Most of you will be aware of the fact that our major banks – ANZ, ASB, BNZ, Kiwibank, and Westpac – all offer KiwiSaver schemes, managing tens of billions of dollars between them. The banks are a convenient choice given the familiarity and relationships we have with them. I also started my KiwiSaver journey with my old bank Westpac, given I had no clue about other providers back then.
These banks also offer non-KiwiSaver funds, where you can invest your money without the restrictions of KiwiSaver. A step up over their term deposit offerings, the funds allow you to invest in a diverse basket of assets including bonds and shares, giving the potential to grow your money faster. So is it worth investing in these managed funds through your bank?
This article covers:
1. How do these funds work?
2. What’s on offer?
3. Fees
4. Performance
5. Other considerations
1. How do these funds work?
Funds offered by your bank are nothing unique. They are the same type of funds you can invest in through InvestNow, or with a fund manager like Milford or Simplicity. It’s important to note that these funds are non-KiwiSaver funds (although these funds tend to mirror each bank’s KiwiSaver offering), so you can make withdrawals from these funds at any time – not just when you buy your first home or reach 65 years old.
For information on KiwiSaver funds, check out our article Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds
These funds all invest in a diversified range of shares and bonds, so allow you to put your money to work without having to research what specific companies to invest in. Being invested in shares and bonds means these funds have the potential to deliver higher returns than a savings account or term deposit. Each bank offers a number of funds ranging from Conservative to Growth, which differ in the mix of assets they invest in:
- Conservative – Mostly invested in Income assets like bonds and cash, making the fund less volatile but with lower potential for growth, so better suited to shorter-term investing.
- Balanced – About evenly split between Income and Growth assets, making the fund better suited to medium-term investing.
- Growth – Mostly invested in Growth assets like shares, making the fund more volatile but with higher potential for growth, so better suited to long-term investing.
However, these funds are not substitutes for a term deposit. Term deposits offer stability and capital protection, making them excellent for investing over 1-3 years, but the value of these funds can fluctuate or go down in value. It’s recommended that you commit your money to these funds for at least a few years so that you can ride out any volatility in the fund’s value. For example, BNZ recommends the following minimum investment timeframes for their funds:
- Conservative – 3 years
- Balanced – 7 years
- Growth – 10 years
2. What’s on offer
ANZ Investment Funds
ANZ‘s Investment Funds are actively managed and require no minumum investment. Altogether ANZ’s funds have about $2.1 billion under management:
- Conservative (80% Income assets + 20% Growth assets)
- Balanced (50% Income + 50% Growth)
- Growth (20% Income + 80% Growth)
ANZ also offer a Conservative Balanced fund (65% Income + 35% Growth), and a Balanced Growth fund (35% Income + 65% Growth).
ASB Investment Funds
ASB‘s Investment Funds are actively managed. They require a minimum initial investment of $2,000, and subsequent lump sum investments of at least $500 or regular investments of at least $100 per month/$50 per fortnight. Altogether ASB’s funds have about $2.4 billion under management:
- Conservative (80% Income assets + 20% Growth assets)
- Balanced (40% Income + 60% Growth)
- Growth (20% Income + 80% Growth)
ASB also offer a Conservative Plus fund (70% Income + 30% Growth), a Moderate fund (60% Income + 40% Growth), and a Positive Impact fund (40% Income + 60% Growth) which focuses on investments that have a positive impact on society or the environment.
BNZ YouWealth
BNZ offers funds through the YouWealth brand, which utilise both passive and active management. They require a minimum initial investment of $1,000, and subsequent lump sum investments of at least $500 or regular investments of at least $100 (this can be weekly, fortnightly, monthly, quarterly, or yearly). Altogether BNZ’s funds have over $500 million under management:
- Conservative (80% Income assets + 20% Growth assets)
- Balanced (40% Income + 60% Growth)
- Growth (20% Income + 80% Growth)
BNZ also offer a Moderate fund (60% Income + 40% Growth), and a Balanced Growth fund (35% Income + 65% Growth).
Kiwi Wealth Managed Funds
Kiwibank offers three actively managed funds under the Kiwi Wealth brand. Their minimum initial investment is $100, with no minimums for subsequent contributions. Altogether Kiwbank’s funds have about $250 million under management:
- Conservative (85% Income assets + 15% Growth assets)
- Balanced (45% Income + 55% Growth)
- Growth (15% Income + 85% Growth)
Westpac Active Series
Westpac offers actively managed funds under the Active Series banner. They require a minimum initial investment of $5,000, and subsequent lump sum investments of at least $500 or regular investments of at least $1,200 per year (this can be contributed weekly, fortnightly, monthly, or quarterly). Altogether Westpac’s funds have over $1.3 billion under management and are:
- Conservative Trust (80% Income assets + 20% Growth assets)
- Balanced Trust (40% Income + 60% Growth)
- Growth Trust (20% Income + 80% Growth)
Westpac also offer a Moderate Trust fund (60% Income + 40% Growth).
Westpac brand all their funds with the word “Trust” but this doesn’t make them any more unique or trustworthy – their funds work exactly the same way as the other banks.
That’s a lot of funds, and a lot of money under management by our banks. To help with this article, let’s compare the bank managed funds with funds managed by Milford Asset Management and Simplicity to see how they stack up. Milford and Simplicity are two popular KiwiSaver providers who also have a strong non-KiwiSaver fund offering:
Milford Investment Funds
Milford is an active fund manager offering the following funds with a minimum investment of $1,000:
- Conservative (82% Income assets + 18% Growth assets)
- Balanced (39% Income + 61% Growth)
- Active Growth (22% Income + 78% Growth)
Milford’s funds are also available through fund platform InvestNow.
Simplicity Investment Funds
Simplicity is a passive fund manager offering the following funds with a minimum investment of $1,000:
- Conservative (78% Income assets + 22% Growth assets)
- Balanced (44% Income + 56% Growth)
- Growth (22% Income + 78% Growth)
3. Fees
Banks aren’t typically known for low fees so how do their funds fare when compared with other providers?
Management fee
All funds charge a management fee. This fee is reflected in a tiny deduction in your fund’s unit price every day. The annual management fees are shown below:
| Conservative | Balanced | Growth | |
| ANZ | 0.91% | 1.03% | 1.13% |
| ASB | 0.94% | 1.14% | 1.20% |
| BNZ | 0.45% | 0.45% | 0.45% |
| Kiwibank | 0.71% | 0.85% | 0.97% |
| Westpac | 1.09% | 1.25% | 1.32% |
| Milford | 0.95% | 1.05%^ | 1.05%^ |
| Simplicity | 0.31% | 0.31% | 0.31% |
BNZ’s fee of 0.45% applies from 28 September 2021. This is a reduction from the current fee of 0.78% for all funds.
Other fees
Spreads – BNZ and Kiwibank charge spreads of between 0.10% and 0.16% when buying or selling units in their funds. This means you will buy units at a 0.10%-0.16% premium to the unit price, and sell units at a 0.10%-0.16% discount to the unit price. Spreads cover the transaction costs of people entering and exiting a fund, so that the fund’s investors aren’t unfairly penalised by other investors moving their money in and out of the fund.
Milford applies a “swing pricing adjustment” to their funds which works similar to a spread by adjusting the unit price of their funds up or down, depending on the flow of investor money in or out of the fund.
Performance fee – ^Milford’s Active Growth fund charges a performance fee which is 15% of any return in excess of 10% p.a. Their Balanced fund has indirect performance fees, as it invests in other Milford funds which charge performance fees. Milford estimates these fees to add 0.02% p.a. to the Balanced fund fee (for a total fee of 1.07%), and 0.20% p.a to the Active Growth fund fee (for a total fee of 1.25%).
Overall it appears the banks’ fees are expensive compared to low cost providers like Simplicity, apart from BNZ’s fees which are a reasonably low 0.45%. In fact thanks to Simplicity’s $20 annual fee, BNZ works out cheaper than Simplicity for balances up to $14,286! Even a more expensive bank like ANZ will be cheaper than Simplicity for balances up to a couple thousand dollars, given none of the banks charge fixed membership fees.
Compared with active fund manager Milford, the banks’ fees are roughly in line, with only BNZ being substantially cheaper.
4. Performance
Performance is not the best metric to look at when looking at funds as past performance doesn’t guarantee future results. It’s still a handy comparison to make (particularly over the long-term), as we can spot any consistent under-performers, or funds with a strong track record.
I have also compared the funds to what I’ll call the “Money King NZ market benchmark”. This benchmark represents the weighted average market return from four asset classes (NZ Government Bonds, Global Bonds, NZ Shares, International Shares), with a heavier weighting towards bonds for the Conservative benchmark, and a heavier weighting towards shares for the Growth benchmark. If you’re interested, the spreadsheet I used to calculate these benchmarks can be found here.
The returns stated below are after fees, but before tax. All returns are as at 31 August 2021, *except for Westpac whose returns are to 31 July 2021 as no August data is available. Longer term data is not available for all funds given BNZ, Kiwibank, and Simplicity’s funds are relatively new.
Conservative Funds
| 1 year (p.a.) | 3 years (p.a) | 5 years (p.a) | 10 years (p.a) | |
| ANZ | 5.22% | 5.50% | 4.58% | 5.66% |
| ASB | 2.05% | 3.89% | 3.88% | 4.87% |
| BNZ | 2.80% | 4.76% | n/a | n/a |
| Kiwibank | 0.77% | 4.62% | n/a | n/a |
| Westpac* | 3.19% | 4.14% | 3.79% | 4.75% |
| Milford | 5.39% | 5.76% | 5.82% | n/a |
| Simplicity | 2.40% | 5.69% | n/a | n/a |
| MKNZ benchmark | 1.25% | 5.39% | 5.02% | 6.60% |
Apart from ANZ the banks have been disappointing in the Conservative category, underperforming Milford, Simplicity, and the Money King NZ market benchmark over the last 3 years. ASB and Westpac get the wooden spoons with the worst returns over the same period.
Balanced Funds
| 1 year (p.a.) | 3 years (p.a) | 5 years (p.a) | 10 years (p.a) | |
| ANZ | 13.47% | 8.49% | 7.89% | 8.92% |
| ASB | 10.75% | 7.55% | 7.86% | 8.79% |
| BNZ | 10.84% | 8.34% | n/a | n/a |
| Kiwibank | 13.82% | 9.36% | n/a | n/a |
| Westpac* | 11.36% | 7.61% | 7.39% | 7.89% |
| Milford | 16.73% | 10.30% | 10.12% | n/a |
| Simplicity | 10.86% | 9.51% | n/a | n/a |
| MKNZ benchmark | 11.06% | 9.02% | 9.94% | 10.38% |
Apart from Kiwibank, the banks have again underperformed in the Balanced category over the last 3 years. ASB and Westpac get the wooden spoons again, falling almost a whole percent behind the other banks.
Growth Funds
| 1 year | 3 years (p.a) | 5 years (p.a) | 10 years (p.a) | |
| ANZ | 22.39% | 11.14% | 11.13% | 12.05% |
| ASB | 15.83% | 8.97% | 9.70% | 10.55% |
| BNZ | 15.24% | 10.45% | n/a | n/a |
| Kiwibank | 24.53% | 12.68% | n/a | n/a |
| Westpac* | 15.47% | 8.92% | 8.81% | 9.27% |
| Milford | 22.42% | 12.51% | 12.34% | n/a |
| Simplicity | 16.27% | 11.81% | n/a | n/a |
| MKNZ benchmark | 15.64% | 10.82% | 12.32% | 12.29% |
A bit of a mixed bag here in the Growth category, with Kiwibank doing better than Milford over 3 years, followed by Simplicity and ANZ. But ASB and Westpac get their third wooden spoons, being the only banks with single digit returns over the last 3 years – what’s going on with their performance?
5. Other considerations
Here are some other factors you might want to consider when deciding whether or not to invest with your bank:
Banking integration
Chances are you’re already a customer of one of these major banks, and if so, there’s no need to open up an account with a new provider, and go through ID checks to get started. You can even have your fund investments seamlessly integrated alongside your other bank accounts through your mobile/online banking login, so you can easily see your investment balance and make contributions and withdrawals.
This close integration might not be a good thing though. Sometimes it’s better to have your investments less visible and less accessible. Having your balance so visible could cause panic and increase the temptation to sell off your fund if your investment drops due to market volatility. And having your investment so accessible could increase the temptation to withdraw the money for spending.
Regular contributions and withdrawals
All banks make it easy to contribute to their funds automatically on a regular basis (e.g. weekly, fortnightly, monthly). You could invest a little bit into these funds each payday without even having to think about it.
The banks also allow regular withdrawals from their funds. This could be useful when it’s time to exit the investment, and you’re wanting to use the money to supplement your retirement income, or if you’re wanting to average out of the investment instead of withdrawing the entire investment at once (in case you’re worried the markets will continue to rise following your withdrawal).
Financial advice
ANZ and Westpac give you the chance to speak to one of their financial advisers. They’ll only be able to provide general advice on their own bank’s funds, so don’t expect them to be able to compare investment options between different providers for you. But they could still be helpful in answering your questions on their funds or recommending which type of fund could suit you.
Tax
All funds are structured as PIEs, so are taxed at your Prescribed Investor Rate at a maximum rate of 28%.
Aggressive funds
None of the banks offer aggressive funds that invest mostly in shares. Aggressive funds could suit people who are willing to take on more volatility for potentially higher returns. You would need to use a fund manager like Milford or SuperLife to access these funds.
Ethical investing
Apart from ASB’s Positive Impact Fund, none of the banks market their funds as ethical or sustainable. However, they all have policies on what type of companies they exclude from their funds:
- ANZ – Excludes controversial weapons, civilian semi-automatic weapons, tobacco, coal mining, adult entertainment, and whaling.
- ASB – Excludes controversial weapons, tobacco, civilian firearms, and fossil fuels.
- BNZ – Excludes oil and gas, coal, tobacco, gambling, adult entertainment, whaling, and weapons.
- Kiwibank – Excludes controversial weapons, recreational cannabis, palm oil, tobacco, civilian semi-automatic weapons, gambling, nuclear power, and companies with ESG issues (companies abusing the environment or human rights, or engaged in illegal activities).
- Westpac – Excludes weapons, tobacco, fossil fuels, whaling, and companies involved in predatory lending practices.
These exclusions might not be enough for these funds to align with your personal ethics (like this chap who got upset after discovering his ANZ KiwiSaver fund invested in Nestle), so you may wish to dig deeper into a fund’s investments to ensure there’s no nasty surprises.
Further Reading:
– Beyond the top 10 – How to see everything your fund is invested in
– Clean and Green? 5 things to know about Ethical investing
Conclusion
Funds offered by our big banks provide a way to invest through a recognised brand which you probably already have a relationship with. They offer the convenience of not having to look elsewhere to put your money to work, and they’re even easier to set up than platforms like Sharesies or InvestNow. This brand recognition and convenience is important, as for some people it could be the difference between investing and not starting at all.
Overall I like bank managed funds. Their returns are reasonable (except for maybe ASB and Westpac funds), and the fees aren’t a rip-off, especially BNZ who are one of the market leaders when it comes to low fees. Using these funds are better than not investing at all, and leaving your money in a savings account or term deposit which inflation will just erode away over the long-term.
But putting in a little bit more work to research and sign up with another fund manager could yield better results. Milford’s funds have a solid track record with similar fees to ANZ, ASB, Kiwibank, and Westpac. And Simplicity is a great low fee provider, as long as you have a few thousand dollars invested with them to offset their $20 annual fee.
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Disclaimer
The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.
