Vanguard’s mooted ‘cluster-free’ product could appeal to both Australian and New Zealand investors, according to the fund manager’s head of market strategy and communications in Australia, Robin Bowerman.
Bowerman said Vanguard is working with its NZ KiwiSaver clients to develop an “acceptable” passive global shares solution that excluded companies associated with cluster bomb and nuclear weapons manufacturing.
“There’s no off-the-shelf Vanguard product to switch into but we’re looking at what could be the best approach for both Australian and NZ clients,” he said.
Bowerman said there may be an existing alternative index that fits the bill or Vanguard may have to create a bespoke product that screens out the handful of offending companies – once the NZ industry can agree on exactly what it wants excluded.
He said, depending on the final structure, the revamped product may come with a higher price tag due to the extra complexity.
“That said, Vanguard is a low cost focused firm so we would not expect dramatic change.”
The KiwiSaver-friendly Vanguard product should be available in about a month, he said.
While the recent debate over KiwiSaver schemes’ – especially default providers – potential exposure to cluster munitions hasn’t spilled across the Tasman, Bowerman said a weapons-screened product could also have appeal in Australia, bringing scale and reducing the cost pressures of an NZ-only fund.
Vanguard runs the largest socially responsible investing (SRI) index fund in the US, he said, as well as offering a number of similar products in Europe. However, he said different regions tend to have unique approaches to SRI, limiting the scope for a truly global passive ‘ethical’ product.
Last week the NZ Police, after consultation with the Financial Markets Authority and other government agencies, dismissed a complaint from Amnesty International alleging KiwiSaver providers were breaking the 2009 Cluster Munitions Act by investing in index funds with potential exposure to cluster bomb manufacturers.
The Police statement says investors buying shares on traded markets does not amount to “providing funds” to the underlying companies that produce cluster bombs. Furthermore, most NZ managers are exposed to cluster munitions manufacturers via offshore funds rather than direct investments, according to the Police finding.
“There are significant threshold issues with regard to establishing breaches of the Act, and at this stage there is no evidence to indicate offending,” the Police statement says.
Despite the, widely-expected, legal reprieve, all nine KiwiSaver default providers had already announced changes to their investments, or policy reviews, in light of the cluster bomb publicity.
Vanguard is the passive global shares provider of choice for four of the default funds – Kiwi Wealth, Westpac, Grosvenor and ASB – with the latter have the biggest exposure by far. The largest KiwiSaver provider, ANZ, uses a BlackRock passive fund for international equities in its $1 billion default product.
The $3 billion plus ASB default fund invests about 10 per cent via the Vanguard international share product as well as having further exposure in the scheme’s other funds.
ASB said it would divest its holdings of companies associated with “cluster munitions, landmines or nuclear weapons” by October 10 this year.
Bowerman said about 80 per cent of Vanguard’s NZ clients invested via institutional mandates rather than the pooled fund structures accessed by KiwiSaver providers.