Sharesies KiwiSaver review – Switch or approach with caution?

Sharesies is one of the most popular investment platforms in New Zealand, and in late 2022 they announced their KiwiSaver offering, claiming that they’ll be “reimagining the way New Zealanders experience KiwiSaver”. As a result they generated a lot of buzz with tens of thousands of people registering interest in the scheme. Now on 29 November 2023 the wait is finally over, with their scheme officially open to the public! So let’s take a look at whether Sharesies KiwiSaver lives up to the hype and whether they might be worth switching over to.

This article covers:
1. What’s on offer
2. Fees & Other considerations
3. Sharesies KiwiSaver vs competing options

1. What’s on offer

There are two key components to Sharesies’ KiwiSaver scheme:

• Base funds
• Self-select shares and ETFs

Base funds

Sharesies offers five “base funds” as part of their KiwiSaver scheme. Sharesies aren’t a fund manager themselves, but rather they’re offering funds that are managed by Smartshares/SuperLife, Pathfinder, and Pie Funds. The funds are:

• Smartshares/SuperLife Growth Fund
• Smartshares/SuperLife Balanced Fund
• Smartshares/SuperLife Conservative Fund
• Pathfinder Ethical Growth Fund
• Pie Global Growth 2 Fund

Out of the five funds, three (SuperLife Growth, Pathfinder Ethical Growth, and Pie Global Growth 2) are Growth type funds, investing ~75%-85% into shares and ~15-25% in bonds and cash. The SuperLife fund is passively managed, while Pathfinder and Pie Funds are actively managed.

The SuperLife Balanced Fund is a Balanced type fund investing ~60% into shares and ~40% into bonds and cash, while the SuperLife Conservative Fund is a Conservative type fund investing ~30% into shares and ~70% into bonds and cash. Both funds are passively managed.

Who are these funds suitable for?

Sharesies’ current selection of funds is pretty limited with only Growth, Balanced, and Conservative options, following a three-sizes-fits-all model. This leave a couple of big gaps in their range:

• No Cash fund – The least risky type of fund available is a Conservative fund which can still experience downturns in its value, thanks to its exposure to shares and bonds. There’s no cash fund for those who can’t afford to see the value of their fund go down, for example, those intending to withdraw their money in the very short-term (e.g. in 1-2 years) to buy a house.
• No genuine Aggressive fund – The riskiest type of fund available is the Pie Global Growth 2 fund which currently contains a ~15% allocation to bonds and cash. While these income assets help to reduce the volatility of this fund, they can act as a drag on long-term returns. For long-term investors who are willing to take on more risk for higher potential returns, there’s no genuine Aggressive fund available (which invests almost entirely into shares).

The good news is that Sharesies has plans to expand their range of base funds, including cash and agressive options to fill the above gaps. The ability to invest in more than one base fund will also be added in the future.

Self-select shares and ETFs

Whilst Sharesies KiwiSaver’s base funds aren’t particularly exciting, their self-select investment options are what sets this KiwiSaver scheme apart from the others. This feature allows you to pick your own individual shares and ETFs to invest your KiwiSaver money in, with the ability to change your selected investments at anytime. Initially you’ll be able to pick assets from the NZ market, with the ASX and US markets being added later.

Examples of self-select options
At launch Sharesies has the following self-select options:
– 57 NZX listed companies such as Air New Zealand, Contact Energy, and Fisher & Paykel Healthcare.
– 36 Smartshares ETFs such as the S&P/NZX 50 ETF, US 500 ETF, and Total World ETF.

A full list of self-select options is available on Sharesies’ website in the Investment options supplement (IOS) document.

Safety features

Self-select enables investors to build a highly customisable KiwiSaver portfolio, but such control might raise some concerns. If you’re worried that self-select could see people blow all their KiwiSaver money on meme stocks, this definitely won’t be the case. Sharesies KiwiSaver has a few clever safety features built into the scheme to mitigate the risks:

A. Guardrails

Firstly, Sharesies KiwiSaver has some rules (called “guardrails“) which are designed to protect investors:

• You can have maximum of 50% of your portfolio invested in self-selected assets. The remainder of your portfolio must be invested in a base fund.
• You can allocate a maximum of 5% of your KiwiSaver into an individual security.

There are good and bad aspects to these guardrails. The good part is that at least half of your portfolio is anchored by a base fund managed by SuperLife/Pathfinder/Pie Funds, so even if you completely stuff up your self-select picks, the damage is limited to 50%. Plus the 5% limit on an individual security provides extra security, ensuring that a single stock or ETF pick doesn’t have a large detrimental impact on your portfolio’s performance.

In terms of the bad aspects, we think the 5% cap on each security doesn’t make as much sense for ETFs. Given the diversified nature of most ETFs (as they could potentially be investing in hundreds/thousands of underlying assets), a larger cap (say 10%) could be more appropriate. We also think there’s a risk the guardrails could provide a false sense of security that your retirement savings or house deposit is invested responsibly, despite making poor self-select choices.

B. Available investment options

Secondly, while the main Sharesies platform offers thousands of shares and ETFs from NZ, Australia, and US markets, their KiwiSaver scheme will be much more limited. The scheme will initially offer up to 600 securities made up of the following:

• All 50 constituents of the NZX 50 index
• The top 50 constituents of the ASX 200 index
• The top 300 constituents of the S&P 500 index
• 50 of the most popular stocks on the Sharesies platform, that are not found in the above
• 150 of the most popular ETFs on the Sharesies platform

Sharesies then filters out some of these assets if they’re too small, too volatile, or considered to be a meme stock. As a result Sharesies’ self-select options should be largely made up of blue-chip to mid-size companies rather than speculative ones.

C. Investor experience

Lastly, investor education will be incorporated into the offering and include warnings about trading based on emotion and encouragement to seek financial advice. Sharesies will also calculate your portfolio’s risk level for you, to help you determine how well your portfolio is aligned with your goals and risk tolerance.

Examples of Sharesies KiwiSaver portfolios

• Mandy invests 100% of her KiwiSaver into a base fund. She chooses not to invest in any self-select options.
• Jenna invests 85% of her KiwiSaver into a base fund, and 15% into self select options. This 15% is spread across 5 stocks.

• Paul invests 50% of his KiwiSaver into a base fund, and 50% into self-select options. This 50% is spread across 10 stocks, with each having the maximum allocation of 5%.
• Laura invests 50% of her KiwiSaver into a base fund, and 50% into self select options. This 50% is spread across 50 stocks, with each having an allocation of 1%.

Sharesies has a handy investment plan builder which you can play around with to see how your own Sharesies KiwiSaver portfolio could look like, its estimated fees, and risk rating.

Is self-select worth it?

Sharesies’s self-select feature provides a new way for investors to engage with their KiwiSaver investments. It’s really good to have such choice, and we see a few cases where self-select may be useful:

• You really like a specific company or ETF (e.g. for ethical reasons or because you think it’ll deliver superior returns), so want to get more exposure to that asset in your KiwiSaver.
• You want to take a core-satellite approach with your KiwiSaver by investing mostly in a core base fund, while investing a little bit of your money in slightly riskier or more interesting assets like individual shares.
• Or you simply want a little more control over where your KiwiSaver money is invested.

But this feature of Sharesies KiwiSaver comes with a few limitations:

• Picking the right KiwiSaver fund is already hard enough for many New Zealanders. Adding hundreds of potential investment options to the mix isn’t going to make building a well diversified KiwiSaver portfolio that aligns to your goals any easier.
• Picking stocks is hard, and even most professional fund managers underperform the market. And even if you did manage to pick a really good company, the positive impact on your KiwiSaver is limited given that company is capped to 5% of your portfolio. In other words, there’s a low likelihood that self-select is going to make you more money than a normal KiwiSaver fund.
• You’ll have to sacrifice the ability to invest in a cash or aggressive fund, as Sharesies currently doesn’t have these fund types in their base fund offering.
• Your portfolio might become NZ heavy, given ASX and US self select options aren’t available yet.

Some of these issues will be short lived. ASX and US investments will be added soon, more base funds will come, and they can always educate people to level up their ability to construct a good portfolio. But we’d still question whether it’s really necessary to self-select your KiwiSaver in the first place. It’s great that Sharesies is encouraging people to engage more with their KiwiSaver, but too much engagement often leads to too much tinkering with one’s portfolio and detrimental results. In addition, You can already self-select shares and ETFs outside of KiwiSaver (either through Sharesies or another platform) without the limitations and guardrails that Sharesies has imposed on the KiwiSaver scheme – So arguably self-selecting stocks is best left for your non-KiwiSaver investments.

2. Fees & Other considerations

Fees

Base funds

All of Sharesies’ base funds incur a management fee. This fee is charged by the underlying fund manager rather than Sharesies themselves, and is reflected in a tiny deduction in your fund’s unit price every day. The annual management fees are:

• Smartshares/SuperLife Growth Fund – 0.51%
• Smartshares/SuperLife Balanced Fund – 0.50%
• Smartshares/SuperLife Conservative Fund – 0.47%
• Pathfinder Ethical Growth Fund – 1.47%
• Pie Global Growth 2 Fund – 1.47%

Self-select

A different set of fees will apply for self-select options:

• Transaction fee – A 1% fee applies whenever you buy or sell self-select assets. This fee reduces to 0.1% for amounts over $1,000.
• Foreign exchange fee – To buy or sell ASX or US self-select options (which aren’t available yet), you’ll need to exchange your NZ dollars to/from Australian or US dollars. The fee for this hasn’t been confirmed at this stage.
• Administration fee – This is an ongoing fee of 0.15% p.a.
• ETF management fee – ETFs have their own management fees which you’ll incur on top of the above administration fee. For example, the Smartshares S&P/NZX 50 ETF has a management fee of 0.20% p.a (which totals 0.35% p.a. when combined with Sharesies’ admin fee). ETF management fees aren’t charged by Sharesies, but rather by the ETF issuer.

There’s a small catch to their transaction fee, as investors will rarely reach the $1,000 threshold where the fee reduces to 0.1%. That’s because of the guardrails limiting each self-select pick to 5% of your portfolio. So if you contributed $500 to Sharesies KiwiSaver each payday, the maximum you’d be putting into a single self-select asset is $25 – well below the $1,000 threshold. You would need to contribute at least $20,000 at a time to reach the threshold for the discounted transaction fee, which would realistically only happen when you’re transferring your entire KiwiSaver into or out of the scheme.

Fee example
Joe invests 75% of his Sharesies KiwiSaver in a base fund and 25% into self-select options. When he makes a contribution into the scheme, he’ll pay the following one-off transaction fees:
– 75% of his contributions will incur no transaction fee
– 25% of his contributions will incur a 1% transaction fee, plus potentially FX fees on any ASX or US investments
He will also be charged the following ongoing fees:
– 75% of his portfolio will incur a management fee of between 0.47% p.a. and 1.47% p.a. depending on his selected base fund
– 25% of his portfolio will incur a fee of 0.15% p.a., plus any management fees he may incur on his ETF investments

Further Reading:
– A beginner’s guide to investment fees – Management fees, transaction fees, and more

Rebalancing

Over time it’s possible that some of your self-select investments could drift above the 5% cap due to market movements. Sharesies KiwiSaver doesn’t automatically rebalance or sell off assets that have exceeded the cap, but may address overweight allocations through education or suspending contributions to the self-select option. The action Sharesies takes on such assets depends on the following rules:

• If a self-select asset is <10% of your portfolio: no action required
• If a self-select asset is >10% of your portfolio: provide education and reminders on how to update your investment plan
• If a self-select asset is >10% of your portfolio for 90 consecutive days: temporarily suspend contributions to the asset
• If a self-select asset is >15% of your portfolio: temporarily suspend contributions to the asset

Tax

Sharesies KiwiSaver and its underlying investments are structured as PIEs, so are taxed at your Prescribed Investor Rate (PIR). This is generally either 10.5%, 17.5%, or 28%. Tax is automatically calculated and deducted for you.

Further Reading:
– What taxes do you need to pay on your investments in New Zealand?

Withdrawing your money

The rules for withdrawing money from Sharesies KiwiSaver are no different from any other KiwiSaver scheme. You can only make withdrawals for very specific reasons, primarily for buying your first home or reaching the age of 65. You can however, move to another KiwiSaver scheme without any restrictions.

3. Sharesies KiwiSaver vs competing options

Sharesies KiwiSaver is hard to compare with other KiwiSaver schemes as their product is quite unique. But let’s have a brief overview at some of the competing options.

Investing directly with a fund manager

Sharesies’ base funds are provided by SuperLife, Pathfinder, and Pie Funds, with the former two offering their own KiwiSaver schemes. So let’s look at how investing in SuperLife and Pathfinder funds via Sharesies KiwiSaver compares to investing directly in SuperLife and Pathfinder‘s KiwiSaver schemes:

• Self-Select – The main difference is that Sharesies offers self-select while direct investment with SuperLife or Pathfinder does not. With Sharesies you could complement your fund with self-select options, for example, by using Pathfinder’s Ethical Growth Fund as your core KiwiSaver investment, while adding a couple of individual shares as satellite holdings.
• Ability to invest in multiple fund managers – For example, with Sharesies KiwiSaver you could invest your KiwiSaver money with both Pathfinder with SuperLife. On the other hand if you had your KiwiSaver directly with Pathfinder, you would only be able to invest your money in Pathfinder’s funds.
• Fee differences – There are some minor fee differences between investing in Sharesies KiwiSaver and going direct. In some cases, investing via Sharesies is slightly cheaper, especially as it allows you to avoid the annual membership fees charged by SuperLife and Pathfinder:

	Sharesies KS fee	Direct KS fee
SuperLife Growth	0.51%	0.61%
SuperLife Balanced	0.50%	0.60%
SuperLife Conservative	0.47%	0.57%
SuperLife annual fee	n/a	$30
Pathfinder Ethical Growth	1.47%	1.29%
Pathfinder annual fee	n/a	$27

• Fund options – You’ll lose a lot of fund options by going with Sharesies KiwiSaver as a lot of SuperLife’s and Pathfinder’s funds aren’t available as a Sharesies base fund. However, this is offset by Sharesies’ vast number of self-select options.

Further Reading:
– Smartshares & SuperLife review – The smart way to invest in shares?

Craigs KiwiSaver

Craigs KiwiSaver is another scheme that provides the ability to self-select funds, shares, and ETFs. But beyond that fact, you’ll find that Craigs’ scheme is quite different from Sharesies’. Craigs KiwiSaver is a premium product that comes with personalised investment advice from an adviser, as well as access to Craigs’ research publications. There are almost 300 investment options to choose from, and the scheme is a true self-select one as there’s no need to invest in a base fund or limit your exposure to a single asset to 5%. A Craigs adviser once told us that you could theoretically invest 100% in one company, though they’d likely try to talk you out of doing so. Your adviser essentially acts as the guardrails here.

However, the fact that Craigs KiwiSaver is a premium offering is reflected in their higher fees. They charge an ongoing management fee of up to 1.25% p.a., plus transaction fees of up to 1.25%. In addition, a tax quirk of the scheme means you’re taxed at a flat rate of 28% – That might not work out well for those with a 10.5% or 17.5% PIR.

KiwiWRAP

Similar to Craigs, KiwiWRAP is a true self-select offering (with no guardrails) that’s targeted towards high net worth investors. The self-select options are fairly comprehensive with 400+ shares and ETFs, however, the scheme is not very accessible to everyday investors. You can only join the scheme if you’re a client of certain financial advisers and if you have a minimum of $50,000 to invest.

InvestNow

InvestNow’s KiwiSaver scheme allows you to choose from 40 funds from 15 different fund managers. The includes the low-cost Foundation Series funds:

• Foundation Series Growth and Balanced funds (0.37% fee)
• Foundation Series Total World Fund (0.07% management fee + 0.50% transaction fee)
• Foundation Series US 500 Fund (0.03% management fee + 0.50% transaction fee)

As well as a bunch of actively managed funds from managers such as Milford, Fisher Funds, and Pathfinder.

While you can’t pick individual shares or ETF, InvestNow’s scheme is still highly customisable with the extensive range of funds on offer. You can mix funds and strategies to build your KiwiSaver portfolio, for example by combining a passively managed Foundation Series funds, with an actively managed Milford fund.

Further Reading:
– InvestNow review – The most efficient way to invest?

Kernel

Kernel offers a total of 19 funds in their KiwiSaver scheme, whose fees start from 0.25%. Their main KiwiSaver funds are their High Growth (Aggressive), Balanced, and Cash options (with the Aggressive and Cash options being types of funds that Sharesies currently lacks). You can also customise your KiwiSaver portfolio with any of Kernel’s 16 other index funds including S&P 500, Global 100, Electric Vehicle, and Clean Energy options.

Although Kernel KiwiSaver doesn’t offer funds from multiple different fund managers (nor do they let you self-select shares and ETFs), their scheme is still reasonably flexible due to the variety of funds on offer, and they charge management fees that are significantly lower than Sharesies’ base funds.

Further Reading:
– Kernel review – High quality index funds

Simplicity

Simplicity’s KiwiSaver scheme follows a five-sizes-fits-all model, with High Growth, Growth, Balanced, Conservative, and Defensive fund options. Their funds are mostly passively managed and have management fees of 0.29%, making them a much cheaper alternative to Sharesies KiwiSaver’s three SuperLife funds. But similar to Sharesies, they’re missing a cash option.

Further Reading:
– Simplicity review – Could there be better fund options out there?

What’s the best option?

We believe there’s no definitive best when it comes to picking a KiwiSaver provider. Different providers will suit different people depending on your personal investing needs and preferences. But in the case of Sharesies KiwiSaver, perhaps one of the most important factors in deciding whether to switch to them is whether you want to self-select individual shares and ETFs or not.

Yes, I want self-select – If you do want a self-select KiwiSaver, then you have three providers to choose from – Sharesies, Craigs, or KiwiWRAP. Sharesies is the most accessible and lowest fee option here, giving you the freedom to self-select without needing a lot of money or having to go through an adviser. However, Craigs and KiwiWRAP are more flexible due to not having guardrails, and the personalised financial advice will be beneficial for some.

No, I don’t want self-select – There is nothing wrong with choosing Sharesies if you don’t want to use their self-select function (remember it’s entirely optional), and this would leave you 100% invested in one of Sharesies’ base funds. However, we think there’s a number of more competitive options to consider, such as InvestNow who offers a larger range of funds, or Simplicity and Kernel who have lower fees.

Conclusion

With their KiwiSaver offering, Sharesies is looking to leverage off their success as one of New Zealand’s most popular investment platforms with over 500,000 users. They aim to reimagine the KiwiSaver experience by providing highly flexible self-select options anchored by a range of base funds. So are they worth switching over to? Sharesies are innovating and bringing new/more accessible options to the market, and we think that self-select will certainly appeal to a small group of investors. But in our opinion, the majority of people should approach the Sharesies KiwiSaver scheme with caution for two main reasons.

Firstly, self-select probably isn’t worth it and may hurt you. Not just because you’ll likely underperform the market, but also because the guardrails aren’t foolproof. We’ve seen a lot of investment portfolios, and the number one thing people struggle with is how to construct a properly diversified one that aligns with their financial goals. A portfolio spread across a base fund plus 10 different NZ shares and Smartshares ETFs probably isn’t going to be as diversified as you think. In addition, we question whether a self-select KiwiSaver is really necessary in the first place – If you want to self-select shares and ETFs, you can already do so outside of KiwiSaver without the limitations and the guardrails.

Secondly, if you still really want a self-select KiwiSaver, Sharesies’ rules force you into investing at least 50% of your money into base funds which are arguably inferior to other KiwiSaver schemes. Their current fund line up is three-sizes-fits-all (with only Growth, Balanced, and Conservative options), and there are no aggressive or cash fund options. In addition the fees are significantly higher compared to the likes of Foundation Series, Kernel, and Simplicity, and they don’t have the same variety of fund managers to invest in like InvestNow. By switching to Sharesies KiwiSaver, you could be sacrificing a lot (by having to invest in their base funds) to gain very little.

With KiwiSaver becoming an increasingly large and important part of New Zealanders’ wealth, we think it’s best not to tinker with your retirement savings, and leave the stock picking experiments for outside of KiwiSaver. It’s early days and the product will only get better, but we can’t help but feel worried that the scheme could hurt a lot of people’s nest eggs (despite all the safety features). Are our concerns justified? Leave a comment to let us know what you think.

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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.