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How does your KiwiSaver provider choose what assets to buy?

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Not all KiwiSaver providers actively choose their investments. 

Some KiwiSaver providers do actively manage their funds. But, some providers passively manage their funds. And some providers simply invest in index funds. Do you know which category your KiwiSaver provider is in?

Assuming your provider actively manages your KiwiSaver fund, there’s an interesting question that can ask itself. How does a KiwiSaver provider choose the specific investments they invest in? And what makes a KiwiSaver fund manager buy Fisher and Paykel shares over Fletcher Building shares, for example? Questions like these are what this blog post covers.

Related: What is an index fund and how does it work?

What do KiwiSaver providers consider when choosing investments to invest in?

Consider the process of selecting investments like going to the supermarket.

Whenever your KiwiSaver fund manager wants to buy assets for you, they are going to a supermarket of sorts. Except this time, they’re going to the financial assets supermarket. Your KiwiSaver fund manager will have a checklist of specific criteria for the things they want to buy. And when they look at the variety on offer, they will choose which assets to buy based on that checklist and prior research. 

If you think about it, no two people will hold the same shopping list. So, similarly, your KiwiSaver providers will likely hold different criteria for what they want to buy. 

This is because no two KiwiSaver schemes are the same. They have different fees, different ideologies, different aims and so forth. For example, ANZ actively manages their funds to be what they see as long-term and responsible investments. So, long-term investments that are deemed responsible by ANZ would likely be on their checklist. On the other hand, Amanah aims to invest according to Islamic principles. So, assets that align with these Islamic principles would be on Amanah’s checklist.

When choosing how best to grow your KiwiSaver money, KiwiSaver funds can look at multiple factors. So, what are those factors? That’s what we will look at in the next section.

Factors Considered By Actively Managed KiwiSaver Funds

This section will cover two groups of considerations that actively managed KiwiSaver funds might take into account.

The first is considering what clients would want from their funds. Investors join their provider for different reasons. For instance, KiwiSaver investors might join Pathfinder’s KiwiSaver scheme because its investment team takes into account their ethical beliefs when investing. Consequently, KiwiSaver funds may need to consider these reasons before investing their client’s money.

The second is to take into account any research that they have done. KiwiSaver providers undertake research to help them distinguish the differences between investments. They will then use that information to help them decide where is best to allocate their member’s funds.

Related: Active vs Passive KiwiSaver Funds: Which is Better?

1. Consider what their KiwiSaver investors would want from a fund

When considering what their clients would like from their KiwiSaver fund, a KiwiSaver provider might ask themselves questions like the ones below. This is so they will have a better understanding of what their customers want.

  • What are the expected aims of the fund for the type of client in this fund?

  • What would these people like to have in the fund?

  • What might a person’s goals be?

  • What might their risk tolerance be?

Take BNZ’s KiwiSaver cash fund for example. BNZ’s cash fund “aims to achieve stable returns over the short term”. This is potentially because BNZ believes that many of the people investing in this fund are looking to avoid significant fluctuations in their KiwiSaver portfolio. Investors in this fund may be looking to buy a first home in a few months, for example. Therefore, BNZ fund managers might choose to loan money to less risky entities. BNZ also chooses “floating-rate notes with terms up to 365 days”, suggesting that they don’t want to expose themselves to changes in the floating rate over the coming years.

Suggested Post: 3 factors in choosing a KiwiSaver fund

2. Consider based on research which investments will best achieve the goals of the fund

What’s the point of research you may ask?

The reason for doing research is because we as investors want to find the best companies, industries, bonds and so forth. And the way we can figure out which of the millions of possible investments are best is through analysing an array of investments through research. When choosing appropriate places for your KiwiSaver money, KiwiSaver fund managers will consider factors such as:

  • Risk

  • Return

  • How varied the investments are from each other (diversification)

  • Specific client requests (e.g. “ethical” options)

KiwiSaver providers will sometimes use a lot of technical terms when they are explaining how they chose where to put your money. This often makes it hard to understand what each provider is talking about. However, to ensure you are making the right choice, it is important to take the time to understand what they are saying.

Take Fisher Funds. Most of their research “is focused on trying to identify businesses that have wide economic moats; aligned and long-term focused management teams; and underappreciated earnings growth runways”. 

This means they are looking for companies that possess a long-term advantage over their competitors that protects their ability to make long-term profits (e.g. brand recognition, a secret recipe). They are also looking for companies that are undervalued, and where management is focused on the long-term sustainability of the company.

Other potential approaches to investing may include “value investing”, an approach used by the famous investor, Warren Buffett, or “bottom up” and “top down”.

Related: What is diversification and why is it important in your KiwiSaver fund? 

So which KiwiSaver provider should I give my KiwiSaver money to?

Finding the KiwiSaver provider you should give your money to requires research. Each person is unique. Therefore, answering this question should be done by people who are experienced and have done prior research on this topic.

That’s one of the reasons why you should take advantage of National Capital’s free KiwiSaver advisory service. It allows you to talk to a real person about your specific situation, giving you personal and actionable advice. The advice we give you is based on hours of research, where we sift through information about different KiwiSaver providers to find the best ones.

The first step to getting this free advice is to fill out our KiwiSaver HealthCheck. Once you’re there, fill out our simple eight-step form. This will give us the information we need to come up with an appropriate recommendation. You can take as long as you like to fill out the form and think about the questions.

Once you do this, we invite you to type in your contact information including your name, email address and phone number. This allows us to contact you to discuss your particular circumstances. 

After this, a National Capital team member will arrange an appointment with you so you can talk to our trusted team about your financial state of affairs. Once this is done, you can turn up to your appointment and hear our individualised recommendations for your financial situation. There are no strings attached and it will not cost you anything because the KiwiSaver providers pay us to provide you with the advice.

So what are you waiting for? Take control of your financial future and fill out our KiwiSaver HealthCheck. Your future self will thank you for it.

 

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