A.       It is unfortunate that your bad experience has led to a mistrust of managed funds, as many KiwiSaver investors are giving positive feedback on their investing experience since they opened their accounts. Over the last few years – in response to the Global Financial Crisis - financial markets have become better regulated not only in New Zealand but overseas as well. KiwiSaver was developed under this new regime and there is strong oversight and protection for investors. 

Fund manager fees are required to be ‘reasonable’ and because there are tools of comparison available, those fund managers who charge higher fees are easily identified and investors can decide if the returns justify the higher fees. Returns are quoted after fees have been deducted, so investors can compare performance as well as fees, for example with the Sorted FundFinder tool.

You are effectively paying a ‘fee’ for your term deposits, as the bank pays you the quoted rate, and then on lends your money at a higher rate, with the margin being their fee.

Fund managers strive to make money for their investors, and if their returns are negative it may be through no fault of their own. A commodities fund, for example, may outperform its index over 12 months but still achieve a negative return because of the type of investments it holds over that period. Some fund managers will move to cash if the outlook is negative, but it depends on the strategy of the fund and their mandate. It is not always feasible and managers know that they will be giving away some of the upside when markets recover. 

You can’t avoid fees, but you can look for a KiwiSaver fund with returns that should always be positive – such as a defensive Cash Fund. A Cash Fund will invest in bank deposits and should achieve a positive return, as long as our OCR remains above zero and there is a margin for the fund manager fee. There are around 15 funds of this type to choose from. The fees for this type of fund are usually very low as there are no trading costs incurred and it does not take a lot of strategy or manpower to run such a fund.

With a Cash Fund you will also know with some certainty where your money is invested, or you can find out by reading the quarterly disclosure statement or investment statement. Of course, the bank may on-lend your money to various individuals or companies, and you don’t get any say in what they can do with it. But this will be no different from your current situation with your term deposits.

Is there any advantage in your joining KiwiSaver? Currently the Government is still paying Member Tax Credits of up to $521.43 for contributing members aged 18 to 65 (or have not reached the Age of Entitlement). If you join KiwiSaver and contribute $1042.86 over the year (or $87 per month), you will get an annual top up of $521 in July. The Member Tax Credits have been cut in half since KiwiSaver started in 2007, so you may want to make the most of them while they are still on offer.

As published in the HB Today 17 August 2015