Thursday, 25 August 2016

This is something I wrote for on the state of the socially responsible and ethical funds in KiwiSaver.

By Craig Simpson
I don't for one second condone investing in cluster bomb or weapons of mass destruction makers via KiwiSaver funds, but I do think some people are over-reacting to what the media is calling KiwiSaver's dirty little secret.
Let's be perfectly clear, KiwiSaver managers are not deliberately investing in "unethical" investments. Rather they are gaining exposures via their investments in third party manager's funds, or exchange traded index funds.
When investing into another fund manager's fund or into an index fund you can not generally control what investments are held at any point in time, unless of course you have a separate mandate or are following and ethical index.
For many mainstream investors with no particular bias or religious beliefs, there has to be a general level of acceptance, that when you invest into another pooled investment vehicle or index fund, there may be some holdings that you do not agree with, or for personal reasons, would prefer the manager did not hold.
If investors feel so strongly about following an ethical or socially responsible path, there are options available to them within KiwiSaver.
What the current ethical or socially responsible options are
The options for ethical or socially responsible funds within KiwiSaver are small, although the sector is growing slowly. The KiwiSaver funds available at present include:
Media hype forces reviews
Many of the existing managers who have named and shamed across various publications have announced reviews of their manager selection criteria and investment approaches.
We should also keep in mind that many of the investments in some of the companies such as Honeywell International and Northrop Grumman, for example, are as a result of investments into other fund managers who have exposures to these types of companies.
Although exposure to some of the companies is not ideal, in order to gain global exposure to a wide range of companies that represent the market, there will be some collateral damage. If as an investor you wanted to take a pragmatic approach and looked at the bigger picture, the actual dollar exposure to undesirable companies is actually microscopic. But for some even a few cents or a couple of dollars is too much.
Grosvenor has announced they are switching managers in order to tidy up their portfolios and no doubt to distance themselves from any unwanted attention.
New entrant Simplicity is taking a different approach and is in discussions with Vanguard, who provides their international share exposure, to design a product that is suitable for the NZ market (and presumably beyond), that takes into account the ethical and responsible investment approach adopted by the NZ Super Fund. If enough KiwiSaver managers can join together as a united voice and tackle the issue with managers like Vanguard, change is more likely to occur.
How do I know where my KiwiSaver fund is invested?
Each March, KiwiSaver managers are required to disclose their entire portfolio in an excel file and these will be found on the various websites alongside the quarterly disclosure statements.
You can also ring your current manager and ask them directly what holdings they have. For commercial reasons they may not be willing to provide their most up to date information, but should still be able to put your mind at ease that they are not invested into certain types of investments.
Top 10 holdings are disclosed every quarter too as part of the KiwiSaver managers' regular reporting requirements. Some managers also release monthly commentary and fund updates, and these can also be useful resources.
How green is green?
There are many shades of green when it comes to socially responsible and ethical investing. Even if a fund says it's socially responsible or is included in a socially responsible index, it may still have exposure to some companies that you as an investor may find offensive.
Take for example BP. The oil giant is included in the MSCI EAFE ESG etf which invests in securities outside the US and Canada that have positive environmental, social and governance (ESG) characteristics. That's even though BP's Deepwater Horizon oil leak in the Gulf of Mexico remains fresh in the memory. The clean up costs and subsequent settlements were in the tens of billions of US dollars.
In another example, the ishares MSCI KLD 400 Social Index includes sportswear giant Nike, a company that in the past has been linked to child labour and sweatshop allegations. Alongside Nike is cosmetic company Estee Lauder. The cosmetics industry has long been associated with animal testing in the process of manufacturing their products.
These are just some brief examples of companies that could appear in socially responsible or ethical funds.
A recent article by Mark Lister of Craigs Investment Partners further highlights some of the dilemmas investors face when considering ethical or socially responsible investing. His article is here.
Another piece worth reading is this from Massey University's Claire Matthews here.
A final word
Ethical investing is a personal choice first and foremost.
If you are concerned about how your manager is investing your funds, don't be afraid to ask your KiwiSaver manager what they are doing to minimise their exposure to certain types of investments.
Also check out your current managers Responsible Investment Policy on their website.
If you are not satisfied with your manager's response or their investment strategy/investments they hold, then you should seriously consider switching to a fund where the investment strategy is more palatable and in line with your preferences.

*Craig Simpson is a shareholder in the management company that runs the Amanah Ethical KiwiSaver Fund. The opinions expressed in this article are his own.

Saturday, 27 April 2013

The Retirement Gamble and KiwiSaver fee disclosure

Its been a while between posts and so much has happened between times. The European crisis deepended with the greater focus on the "Club Med" countries of Italy, Greece and Cyprus. The fiscal cliff turned out to be more of a ramp and closer to home we have just had the Greens and Labour collaborate on trying to derail the Mighty River Float.

And yet with all the turmoil and uncertainty here we are with our heads above water and still breathing.

Here is a link to a recent video I was sent which is worthwhile reading along with my latest piece covering the KiwiSaver fees disclosure legislation posted on (my full time gig) 

Sunday, 25 March 2012

Wealthy hedge fund managers ignore Apple shares

Apple shares have risen 47% year to date (1 Jan to 26 March 2012) and yet the best performing hedge fund managers all of which have done over 30% (the best has done over 40%) do not hold the stock. 

Apple shares are one of the most popular holdings among fund managers and hedge fund managers alike and yet the best three performing hedge fund managers, all of whom are billionaires in their own right do not currently hold the stock. Do they know something us mortals do not?
To see where the smart (wealthy) money is invested check out this link

Why passive funds are not low risk

I have a love - hate relationship with index funds.  On the one hand with Scottish heritage I do not like paying fees and will generally object to the excessive and sometimes offensive fees charged by actively managed funds - passive funds provide a low cost alternative to actively managed funds. 

On the other side of the coin, the capitalist in me likes growing my terminal wealth.  Why would I want to maintain a long only (passive) exposure in a specific market at a time when the world is going to hell in a hand bag?  Some active managers are able to go to cash thereby protecting me as best they can against losing money. 

So how risky are passive (index) funds?  To find out open the attached link why passive funds are not low risk

Saturday, 14 January 2012

No surprise behind euro zone credit downgrades

I can not understand what has take the rating agencies so long to down grade France from AAA to AA.  The French have been on a ratings time bomb for some time and have probably the greatest exposure to toxic euro debt.

Comments by Standard and Poors focus on the insufficient initiatives taken by policy makers to address the systemic issues.  S&P also note tightening  credit conditions, increased risk premiums and weakening economic growth as contributing factors.

The oulook forAustria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Spain are all negative indicating a one in three chance of a further ratings down grade in the next 12 to 24 months.

The outlook for Germany and Slovakia are stable S&P stated.

The Fed asleep at the wheel

The New York Times published the following article which clearly shows that in 2006 the Fed Governers had no idea what they were doing and were clearly asleep at the wheel.  Could the whole GFC have been avoided if the US was controlled by sensible and rationale Fed Reserve staff - maybe not as the problem was too systemic.   In recent days Obama has asked for a further rise in the US debt ceiling, a further indication that all is not beer and skittles in the US Government, despite corporate America showing signs of growth and profitability.

The NY Times article can be found using the following link

Thursday, 5 January 2012

What really caused the eurozone crisis?

This article was first posted on the bbc website ( and is an easy to follow summary of the cause of the eurozone crisis of 2011.

World leaders probably spent more time worrying about the eurozone crisis than anything else in 2011.
And that was in the year that featured the Arab Spring, the Japanese tsunami and the death of Osama Bin Laden. What's more, 2012 looks set to be not much different. But as eurozone governments hammer out new rules to limit their borrowing, are they missing the point of the crisis?

to read the full article click on the link below