NZ Herald 13 September 2008

AIt certainly is possible to invest “ethically” through KiwiSaver. And given the incentives that go with the scheme, KiwiSaver is probably the best way to make ethical investments — as long as you are happy to tie up your money until you buy your first home or hit NZ Super age.

Since April, all KiwiSaver providers have had to disclose whether they offer “responsible” investment options. While they are allowed to say “No”, I suspect the very asking of the question has prompted some providers to think about the issue.

When I was researching my new book (see box), the following providers said they are offering ethical funds or similar:

ABN Amro Craigs — Balanced SRI Defined Portfolio — 50 per cent shares, 40 per cent cash and fixed interest, 10 per cent property. Invests in companies making positive social or environmental contributions, or trying to do so.

ASB Group Investments — Global Sustainability Fund — 100 per cent world shares. Not an “ethical” fund as such. Invests in “companies that integrate sustainable issues with fundamental equity analysis for superior long-term returns”. Run by ex-US vice president Al Gore and David Blood.

Asteron — Socially Responsible Investment Share Fund — 100 per cent New Zealand and Australian shares. Excludes tobacco, alcohol, armaments and gambling companies.

Fidelity — Ethical Kiwi Fund — 40 per cent international shares, 35 per cent fixed interest, 20 per cent New Zealand and Australian shares, 5 per cent cash. Avoids companies earning substantially from tobacco, gambling, alcohol and armaments.

NZ Anglican Church — The King of the Ethical Investors, with all three of its funds invested “ethically”. Conservative Fund has 20 per cent growth assets (shares and/or property), Balanced Fund has 50 per cent growth assets, Growth Fund has 75 per cent growth asset. Avoids direct investment in arms, gaming, tobacco, pornography, breweries, companies with poor environmental records, bad industrial relations or unethical or “remuneration-focused” boards and executives. The Fund managers sometimes use their voting power to try to change management policies.

SuperLife — Ethica Fund — 60 per cent New Zealand and overseas shares and property, 40 per cent cash and bonds. No companies involved in arms, gambling, tobacco, alcohol, abuse of children and other human rights. Supports companies with positive impact on environment. Welcomes member feedback on the principles used in choosing investments and on any investments included in the fund.

A number of others say they are looking into it, so keep an eye out for new announcements. One interesting possibility is the union-connected KiwiSaver provider IRIS, which is considering a fund that takes into account the use of child labour, worker abuse and exploitation of Third World labour forces.

Many providers also said they use ethical “screening” to some extent on some or all of their funds.

Fees on these funds are often a bit higher than on other funds holding similar assets, because more research is required. Whether you have to sacrifice higher returns if you use ethical or similar investing is open to debate. Some research says yes, some says no.

AGenerally, people overseas can withdraw KiwiSaver money only if they have been away more than a year and sign documents saying they plan not to return to New Zealand. At that stage, the government will claim back its tax credits, although not the returns earned on the credits.

The exception is if you reach NZ Super age overseas, in which case you can take out all the money, the same as anyone still in New Zealand.

Given your plans to return here, your only consideration is whether to keep contributing. Because you are overseas, you won’t receive any further tax credits or employer contributions, so KiwiSaver is no better than any other savings plan.

I suggest you base your decision on whether you would like to tie up the money. If not, you might prefer to keep saving in another account.

If your KiwiSaver provider requires a minimum contribution, even though you are overseas, move to another provider. Many have no minimum requirements.

AIt’s hard to argue with the idea that everyone in a family might as well go with the company they judge to be the best KiwiSaver provider. The only trouble is working out who is the best. How do we do that?

Your list of criteria is a good start. I would include under “strategy” that the provider has funds with the right asset mix for you.

Put simply, if you have more than ten years before you will be taking your money out, and you have the temperament to cope with market slumps, you should be in a fund that includes lots of shares and perhaps property. If you are the opposite, you should go for more cash and bonds.

Flexibility is also clearly good. Some providers offer huge flexibility in investment options, contribution levels, movement from one of their funds to another, and so on. Others are more limited.

Independence of promoters and managers is an interesting one. Some KiwiSaver providers are also fund managers, and so they tend to invest KiwiSavers’ money in their own funds. Others hire separate fund managers.

While the latter might seem to be at a disadvantage, as there is another layer of fees to be paid, providers can typically negotiate much lower fees than you or I could because they bring in much more business. What’s more, an independent provider can always move his business from one fund manager to another if the fees aren’t low enough, or the fund management deteriorates.

Our correspondent works for an independent provider, so of course he’s going to say that is preferable. But I think he has a point — as long as the total fees that investors end up paying are, in fact, lower.

Which brings us to the tricky issue of fees. I have some sympathy with the argument that fees are the key. They can make a huge difference to account balances over the long term.

The trouble is, as I said in a recent column, it’s pretty much impossible to get reliable data to compare KiwiSaver fees. I think the calculator on www.sorted.org.nz is the best available. But until the government makes providers describe their fees in more directly comparable ways, it’s all a bit hit and miss.

That’s why I like the idea of family members going with different providers, at least in the short term. Particularly if the family members make the same contributions — which is likely to be true of children or non-employees — they can compare total after-fee returns, as well as such other important issues as the quality of communications with investors.