Passive fund KiwiSaver and investment manager, Simplicity, has increased exposure to NZ assets after rejigging its asset allocation method last week.
Concurrently, the more than $330 million Auckland-based manager also revised wording in an updated product disclosure statement (PDS) for its just-released NZ equities and bond portfolio investment entity (PIE) funds – back-tracking on an ‘index-tracking’ description.
In a statement to members last week, Simplicity says it would now base its asset allocation model on the average “allocations of the 11 largest KiwiSaver managers” rather than the previous whole-of-market calculation.
“This removes the impact of a broader range of funds, some of which are overly aggressive, or small in fund size,” the Simplicity statement says.
The top 11 largest schemes include all major Australian bank-owned products (bar BNZ), Fisher Funds, Mercer, AMP, Kiwi Wealth and Booster. (However, if the scheme ownership is aggregated, the top 11 providers also encompasses Milford, BNZ and SuperLife.)
Scheme founder, Sam Stubbs, said the change would “de-risk” Simplicity portfolios at the growth end of the scale while increasing allocations to NZ assets across the board.
“After 18 months in operation we’ve developed a pretty good idea of how we track the broader KiwiSaver market [in asset allocation],” Stubbs said. “We want the scheme to be more representative of how the vast number of KiwiSaver members invest – at the margins some of the smaller schemes have aggressive asset allocations that drag the average to the top end.”
He said at the growth end that should see lower volatility of returns for members, many of whom have switched to Simplicity from more conservatively-weighted bank-owned schemes.
The Simplicity growth fund has seen the biggest change, dropping overall exposure to risk assets from 86 per cent to 78 per cent under the revised model: NZ equities jumped from 14 per cent to 21 per cent at the expense of Australian equities (down to 8.5 per cent from 14 per cent) and global shares (falling from 58 per cent to 48.5 per cent); both global and local fixed income allocations rose from 6 per cent to 11 per cent and 9 per cent, respectively.
While the overall growth/income asset split remained more or less unchanged for the Simplicity conservative and balanced funds, the new model reweighted NZ shares up by between 50-75 per cent compared to previous allocations.
Last week the manager also reissued the PDS’ for its NZ shares and bond funds to mollify commercial sensitivities around ‘index tracking’ claims.
In its original April 3 PDS, Simplicity says the NZ Shares Fund is “designed to track the S&P/NZX50 Index” – a description toned down to “designed to generate a return similar to the performance of the New Zealand share market” in the updated April 13 document. Similarly, the latest PDS de-specifies the NZ Bond Fund target, which was previously linked to the Bloomberg NZBond Govt 0+ Yr Index.
Stubbs says while Simplicity pays for data to construct its NZ portfolios, the index providers baulked at the official wording.
“We’ve changed the phraseology but nothing changes in how we manage the money,” he said.
Hugh Stevens, NZX head of funds management, said Smartshares is the only New Zealand fund tracking an S&P/NZX 50 index – according to S&P’s website.
Stevens said there are two S&P/NZX 50 indices: one tracks the gross market value weighted index; and, the S&P/NZX 50 Portfolio Index, which caps stocks to a 5 per cent weighting in the index.
“Smartshares tracks the Portfolio Index, which has outperformed Simplicity’s benchmark by 0.63% annually over the past 10 years,” he said. “Smartshares’ fund tracks this index – that’s what we say on the tin, and that’s the product we are committed to providing to our customers. Transparency is paramount for the Smartshares team, and our investors don’t want us changing the label on the tin, or the contents.”
The Simplicity KiwiSaver growth, balanced and conservative portfolios returned about 9.7 per cent, 7.2 per cent and 4.7 per cent, respectively, after fees but pre-tax over the 12 months to March 31, the firm said last week: about in line with the median KiwiSaver returns across those growth profiles as reported in the latest Melville Jessup Weaver quarterly investment survey.