NZ Herald 28 July 2007

ANot in a big way, but there are a few “ethical” or “socially responsible investment (SRI)” funds around. I’ve managed to dig up one KiwiSaver ethical fund that’s about to be announced, another that’s in the planning stage and a third that’s in the “thinking about” stage. Here are the details:

• Asteron is offering a Socially Responsible Investment Share Fund. It will invest mainly in New Zealand shares, but with anywhere from zero to 20 per cent in Australian shares.

  The fund will exclude shares in companies that are “principally involved” in tobacco, alcohol, armaments or gambling.

  Investors should note that because this fund is fully invested in shares — as opposed to also holding bonds, cash and perhaps property — it’s a higher-risk investment.

  There’s a good chance it will perform better than lower-risk funds over the long term. But the accounts of KiwiSavers who invest in any share fund will be volatile, falling significantly sometimes. Share funds are not for the faint-hearted or for most shorter-term investors.

• SuperLife says it “intends to have a SRI fund option available and up and running within the next three months.”

  The fund will be a medium-risk balanced fund, including cash and New Zealand and overseas bonds and shares.

  “We may ultimately add additional funds like a share fund, but our research is that most people interested in this want balanced, and we need to keep the costs down,” says SuperLife’s Michael Chamberlain.

• AMP Financial Services is thinking about offering an ethical fund.

  “We don’t have one in our initial KiwiSaver offer,” says Roger Perry, general manager of savings and investment. “But once we get to October we’ll review our offer to ascertain what we might need, and SRI will definitely be on the agenda.”

  AMP Capital Investments has already brought an Australian-based SRI world share fund into New Zealand that is not part of KiwiSaver. AMP could set up a KiwiSaver version of that.

  “Or AMP in Australia has a (lower-risk) balanced SRI fund, which may be more desirable for most investors,” says Perry. “Bringing it in would be reasonably straightforward if we think the demand is there.”

If any other providers have ethical fund plans, let’s hear about them.

I predict these funds will be more popular than providers expect. KiwiSaver is attracting a whole new type of person into managed funds, and their questions suggest that a fair portion will favour socially responsible investing.

From next April 1, all providers will have to “disclose their approach to responsible investment,” the government has said. From then on, I reckon it will be a hot topic.

AYou might well find that by the time you need to choose a KiwiSaver provider, a suitable ethical fund will be available. If not, as you say, you can always be unethical for a while!

The same goes for others who are having a hard time choosing a provider. As long as you pick one with no exit fees, why not go with what looks pretty good, knowing you can easily switch funds later.

On your risk question, if you were planning to spend your money in a few years, I would suggest you invest in a lower-risk fund. That way, you wouldn’t risk finding when you got the money out that the share market had slumped.

In your case, though, you don’t intend to spend the money in a few years, but just to transfer it. And transferring from one higher-risk fund to another is generally fine. If the share market is down at the time, it won’t make any difference. You’ll be selling low and then buying low.

I suppose we could come up with a scenario in which, for some reason, shares in general had fallen but “ethical” shares had not fallen. But that seems rather unlikely.

People often say things like, “Shares in ethical companies are likely to perform better than other shares, because society is becoming increasingly conscious of health, environmental, human rights and other issues.” But we all know that. And any knowledge that’s widely known is discounted into share prices.

In other words, we would expect shares in “good” companies to already be priced higher than they would have been if not for societal changes. So they are probably no more likely to perform particularly well than other shares.

There’s been lots of research on this. My “Ethical Funds” folder is crammed with articles. Some studies find that ethical funds do better than other funds; some the reverse.

The Vice Fund, which invests in companies that produce “socially irresponsible” products, was America’s best performing growth fund in a recent year.

In the end, I doubt if there’s much in it. As long as an ethical or SRI fund is widely diversified, it will probably perform well over the long term. Even if the performance isn’t quite as good as the market as a whole, those who invest in ethical funds may well be happy to settle for a bit less money and an easier conscience.

AYes. Under current legislation, you get the kick-start whenever you join, even if it’s many years from now.

However, I don’t recommend delaying for too many years. A new government could change things. Also, the longer you delay, the fewer years you will receive the tax credit and — if you are an employee — employer’s contributions.

ANo. I’m not sure what the government would prefer, but that’s not the point.

When you take out a student loan, you enter into a deal with the government. That includes compulsory repayments of 10 per cent of your income over a threshold amount, currently $17,784 a year. You’re not obliged to repay any more than that.

If you join KiwiSaver, that money is yours. The only situation under which the government will take any of it is if you move overseas permanently and choose to close your KiwiSaver account and take out the money.

In that case, the government will claim back the tax credits it has given you over the years, but not any returns earned on that money.

I’ve heard of no other circumstances in which the government can take your KiwiSaver savings away from you — certainly not to repay a student loan.

AI wish I could say, “Just testing, to see who was on the ball”!

But to be honest, I wrote that bit too hastily. I should have said ten twelfths of the tax credit. Sorry.

QUICK KIWISAVER INFO

The huge number of questions coming in about KiwiSaver reveal that many people don’t yet understand the basics of the scheme. But I don’t want to keep repeating the basics because that will bore other readers.

To solve this, I’ve listed the rules and incentives, taken from my new book, “KiwiSaver: How to make it work for you”, on www.maryholm.com. Click on the KiwiSaver book page and scroll to the bottom. You might very well find the answer to your question there. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]

If not, I suggest you check out the Retirement Commission’s website, www.sorted.org.nz or the government’s www.kiwisaver.govt.nz. Alternatively, call 0800 KiwiSave (0800 549 472, Monday to Friday 8 to 8, or Saturday 9 to 1.

AThe evidence would certainly suggest they were either incompetent or more interested in what they would get out of putting your money into Bridgecorp than what you would get out of it.

Either way, I would sack them.

Some mistakes are forgivable, but May 2007 is just too recent. As you say, many people in the know were very worried about Bridgecorp by then. And what are you hiring an adviser for, if it’s not to get somebody who is in the know?