SmartShares, SuperLife, Simplicity & InvestNow. ETF & Index Fund Investing in New Zealand

ETF and Index Fund are simple, low-cost and diversified investment option with a positive result in the long term. It plays an important part in my plan to achieve financial freedom by only do a few smart things and nothing much else. To put my money where my mouth is, over 90% of my investment are in ETF and Index Fund. I believe everyone should have at least some investment in those products. SmartShares, SuperLife, Simplicity, and InvestNow are the four investment services in New Zealand that I am currently using. Here is a breakdown of them.

The Breakdown

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Compare four ETF/Index Fund investment in NZ. Best option highlighted in yellow

SmartShares

New Zealand Stock Exchange owns SmartShares. They issue the ETF for local share markets such as NZ Top 50 (FNZ), NZ Top 10 (TNZ), NZ MID CAP (MDZ) and NZ Bond (NZB). They also repackage ETFs and index funds from oversea to sell to New Zealand investor. Those ETFs cover Austraila, Europe, Asia Pacific, US, emerging markets and world markets. You can check out the list of offering here. The most popular oversea ETF is US 500. It tracks the top 500 companies on US stock example, most of them are top international corporations.

Some people mistaken SmartShares as an investment service provider but in fact, SmartShares is an ETF issuer. Their job is to manage and issue ETF for New Zealand stock exchange. That’s why investor can’t log onto SmartShares site for track their holding because they are not managing the holding for you (hence there is no annual admin fee).

If you invested in their ETF, you are basically buying a share on the share market. You can but those ETF directly on share market if you wish.  SmartShares will direct investor to Link Market Service to register and track their ETF holdings. An investor can track their holding on other services like ASB securities, ANZ Securities or Share Sight.

SuperLife

Superlife offer the most ETF and Index Funds investment options in New Zealand. They not only offer SmartShares ETF in fund format but also provide managed fund and sector fund options for the investor. All of those funds invested in a passive index fund or ETF.

The Sector fund cover different country (NZ, AUS, Overseas), industry (Property, Shares) and investment vehicle (Cash, Bond, Shares). Those are great options to build your own balanced and diversified portfolio.

The Managed Fund is is a grouping of financial assets such as stocks, bonds, and cash equivalents. The nature of those financial assets can be classified into two groups, income asset, and growth asset. Income asset includes cash and bond. They tend to carry lower risk levels and, therefore, are more likely to generate lower levels of return over the long term. Growth assets are shares and property. They tend to carry higher levels of risk, yet have the potential to deliver higher returns over longer investment time frames.

Superlife managed fund have different names, like SuperLife 30 or SuperLife 80. The number at the end show the target portion of growth asset in that fund. Superlife 30 will aim to hold around 30% of growth asset and 70% of income asset in the portfolio. So this fund is a low risk (or conservative) fund. On the other hand, Superlife 100 will aim to invest 100% into the growth asset. So the risk is high. Here is a breakdown.

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SuperLife offer the most options, functions in the breakdown. The entry requirement is basically nonexistent, and the cost is relatively low. That’s why I recommend the beginner to start with Superlife.

Simplicity

Simplicity started as a nonprofit KiwiSaver provider. They provide low-cost KiwiSaver options to New Zealander while donating 15% their income to charity. Simplicity recently opened up their investment fund as non-KiwiSaver options as investors can deposit and withdraw their investment anytime they want. Simplicity only offers three managed funds as conservative, balance and growth fund. The majority of Simplicity fund invested in Vanguard’s funds or ETFs. The management fees are the lowest in New Zealand at 0.31% for managed fund. However, the initial investment requirement is $10,000.

InvestNow

InvestNow is a new online investment platform. Investors can directly invest into the selected fund on their platform with as little of $250. InvestNow does not charge any transaction, admin, setup or exit fee at this stage. Investor only needs to pay the management fee on an individual fund.

The biggest advantage of InvestNow is to allow the investor to directly invest into two Vanguard index fund in Australia. They are Vanguard International Shares Select Exclusions Index Fund (currency hedged and non-hedged version) with management fee at 0.20% and 0.26%. Those two funds are not PIE fund, means you will have to do your own tax return. For under 50k holding, you will only have to do tax return on dividend received, which is not that hard. You can check out the detail in this blog post.

Fund Comparison

I picked a couple of index funds and ETFs from each provider and made a comparison. Here is the breakdown.

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As you can see, most of the option’s underlying asset are Vanguard ETFs and Index Fund. That’s basically what I am trying to do on my international exposure, putting money into low-cost Vanguard cost for long term.

 

Me try to invest in NZ 2

Accurate description of my international investment strategy.

Conclusion

  • Superlife have the most function, investment options and easy to start. Also have the lowest cost aggressive managed fund in NZ. It is great for both beginner and experience investor.
  • Simplicity have the lowest cost managed fund in Conservative, balance and growth aera. Great for anyone with $10,000 to start investing.
  • InvestNow user can easily invest in Vangaurd index fund in Australia with 0.20% – 0.26% fee. Great for someone who can handle their tax return on dividend recived (not that hard) or calculate under FIF rule.
  • SmartShares is good if you wish to buy ETF on share market.
  • There are other ways to invest into passive fund and ETF in New Zealand, like ASB Investment Fund, AMP, and Lifestages. However, the cost on those fund are quite high compare to these four services, which defeat the purpose of low-cost passive investing.
  • New Zealand investors can buy Vanguard ETFs on Australian Stock market. The management fee can go as low as 0.04%. I will go into that later once I’ve done it myself.

 

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Compare ETF Fund Cost between Superlife and Smartshares (2017 Update)

Recently SuperLife and SmartShares lower the management fee on four ETFs. So it’s time to update the ETF cost comparison. Also, I am changing my initial recommendation on starting your investment with SmartShares then switch to SuperLife.

Cost update

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Both Superlife and SmartShares lower their cost on Total World, Europe, Asia Pacific and Emerging Markets ETF. The reason was Vanguard reduce their underlying fee, so SuperLife and SmartShares passed on the cost saving to its customer.

Should you start with SmartShare?

In the past, I recommended to start your ETF investment with SmartShares then switch to Superlife when the fund hit a certain amount. The main reason was Superlife charge a $12/year admin fee, it will cost more in term of percentage for beginners with a small amount of investment. However, that calculation ignored the $30 one-off initial fee, the cost of setting up extra funds with SmartShares and the exit cost.

Let’s look the following example for an investor started NZ Top 50 ETF with $500 initial investment and $50/month contribution for 5 years. NZ Top 50 ETF 5 years annualised return is 16.49%. I’ve put it in a simple simulation to compare investment between SuperLife and SmartSharesand for 5 years.

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SmartShaers started with $30 less due to the setup fee. That $30 initial different made Smartshares cost more for that first 3 years, (38 months to be exact). By the end of the 5 years, the different between Superlife and Smartshares is only $24.09. That’s about 2 years of SuperLife admin fees and represent about 0.44% of your holding. That percentage will decrease if we increase the investment amount. So, there are some saving with Smartshare, but the saving is insignificant.

Also, there are some other benefits with SuperLife.

  • Better user interface compare to Link Market Service
  • Easy to switch fund with no cost
  • No setup cost for new fund
  • More fund options included sector fund and passively managed fund
  • No withdrawal cost

Personally, I think those benefit worth that $12/year with Superlife.

My Recommendation

If you wish to invest in S&P500 ETF, NZ Cash ETF and Emerging Market ETF, start with SmartShares because their management fee is still lower than SuperLife.

For any other ETF, just go and join SuperLife. You will be much better off.

If you are currently holding SmartShares ETF and want to switch to SuperLife. There is a way to switch without open a brokage account and pay $30 to sell your Smartshare. However, you will have to email me on that.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

How Easy to Get Your Money out from SmartShares ETF

SmartShares offer 23 exchange-traded fund (ETF) in New Zealand. They tracked different stock and industry index in New Zealand, Australia, United States and international market. It is an excellent opinion for Kiwis investor due to the low-cost and diversified portfolio. So, how easy to get your money out? (Spoiler alert: Very easy)

ETF is tradable share

ETF is similar to an index fund that tracks an index, a commodity, bonds, a sector or a basket of assets. However, ETF can be traded on the stock market like any other stock. ETF shareholders are entitled to a proportion of the profits, such as earned interest and dividends paid.

Liquidity of shares

Since ETF is a share, i. In order to get the money out, you will have to sell your ETF in the stock market, just like any other stocks. This brings us to Liquidity of a share.

Liquidity means how easy for you to sell your share into cash on the stock market. If lots of people wanting to buy that share and lots of willing seller on the market, the liquidity is good.

We use trade me as an example here. If you are selling a brand new iPhone on trade me at a price closed to everyone else is selling, you will be able to sell that iPhone quickly.  Also, you can use similar amount cash to buy an iPhone on trade me without any problem. So the liquidity of an iPhone is good on trade me.

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However, if you want to sell an expensive and rare antique phone on trade me, it may take months and multiple listing to sell that phone. You may have to lower your price to get it sold. It also hard to find another expensive and rare antique phone on trade. So, the liquidity of an expensive and rare antique phone is bad.

Let’s take a look at Auckland International Airport’s stock info.

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You can see there is lots of buying (Bids) and selling (Asks) order. Lots of trade happened in 13 mins. The different between buy and sell price (a.k.a. Bid-Ask Spread) is only $0.5c.

Now compare that to Delegat Group Limited’s Share.

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There are some buy and sell order, but there was no trade at all. The different between buy and sell price is $10c. There is a seller want to sell 2000 units of share at $6.25, but there is no one taking that offer. If the owner of that 2000 share intends to liquidate the stock quickly, they will have to lower their selling price by $10c to $6.15 to meet the closest bid. That is $200 less on 2000 share.

If you are an owner of Auckland International Airport share, It will be very easy to liquidate your stock in a short time. On the other hand, if you hold shares in Delegat Group Limited, you will have to wait or lower your price for someone to buy your share.
Here is the info on two popular SmartShare ETF, NZ Top 50 and US S&P 500.

 

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Both of them have a good amount of bid/ask and the spread is small. Therefore, the liquidity is good.
Also, there is a market maker for all Smartshare ETF.

Market Maker

A market maker is an investment firm that guarantees liquidity of stock by putting out buy and sells order on the stock market. They make sure investor can always buy or sell the shares.
The Bid and Ask below are the market maker order.
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At December 2014, SmartShares appoints Craigs Investment Partners as the market maker. Craigs will offer two-way quotes of agreed minimum volume and maximum spread for an agreed minimum period of the full trading day. This will cover all current Smartshares ETFs, plus future ETFs launched by Smartshares.

Always ready to sell

With a market maker on all Smartshare product, its very easy to liquidate your Smartshares holding. However, you will need a stock broker to sell your shares. Especially for those who purchase Smartshares via monthly contribution plan since you don’t need a broker account to do that. Smartshare is not an investment fund, they will not cash out the ETF for you. Lots of people don’t know that.
In order to sell your Smartshare ETF, you will need a broker to put your holding on the stock market. You can google “Stock Broker NZ” to contact any broker firm and set up an account. The cheapest way for most people is to use ASB and ANZ securities to trade online. ANZ cheapest rate is $29.90/trade under $15000. However, you have to be an Online Multi-Currency Account (OMCA) holders with sufficient cleared funds available to fully cover the purchase of securities prior to submission of the order. Otherwise, ANZ charge $29.90 + 0.40% on trade. If you are not an OMCA holder with ANZ, go with ASB Securities, they charge $30 or 0.30% per transactions, whichever higher.
If you currently hold SmartShares ETF and don’t have a brokerage account, do it ASAP. You never know when you need to sell you share in a short period. It will take 2-10 days to set up account with ASB and ANZ. If you starting a monthly contribution plan with SmartShares, make sure you open a brokerage account as well.
Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

Cheapest Way to buy and hold NZ Top 50 ETF

I always encourage people to start a small investment with NZ Top 50 ETF and US 500 ETF when they are starting out. Those two ETFs are easy to understand, diversified, low-cost and have low minimum investment requirement ($500). They are ideal for long term (7 years+) investment. So here is the cheapest way to buy and hold NZ Top 50 ETF.

I will be discussing average investment here. I do not include KiwiSaver opinion here because you can’t get the money out before 65. (Anyway, ETF still an excellence option for KiwiSaver, especially for anyone aged under 50)

What is NZ Top 50 ETF?

Quote from Smart Shares Web Site:

The NZ Top 50 Fund invests in financial products listed on the NZX Main Board and is designed to track the return on the S&P/NZX 50 Portfolio Index. The S&P/NZX 50 Portfolio Index is made up of 50 of the largest financial products listed on the NZX Main Board. The S&P/NZX 50 Portfolio Index is made up of the same financial products as the S&P/NZX 50 Index, but with a 5% cap on the weight of each product.

So basically when you invest in NZ Top 50, you will have a share in the top 50 companies in NZ stock market.

Stock code for NZ Top 50 ETF is FNZ.NZ

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Where and how to buy?

There are three ways to purchase NZ Top 50 ETF, on the stock market, with investment fund or monthly contribution.

Trade on the stock exchange – NZ Top 50 ETF can be traded as share on stock market via any stock broker. I will be using ANZ Securities online and ASB securities online here as they are amongst the cheapest brokers in New Zealand.

Purchase with FundSuperlife (Smartshare’s sister company) offer NZ Top 50 ETF fund that holds shares in NZ Top 50 ETF. You can set up an account and purchase those fund with Superlife.

Purchase via monthly contribution – This is the most accessible and fixable way to buy into ETF, both Superlife and Smartshare offer that service. You need set up an account with at least $500 initial investment, and contribution $50 monthly to purchase that ETF or fund.

What’re the fees?

Basically, you should look for the lowest fee when you consider investing into the same product.

ANZ & ASB Securities online: You can purchase FNZ directly on the stock market with ANZ Securities. ANZ cheapest rate is $29.90/trade under $15000. However, you have to be an Online Multi-Currency Account (OMCA) holders with sufficient cleared funds available to fully cover the purchase of securities prior to submission of the order. Otherwise, ANZ charge $29.90 + 0.40% on trade. If you are not an OMCA holder with ANZ, go with ASB Securities, they charge $30 or 0.30% per transactions, whichever higher. On top of that, NZ 50 ETF charge 0.50% p.a. on management fee base on your total holding before they pay out. If you did the calculation, in order to pay the least amount of fees, you should only make one trade a year with over $10000, which will bring the fee% to 0.80%.

Smartshares: You can make lump sum investment and monthly contribution with smartshare. They will charge a one-time $30 account setup fee and charge 0.50% p.a. management fee base on your total holding. Check out the SmartShares disclosure statement here.

Superlife: Same as Smartshare, you can do lump sum investment and monthly contribution. They charge a $12 p.a. administration fee and 0.49% management for NZ 50 Top ETF. Check out Superlife disclosure statement here.

Cheapest Way?

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Smartshares is the cheapest way to buy and hold FNZ. Superlife’s fee will become cheaper once the holding passed 120K.

I personally used both Smartshares and Superlife, and I think Superlife have a much better user interface and app. The $12 admin fee can be shared with other Superlife funds.

So if you just want to buy FNZ, Smartshare is the best deal out there. If you already have other funds with Superlife, there is not much difference in cost between Superlife and SmartShares.

Although ASB and ANZ Securities’ cost are higher, you should open an account with them if you got ETF from SmartShares. Since you are buying actually share of ETF via Smartshare, you will need a stock broker when you need to sell your share.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.

Where to invest your money in New Zealand (Part 2)

At the last post, I made a simple graph to explain where to invest your money. Now let’s break it down in more detail

where to invest HMobile-friendly version

Within 1 year – Cash in Savings

For such a short terms, your best bet will be keeping your money in a savings account. Most banks offer serious saver or notice saver accounts with interest around 2.25 – 2.75%. I know it’s not a good return but its better than nothing. You may also consider a 6 months to 1-year term deposit for higher interest (3 – 3.5%). However, if you need to get your money out early, you may lose the interest and pay a break fee.

Recommended products: ASB Saver Plus, ANZ Serious Saver, BNZ Rapid Save, Westpac Online Bonus Saver, Kiwi Bank Notice Saver, RaboDirect Premium Saver and Notice Saver.

2 to 3 years – Cash in Term Deposit

You still want to play it safe so you should keep the money in cash. In this time frame, you can use a term deposit as they have a higher return of interest, around 3.5 – 4%. As mentioned previously, watch out of the penalties for early termination.

Recommended products: Term Deposit for all major bank.

3 to 5 years – Income Asset (Bond and Dividend Stocks)

If your money can stay in the market for 3-5 years, income assets become a feasible opinion. BBonds are not as stable as term deposit return, but they do offer the potential to earn a higher yield. I would suggest investing in a Bond ETF or a Bond Fund over buying individual bonds via a stock broker for small investors due to the cost of trade. Bond ETFs and Funds  invested in multiple corporate and government bonds, which should reduce the risk

If you are willing to dip your toes in the share market, you can buy some dividend shares at this stage. Dividend shares are usually associated with established and mature companies on the board that pays out dividends constantly. Don’t expect those companies to have rapid growth but they usually pay out dividends every quarter. The volatility of those shares is smaller compared to other shares on the market. Spark, Auckland Airport, and power companies are considered dividend stock in New Zealand.

Recommended products: NZ Bond ETF, NZ Dividend ETF, NZ Bonds Fund, Global bonds ETF, Overseas Bonds Fund.

5 to 7 years – Shares, Property, and Bond

At this stage, growth assets will play an important part in your investments. Growth assets are shares, properties, and managed funds. The reason we shouldn’t touch growth assets until this stage is because of the volatility of the return. Year-to-year return can be ranged from -80% to +80% , but over longer periods it usually goes up. Take a look at the graph below. It shows the NZ stock market’s return in 2 years from April 2007 to April 2009.

If you invested in the stock market in April 2007 and planned to exit the market in April 2009, you would have lost about 35% of your investment.

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On the other hand, if you had stayed in the market for 7 years, you would have gained 24% on your investment.

The same principle applies to property investment. The House Price index from 2000 to 2016 shows New Zealand property prices are trending up in the long term. You can see there was a dip during the 2008 GFC and the price recovered within a few years.

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Therefore, in this timeframe, you should invest more and more into growth assets and the ratio of Bond and Dividend stocks should decrease.

Recommended product

30-80% of Growth Asset: NZ Top 50 ETF, S&P 500 ETF, Total World ETF,  Property Fund, Oversea Shares Fund, Australian Shares Fund.

70-20% of Bond and Dividend shares.

 7 years+ Mostly Growth Asset 

At this point, I recommend invest 90% of your investments in growth assets and expect a long-term positive return on share and property. You may wonder why the income asset portion goes down to 10%. Although income assets are considered a safer investment, but they cannot match the high return of growth assets. Having a small amount of income assets in your investment will help offset potential downturns in your growth assets. Income assets don’t crash like growth asset, it will act as a cushion to soften any drops in the market.

Some people think if you are young and you can handle a market crash, you should have 100% growth assets as your investment. Whilst I agree with this point of view, it basically comes down to risk tolerance and personal preference.

Recommended product

90-100% of Growth Asset: NZ Top 50 ETF, S&P 500 ETF, Total World ETF,  Property Fund, Oversea Shares Fund, Australian Shares Fund.

10-0% of Bond and Dividend shares.

What’s Next?

So this is the guide that I used to decide where to invest my money based on how long I was going to invest. In the next post, I will talk about risk tolerance adjustment and how KiwiSaver funds fit into this graph.

The timeline and investment ratio used in the graph are based on my own studies and conventional wisdom. Investment suggestions are based on neutral risk tolerance. Investment products listed are based on popularity, ease of access in New Zealand and a bit of personal preference.

Just a reminder, this graph is for GENERAL ADVICE ONLY. Your own situation may be different. Please thoroughly research everything you read here and seek professional advice if you need to.

Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.