Simplicity Growth, Foundation Series Growth, BNZ Growth, Kernel High Growth, and InvestNow are all low cost Growth and Aggressive KiwiSaver fund options. Investing mostly into shares and providing relatively high growth potential, these funds are best suited to those a long way off withdrawing their funds for retirement or their first home. So which one is the best? In this article we’ll take a detailed look at each fund including their fees, what they invest in, and ethical considerations to help you make a decision on which one to invest in.
1. What’s on offer?
A large proportion of money invested in KiwiSaver is locked up for multiple decades, either for retirement at age 65, or perhaps if you have a long way to go before buying your first home.
Therefore Growth funds serve an important role in the KiwiSaver space, investing mostly in growth assets (shares) with a small allocation to income assets (bonds and cash). They provide good potential for capital gains, making them well suited to the above-mentioned long-term investors, who have time to ride out any market downturns that’ll hit the funds.
However, while the income assets contained in a Growth fund reduce their volatility, they can be a drag on the funds’ returns over the long-term. That’s where Aggressive funds come in, which invest almost entirely into shares. This results in the potential for higher returns, but comes at the expense of having higher volatility than a Growth fund.
There’s a number of low cost Growth and Aggressive KiwiSaver funds (all with fees under 0.50%) which we’ll be covering in this article. So let’s take a look at the options below:
All funds covered in this article are also available as non-KiwiSaver funds.
Ask an online investment community for KiwiSaver provider recommendations, and usually the most common response you’ll get is Simplicity. The popular not-for-profit KiwiSaver provider offers the Simplicity Growth Fund, which invests in a diversified mix of:
- NZ shares
- Australian shares
- International shares
- NZ bonds
- International bonds
We’ll cover these investments in more detail later on. Most assets in Simplicity’s fund are passively managed (investing into index funds).
InvestNow Foundation Series Growth
InvestNow’s Foundation Series Growth Fund is one of the flagship funds available as part of InvestNow’s KiwiSaver scheme. The fund provides close competition to Simplicity’s offering, investing in a similar set of assets:
- NZ shares
- International shares
- NZ bonds
- International bonds
The shares portion of the fund is passively managed, while the bonds are actively managed.
The BNZ Growth Fund is the only bank managed KiwiSaver fund in this article. The types of investments in BNZ’s fund is no different from the above:
- NZ shares
- International shares
- NZ bonds
- International bonds
BNZ uses a mix of passive and active management in their fund.
Kernel High Growth
Kernel offers the High Growth Fund, which is essentially a bundle of 5 of their index funds representing a range of NZ and international shares:
- NZ 20 Fund (23.5%)
- NZ Mid & Small Cap Opportunities Fund (5.9%)
- Global 100 Fund (58.6%)
- Global Infrastructure Fund (5%)
- Global Green Property Fund (5%)
- Cash (2%)
Kernel’s KiwiSaver scheme also allows you to invest in a custom mix of any of Kernel’s 14 index funds, though this article will focus on their pre-built High Growth option.
– Kernel review – High quality index funds
InvestNow DIY portfolio
Those familiar with InvestNow’s KiwiSaver scheme will know that they allow you to build your own KiwiSaver portfolio out of an impressive selection of 36 funds. This includes a small selection of low cost index funds, which can be put together to replicate an Aggressive fund. Such a portfolio might look like the following, which we’ll call the InvestNow DIY portfolio throughout this article:
- Macquarie NZ Shares Index Fund (30%)
- Macquarie All Country Global Shares Index Fund (70%)
Given the flexibility of InvestNow’s KiwiSaver scheme, you could adjust what proportion of your portfolio invested in NZ shares vs international shares. Or you could add Macquarie’s bond index fund to dial down the risk (replicating a Growth fund). Or you could mix the above with an actively managed fund with the likes of Milford or Fisher Funds. However, this article will focus on the above 2-fund Aggressive mix which is invested 30% into NZ shares and 70% into global shares.
– Build your own KiwiSaver – InvestNow vs SuperLife vs Craigs
All funds charge a management fee which is an ongoing fee charged as a percentage of the amount you have invested in a fund, and reflected as a tiny deduction in your fund’s unit price. These are:
|Simplicity Growth||0.31% p.a.|
|Foundation Series Growth||0.37% p.a.|
|BNZ Growth||0.45% p.a.|
|Kernel High Growth||0.25% p.a.|
|InvestNow DIY portfolio||0.40% p.a.*|
*represents the weighted average fee of the two Macquarie funds in our DIY portfolio which are:
– Macquarie NZ Shares Index Fund: 0.36% fee
– Macquarie All Country Global Shares Index Fund: 0.42% fee
Spreads apply whenever you buy or sell units in some funds. This is a small fee to cover the transaction costs of the fund, and work by applying a premium or discount to the fund’s unit price. For example, if a fund’s buy spread is 0.10% you’ll buy units in the fund at a 0.10% premium to the current unit price, and if a fund’s sell spread is 0.10% you’ll sell units in the fund at a 0.10% discount to the current unit price.
|Fund||Buy spread||Sell spread|
|Foundation Series Growth||0.10%||0.11%|
|Kernel High Growth||n/a||n/a|
|InvestNow DIY portfolio*||0.13%||0.13%|
*represents the weighted average spread of the two Macquarie funds in our DIY portfolio which are:
– Macquarie NZ Shares Index Fund: 0.27%
– Macquarie All Country Global Shares Index Fund: 0.07%
None of these KiwiSaver funds charge additional account or membership fees. The exception is if you invest in Kernel’s funds outside of KiwiSaver, a $5 per month membership fee will apply for those investing $25,000 or more.
3. Fund composition
In this section of the article we’ll take a closer look at what each fund invests in:
In general Growth and Aggressive funds are constructed as follows:
- Growth funds – Have about 80% invested in NZ and international shares, and about 20% invested in NZ and international bonds and cash.
- Aggressive funds – Are almost entirely invested into NZ and international shares.
Here’s the specific target asset allocations for each of our funds:
So which option is better? As mentioned above, Aggressive funds have the potential to deliver higher returns over Growth funds, but come with higher volatility. So you may want to consider your risk tolerance (e.g. your ability to stay calm during periods of market volatility) in deciding whether you go for a Growth or Aggressive fund.
Either way both types of fund are best for long-term investors, and won’t suit those intending to withdraw from their KiwiSaver in just a few years time. Many fund managers would recommend a minimum investment timeframe of 5-7 years to be in a Growth fund and 7-10 years for an Aggressive fund. Shorter-term investors may want to consider a Cash/Conservative/Balanced fund.
Notable differences in underlying investments
Local share investments
All funds have a home bias, each investing ~24-30% of the fund into local sharemarkets. All funds’ NZ share exposure is roughly the same, with the likes of Fisher & Paykel Healthcare, Auckland Airport, Spark, and Mainfreight being some of the largest holdings in each fund. However, Kernel has a slightly broader exposure to NZ shares, as their Small & Mid Cap Opportunities Fund contains several companies outside of the NZX 50.
Another notable difference is that Simplicity’s 24% exposure to Australasian shares is split between NZ (18%) and Australia (6%). That’s somewhat unusual considering none of our other funds have a dedicated allocation to Australian shares, and that Aussie shares don’t have quite the same tax benefits as investing in NZ shares.
– What’s the best NZ shares index fund in 2022?
International share investments
All funds have significant exposure to international shares. A similarity between these funds is that big companies like Apple, Microsoft, and Amazon are some of the largest holdings in each fund, with hundreds of smaller international companies beyond that. The exception is Kernel’s High Growth Fund, whose core international share exposure comes from their Global 100 Fund which invests in only 100 companies. While we think this still provides sufficient diversification, it’s a lot less so compared to our other funds which tend to have 1,000+ international companies.
Another difference is that only the BNZ Growth Fund, InvestNow DIY portfolio invest into emerging markets (e.g. China, Taiwan, India, Brazil). All other funds stick to developed markets (e.g. US, UK, Canada, Japan) and have no meaningful exposure to emerging markets. That’s neither a good or bad thing – Emerging markets tend to offer higher growth potential, and they add a little bit of extra diversification to each fund. However, they tend to be more volatile and less stable.
– What’s the best global shares index fund in 2022?
Infrastructure & Property
Kernel dedicates 10% of their High Growth fund to infrastructure and property related investments:
- Global Infrastructure Fund (5%) – Invests in ~100 companies that derive at least 70% of their revenues from infrastructure type businesses such as transportation, water, or communications.
- Global Green Property Fund (5%) – Invests in ~240 real estate companies from around the world.
These assets are designed to deliver income generation, be inflation hedging and somewhat defensive, providing some balance against the Global 100 Fund which invests heavily into more volatile growth companies. None of our other funds have a dedicated allocation to infrastructure and property.
Simplicity’s Growth fund has up to 7.5% invested into alternative assets. These are:
- Up to 2% of the fund is invested into Mortgage lending (categorised as NZ bonds in our above asset mix table) – Involves lending out money as home loans to people buying their first home.
- Up to 2.5% is invested into Private equity (categorised as NZ shares) – Involves investing in unlisted NZ companies, either directly or via Icehouse Ventures‘ private equity funds.
- Up to 3% is invested into Build-to-Rent (BTR) housing (categorised as “Other” in our above asset mix table) – Involves the development of residential housing, and subsequently renting out the completed properties.
We’ve seen mixed feelings towards these alternative investments. On one hand many feel that these initiatives do good to society, through providing affordable housing and low-cost mortgages:
That’s a pretty neat idea from the Simplicity team to leverage the funds that are sitting in KiwiSaver to help solve the housing crisis.Reddit commenter
On the other hand these investments can be considered a bit of a gimmick, and detract from the ethos of low-cost, passive investing which Simplicity is best known for:
This is another reason why I’m personally moving away from the Simplicity Growth Fund. I don’t want any more exposure to this crazy NZ property market and I’m after a passive fund – not one that is dabbling in mortgages and direct ownership in property.Reddit commenter
No fund is explicitly marketed as “ethical” or “sustainable” (except for Simplicity to some extent), but a few funds exclude companies involved in selected industries for ethical reasons:
- Simplicity Growth – Excludes fossil fuels, alcohol, tobacco, gambling, civilian firearms, adult entertainment, military weapons, nuclear weapons, and companies breaching the principles of the UN Global Compact.
- Foundation Series Growth – No ethical exclusions.
- BNZ Growth – Excludes cluster munitions, landmines, nuclear weapons, tobacco, assault weapons, whaling, gambling, adult entertainment, oil & gas, and coal.
- Kernel High Growth – No ethical exclusions, apart from the Global 100 portion of the fund which excludes controversial weapons. But given the low number of constituents in Kernel’s funds, there’s fewer “unethical” companies in their funds to start with.
- InvestNow DIY – The Macquarie All Country Global Shares Index Fund excludes tobacco.
In addition, Kernel’s Global Green Property Fund which makes up 5% of the High Growth Fund has a sustainability aspect to it, giving a higher weighting to companies considered to be more sustainable and a lower weighting to those seen as less sustainable.
4. Other considerations
There’s no differences in the way these funds are taxed. Each fund is a Multi-Rate PIE (MRP), so are taxed at your Prescribed Investor Rate (PIR), which should either be 10.5%, 17.5%, or 28%.
Not all funds are created equal in terms of tax efficiency. Some funds have a tax leakage issue which mainly comes about due to investing in international shares through Australian Unit Trusts (as opposed to holding them directly or through a more tax efficient method). This results in the fund having an overall higher tax bill, which ultimately gets passed on to investors. The funds facing tax inefficiencies are:
- Simplicity Growth – Invests in international shares via Australian Unit Trusts (AUTs) managed by Vanguard. Results in an estimated tax leakage of 0.16% p.a. (2% dividends x 15% tax credits lost x 53% invested in an AUT = 0.16%).
- InvestNow DIY portfolio – The Macquarie All Country Global Shares Index Fund holds most shares directly, except for its emerging markets shares (~10% of the portfolio) which are held through an Australian Unit Trust. Results in an estimated tax leakage of 0.02% p.a. (2% dividends x 15% tax credits lost x 10% invested in an AUT x 70% weighting in our DIY portfolio = 0.02%)
None of our other funds have such a tax leakage issue. We discuss the topic of tax leakage further in section 4 of the below article:
– InvestNow Foundation Series vs Simplicity funds – Tax leakage an issue?
All of our funds invest internationally, which adds another layer of volatility to each fund due to fluctuations in exchange rates. For example, even if the price of your international shares stay the same, the value of your investment would still rise and fall as the NZ Dollar goes up and down. All funds use currency hedging to some degree to greatly reduce these fluctuations:
- Simplicity Growth – Australian and International shares are 65% hedged. International bonds are 100% hedged.
- InvestNow Foundation Series – International shares are unhedged. International bonds are 100% hedged.
- BNZ Growth – International shares are 60% hedged. International bonds are 100% hedged.
- Kernel High Growth – Unhedged, except for the Global Green Property Fund which is 100% hedged.
- InvestNow DIY portfolio – The Macquarie All Country Global Shares Index Fund is 69% hedged.
Here we see that hedging is standard on bonds, given their aim is to provide a low volatility anchor for a fund. But the merits of hedging on shares are debatable, given their long-term investment timeframe in which exchange rate volatility should even out.
A couple of funds come with extra features:
- Donations – Simplicity donates 15% of their fees to charity.
- Home loans – Simplicity offers home loans to their first home buyer members at a relatively low floating rate, though they come with rigid eligibility criteria and several other limitations versus a bank home loan. For example, it requires a 20% deposit, your repayments have to be equal to or less than 30% of your after-tax income, you need a registered valuation, and you can’t use a guarantor. In addition there’s no revolving credit option, ability to refinance your mortgage, or ability to buy a second home.
- Flybuys – If you’re a member of Flybuys and the BNZ KiwiSaver scheme, you can convert your Flybuys points to KiwiSaver contributions at a rate of 108 points for a $20 contribution.
Lastly, here’s a summary of how our funds have performed over recent years. Note that past performance isn’t indicative of future results.
|Foundation Series Growth||-9.15%||-7.92%||n/a|
|Kernel High Growth^||-6.66%||-1.79%||12.36%|
|InvestNow DIY portfolio||-11.21%||-11.21%||n/a|
^Kernel’s High Growth Fund is very new and has limited performance data. The figures shown here are the returns of the underlying indexes the fund tracks. The fund’s actual performance would be slightly lower than this due to management fees and index tracking differences.
Aren’t higher fee funds better if they’ve performed better?
With this article’s focus being solely on the lowest fee KiwiSaver funds, some may argue that it’s better to go for the best performing funds, even if they have higher fees. But the problem with selecting funds based on performance, is that returns are backwards looking – a high return doesn’t mean you’ll continue getting that return year after year. Last year’s winners could easily be next year’s losers.
That’s why we consider looking at fees to be much more important. While performance varies, fees are the one constant that will eat away at your returns. But of course low cost KiwiSaver funds won’t suit everyone. There’ll still be plenty of people out there who opt for higher fee funds, perhaps because they better align with one’s needs, ethical views, or preferences – and that’s perfectly fine! If that’s the case, our below article may be a good starting point for your research.
– The ultimate guide to KiwiSaver funds and schemes
We think all funds covered in this article are fantastic options for long-term KiwiSaver investors. Here’s our overall thoughts about each the Growth funds:
- Simplicity Growth – An incredibly popular fund, with competitive fees and ethical exclusions. However, the fund is poorly constructed resulting in a tax leakage issue which makes them more expensive than what their low fees suggest. They also diverge from a fully passive management strategy with their alternative investments, which can be divisive.
- Foundation Series Growth – A strong competitor to Simplicity’s fund, which should work out cheaper once you factor in tax leakage. However, the lack of ethical exclusions may make this fund less attractive for some.
- BNZ Growth – Lowest cost KiwiSaver of the big banks. But offers nothing substantially unique over Simplicity and InvestNow, and relatively expensive especially once you include the spreads.
And our thoughts on the Aggressive funds, which may suit those willing to take on the higher volatility:
- Kernel High Growth – Packages up a few of Kernel’s funds to create an aggressive KiwiSaver option. The fund is tax efficient, and the management fee of just 0.25% is an amazing deal (and the cheapest of the lot). You could argue that their international shares exposure is less diversified, but the fund is balanced out with investments into infrastructure and property.
- InvestNow DIY portfolio – Our DIY portfolio invests in a combination of classic global and NZ share index funds. However, the fees are more expensive compared to Kernel, and having to construct your own portfolio may feel a bit more clunky than the all-in-one funds offered by other providers.
As usual, what’s best for you will come down to your personal preferences – things like risk tolerance and the importance you place on ethical investing will all play a part in your decision in which fund to invest in.
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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.