 30% of any fund losses above a 10% fall in global share markets,” the Booster document says. “The level of protection will typically vary between 20% and 50% of the fund, depending on our view of a range of factors such as cost, market volatility and risk.”
In March this year Booster dumped the Nikko ‘Options Fund’ from its range resulting in $100 million shifting to the group’s High Growth product.
At the time Beattie said Booster “concluded that the Options fund was not a good strategy for long-term savers” and difficult to explain to investors.