New AMP Low-Cost Index Fund VS SmartShares ETF, Which one is the better deal?

AMP Capital NZ introduce three new low-cost index funds for New Zealand investors. Yay! They are available for AMP’s client and on InvestNow platform.

Three New Index Fund

AMP Capital NZ have been offering investment fund and KiwiSaver fund for New Zealander. Most of their funds are actively managed. So its great to see AMP bring the passive fund to their client. According to Investment News article, AMP Capital NZ managing director Grant Hassell said, “there’s been a lot more demand than we expected from retail investors [for passive options].” It great to see more New Zealand companies on board with the low-cost passive investing movement.

Here is the summary of those new index Fund

NZ Shares Index Fund

Description: Aims to provide a return that closely matches the return of the S&P/NZX 50 Index (on a gross basis and including imputation credits).
Risk Indicator: 4
Management fee: 0.33%
Buy/Sell Spread: 0.10%
Similar Fund/ETF: NZ Top 50 from SmartShares

All Country Global Shares Index Fund

Description: Aims to provide a return that closely matches the return of the MSCI All Country World ex Tobacco Index in New Zealand dollars with net dividends reinvested (69% hedged to the New Zealand dollar).
Risk Indicator: 5
Management fee: 0.38%
Buy/Sell Spread: 0.15%
Similar Fund/ETF: Vanguard International Shares Select Exclusions Index Fund (Hedged) – NZD Class on InvestNow

Hedged Global Fixed Interest Index Fund

Description: Aims to provide a return that closely matches the return of the Bloomberg Barclays Global Aggregate Index, fully hedged to the New Zealand dollar.
Risk Indicator: 3
Management fee: 0.39%
Buy/Sell Spread: 0.10%

They are structured PIE funds, do not have annual admin fee, and minimum investment amount is $50.

Unlike some fund manager which charge active management level fees on their passive investment options, those index fund options from AMP Captial are actually cheap in New Zealand standard. Kudos to AMP!

giphy.gif

Well Done AMP!

Buy and Sell Spread

You may notice apart from the usual management fee; there is a Buy/Sell Spread for the fund. All AMP fund have Buy/sell spread, and they are your entry and exit fee.

For example, if you decided to put $10,000 into All Country Global Shares Index Fund, 0.15% of $10,000 will be taken out as buying cost. So only 10000 – (10000 x 0.15%) = $9,985 will be in the fund.

Three years later, your investment in that fund grow to $12,000, and you want to cash out. When you cash out your investment, 0.15% of $12,000 will be taken out as selling cost, and you will end up with $11,982.

When you buy and sell shares, there will be a transaction cost. ASB and ANZ charge a retail customer $30 or 0.30% for each transaction. The fund manager also needs to pay for buying and selling shares for their fund.

You may not see Superlife and Simplicity charging a separate buy/sell spread, but it doesn’t mean they don’t have to pay a transaction cost. They decided to include those costs into the management fee and make it simple for investors.

Usually, I’ll prefer simple fees structure because in some cases, a fund manager will list multiple fee item to confuse the customer and charge more fees. However, I do believe having a buy/sell cost will benefit long-term investor like me.

First, buy/sell cost separated from management cost means the management cost can be reduced to a lower level (it’s no guaranteed fee will be lowered. Some other fund just use that as an excuse to charge more fees). Second, as a long-term investor, I will only buy a small amount every month, so buy/sell spread won’t reduce my return much. Finally, for those who think they can time the market and try to get in and out a lot, they will pay for their transaction. I am happy to know my money are sitting nicely in the fund. The cost of the transaction from other investors won’t eats into my return.

Therefore, having a Buy/Sell Spread will be good for the investor as long as it reduces the overall cost for investors. On the other hand, it does make it harder for investors to compare the cost. Don’t worry; I’ve done the hard work for you.

SmartShare Vs AMP Capital

AMP Captial NZ Shares Index Fund will track S&P/NZX 50 Index, which is the same tracking index for NZ Top 50 ETF from SmartShares. Both funds should have a very similar result except some tracking errors. So the main difference will be the cost of the fund and the tax treatment.

SmartShares NZ top 50 ETF will charge 0.5% management fee. If you are in the SmartShares saving plan, there will be a one-off set up fees for $30. If you invested in Superlife NZ top 50 ETF Fund, the management fee would be 0.49%, no setup cost but there will be a $12/admin fees. On my previous post, we calculated SmartShares would be cheaper if the value of your fund is under $120k. Earlier this year, InvestNow added SmartShares NZ Top 50 ETF fund on their platform. InvestNow customer can bypass the $30 set up fee which made InvestNow be the best options for NZ top 50 Index fund.

Now AMP Captial NZ Shares index fund offer no setup fees, no admin fee, and management fee at 0.33%. There will be a buy and sell spread for 0.1%.

10-Years Analysis

Since the costing structure of SmartShares and AMP’s is a bit different, I decided to run a 10-years analysis for both options to see which fund will pay less on fees and provide a better return for the investors.

I will be using NZX Gross return from 2004 and 2014 as my return data. It has a right mix of bull market (04-07), recession (07-10) and recovery (10-14). The tax will be ignored in this analysis.

We will compare an investor putting $50/month in each fund for ten years and will cash out all investment at the end. For SmartShares NZ Top 50, we will use InvestNow platform as this is the most cost-efficient way.

Here is the result for SmartShares NZ top 50 ETF via InvestNow

Screen Shot 2017-12-11 at 11.14.27 PM.png

Here is the result for AMP NZ Shares Index Fund.

Screen Shot 2017-12-11 at 11.14.34 PM.png

SmartShares balance was higher at the beginning as there was 0.10% buy spread charged on AMP investor. However, since AMP charge less on management fee, the money stays in the fund generated a better return. In the end, AMP NZ Shares Index Fund valued at $8,481.82 and SmartShare NZ Top 50 ETF valued at $8,423.70. AMP total fee paid is $124.95 (1.47%) compare to SmartShares at $166.55 (1.98%).

Therefore, for long-term investing, AMP NZ Shares Index Fund came out ahead by a small margin, 0.69% at the 10th year mark. Since there is no fixed-dollar fee, this result will be the same if you invest $50 or $500/month. AMP investor will have a better return from year 3 and onwards.

What Not to DO

In some situation, AMP will cost you more. Since AMP charge 0.10% on Buying and selling, if you move your money in and out a lot, it will cost you a lot of fees.

The simple way to understand is to imagine you move some money into the fund, got charge 0.10% on buy spread; you keep the money in for one year, got charged 0.33% management fee; you move it out at the end of the year, got charge 0.1% sell spread. So in that year, you’ve got charged 0.10% + 0.33% + 0.10% = 0.53%. So it charged more than SmartShares ETF.

If you keep putting money in and stay in the fund, the money in the fund will charge a lower management fee. Lower management fee means more money is remaining in the fund and it should provide a better return for you. Therefore, to optimise your return, you should avoid moving your money around and stays in the fund.

Tax on Investors

Those three funds are PIE funds. Investors with PIR lower than 28% will benefit from AMP fund because SmartShares ETF is listed-PIE fund. You will be tax at 28% regardless of your PIR with SmartShares. Check out my previous post on Listed-PIE vs multiple rated PIE fund and work out your PIR here.

Should You Switch?

The margin of difference is not that big, we are talking about 0.69% after 10 years, so it’s not a “drop everything and switch NOW” situation. However, if you are aiming to optimise your return, AMP should be the better choice. If you are on lower PIR, or you still don’t like SmartShares’ improved user interface, switch over to AMP.

Personally, I think I will invest in this AMP fund via InvestNow. Since I already have an account with InvestNow, I can quickly put some money in without signing up with AMP.

Conclusion

  • Three New index fund from AMP Capital NZ
  • No annual fee for all funds, lower management fees, the investor will be paying buy/sell spread, minimum investment from $50, structured as PIE fund.
  • NZ Shares Index Fund – is the cheaper version of NZ Top 50 ETF, management fee at 0.33%, Buy/Sell spread 0.10%
  • All Country Global Shares Index Fund – is the more expensive version of Vanguard fund in InvestNow but as structured as PIE fund (no tax return required), management fee at 0.38%, Buy/Sell spread 0.15%
  • Hedged Global Fixed Interest Index Fund – managed fee at 0.39%, Buy/Sell spread 0.10%
  • Buy/Sell spread is buying and selling cost for the investor. In this case, its benefit long-term, buy and hold investor.
  • NZ Shares Index Fund will be cheaper than SmartShare NZ Top 50 ETF if you hold it for long-term
  • It will cost you a lot of fees if you try to time the market and move your money in and out a lot.
  • All three funds are available from AMP Captial NZ and on InvestNow platform

 

Custodian: What is that and How does it Protect your Investment

Here is a frequent question from anyone who is interested in investing:

“If I put my money in XXX, how do I know if they won’t take my money and run away? What will happen to my money if XXX went out of business? Will my money go to the creditors? ”

It’s a legitimate question especially after those financial companies collapse and many kiwis loss their life saving over it.  Currently, the standard practice for an investment company to protect their client’s asset is to use a custodial service. We are going to look at what is a custodian and how does it protect your investment.

I am not a legal expert so the information below could be incorrect. Always do your own research before you invest.

What is Custodian?

Under Financial Advisers Act, a custodian is a financial service provider who holds, transfers or makes payments with client money or property, on behalf of the client.

A custodian is required to register on Financial Service Providers Register. Their account need to be audited by a qualified auditor every year and a copy of the report will send to Financial Markets Authority. They also required reporting all client transactions at least twice a year to their client.

Mortgage - Page 1(2).jpeg

The custodian is usually independent of the Fund manager or investment service provider. David Campbell, former head of custody of Public Trust and current head of custody at Adminis Limited said, “Adminis holds all client assets on trust in a dedicated custody account. This ensures that there are complete separation and segregations between fund manager as a business, and their clients’ assets. This means that fund manager can’t touch or control client assets in any way.” Adminis provide custodial service for InvestNow.

Follow the Money

Lots of investors don’t know their money and investment are actually held by the custodian, not with the investment company.

For example, you decided to put $1000 in Superlife to invest in NZ Shares Fund. When you deposit the money, you are not paying into Superlife’s operation account, your money is held by their custodian, which is Public Trust. Superlife will tell Public Trust to use that $1000 and buy NZ Shares Fund. The only money goes to Superlife’s bank will be the admin fee and management fee.
Mortgage - Page 1

The assets are held in custody, and the investor is recorded as the ‘beneficial owner’. This ensures that investor owns the asset, and also that there is complete separation of client assets from SuperLife – if SuperLife is not around, investors’ asset would still be held by the custodian, and the investor would still be recorded as the beneficial owner.

How does it Protect your Investment?

Since the fund manager and investment service provider didn’t hold investor’s asset, the asset is safe from the collapse of the fund manager.

If the investment company poorly runs, owe lots of money from different creditors and went out of business. All asset within the investment company will be sold to repay the creditors. Since the client’s asset are held by the custodian, they are a different legal entity, investment company’s creditors cannot access to their client’s money. So your investment will be safe from investment company collapse.

Mortgage - Page 1(1).jpeg

Also, the fund manager cannot transfer client’s name into their own bank account because they have no control over the asset. The fund manager can’t run a ponzi scam with custodian controlling the asset.

One of the largest Ponzi Scam in New Zealand – Ross Asset Managment was running by an Authorised Financial Advisers who did not use a custodial service, held all client’s asset on his own and ran a ponzi scam from his office.

Custodian is required to be audited by an independent qualified auditor annually. So it will reduce the risk of misconduct at custodian side.

What if Custodian went out of business?

You may worry if the custodian itself is poorly run and went out of business, their creditor can get their hands on your asset. Afterall, the custodian is holding your asset, right?

Not really, the custodian is actually hold their client’s asset in an another separated legal entity. It will protect your asset from custodian creditor.

Here is a real-life example. Adminis provide custodial service for InvestNow client. InvestNow’s clients’ asset is held on trust in Adminis Custodial Nominees Limited. That nominee limited does not have revenue, staff and expenses. So that company will not generate any debt and its separated from Adminis daily operation.

If Adminis goes out of business, Adminis creditors can only get Adminis’ asset, they can’t get Adminis Custodial Nominees Limited asset.

No Guarantees

Custodian is NOT a silver bullet for the financial scam, but it adds a layer of protection for investors from creditors. It makes harder for rogue fund manager or financial service provider to misplace your money and reduce the risk of misconduct.

Custodian would not protect your asset if the fund invested in junk asset or some highly speculative asset. You will still have the risk of losing your money in a bad investment decision.

If you decided to invest in a high-risk fund that focuses on cryptocurrency, and the fund manager decided to put all client money into PonziCoin. (Yes, that’s a real cryptocurrency) The custodian will use your money to invest on PonziCoin under fund manager instruction. If the PonziCoin value drops to nothing, you will lose the value of your investment. Custodian will not protect you from that. Always make sure you understand what asset you are invested in and the risk involved.

Who is using Custodian?

According to FMA, all licensed managed investment scheme managers, whether for a KiwiSaver scheme or any other type of managed investment scheme, have to ensure that a scheme’s money and property are held at arm’s length by the independent supervisor of the scheme or a custodian approved by the supervisor.

So all of your KiwiSaver providers are held under a custodian. For those non-KiwiSaver investments that I’ve been recommended from Superlife, SmartShares, InvestNow and Simplicity, they are all using independent custodian service to hold their client asset as well.

SmartShare ETF investment use custodian to hold your money for a short period of time between 20th of each month to 1st of next month. After that, they will use your money to buy the ETF, and the ETF will be under your own name.

Sharesies, the new investment start-up in Wellington, currently is not using an independent custodian service. According to section 16 of their terms and condition, Sharesies is holding investors’ asset with Sharesies Nominee Limited. That entity is separated from Sharesies Limited but fully owned by Sharesies and share the same directors.

Conclusion

  • The most fund manager, KiwiSaver provider held investor’s money and asset with an independent custodian.
  • An asset in held under independent custodian is separated from Fund Manager’s asset. In the event of fund manager bankruptcy, the creditors cannot access the asset under custodial control.
  • It will be hard for a fund manager to misplace the fund as they don’t have direct access to their client’s money.
  • Custodian is required to be audited by independent qualified auditor every year. The audit report will send to FMA.
  • Custodian will further separate client asset by putting them in a non-trading nominees entity to protect from their own creditors.
  • Custodian will reduce the risk of misconduct from the fund manager. It will NOT protect the investor from asset devalue.
  • Always make sure you understand what asset you are invested in and the risk involved.

Special thanks to Anthony from InvestNow and David from Aminins answered some of my questions.

 

 

Fund Update: Regular Investing with InvestNow, Cheaper SmartShares and More Funds in Sharesies

Got a couple fund updates in October 2017 including regular investing with InvestNow, cheaper SmartShares management cost, more fund options in Sharesies and new fund with Simplicity.

Regular Investing with InvestNow

InvestNow just rollout their regular investing options. Yay! Before that, every time investors transfer money to InvestNow, the money will be sitting in their “Transaction account”. The investor was required to log into their account and manually invest that money into funds. Not very robust.

Now with regular investing, you just need to instruct InvestNow how you want your fund distributed once and they will do it automatically. Also, with regular investing, the minimum transaction amount is lowered to $50. Here is how it works.

Once you login to InvestNow, you will see a new option called “My Plan”.

Screen Shot 2017-10-03 at 10.33.18 AM.png

Click create to start a new plan.

Screen Shot 2017-10-03 at 10.33.45 AM.pngYou decide how much you want to invest and how frequently. You can invest on a weekly, monthly, quarterly or six-monthly basis. Also, you can choose when the plan start and end. Below is an example for $100 invested monthly with no end date.

Screen Shot 2017-10-03 at 1.46.18 PM

Next is to instruct which fund you would like to invest by percentage. The minimum investment amount for a single fund is $50/transaction. If you are investing $100, you can invest in 2 different funds at $50/each or $100 in a single fund. Below is an example for $100 invested into two Vanguard funds.

Screen Shot 2017-10-03 at 10.35.59 AM.png

After that, click save and you are done. Make sure you set up an automatic payment from your bank!

I am glad InvestNow introduces regular investing options and lower the transaction amount to $50. It makes it easier for investors to set up automatic payment and use the dollar-cost averaging method to invest. It further lowers the barrier of entry and makes InvestNow be a “set and forget” investment solutions.

Check out their Regular Investment Plan page for more info.

Just be aware that minimum lump sum investment amount is still at $250/transaction.

InvestNow buy RaboDirect’s managed funds line

InvestNow just announced they acquired the Managed Funds product line of RaboDirect. RaboDirect started a marketplace for investment funds in 2006. In fact, the InvestNow’s managing director, Mike Heath, set up RaboDirect’s platform back then.

Now InvestNow acquired the Managed Funds product line from RaboDirect, their customer will transit to InvestNow platform.

I think it’s great as RaboDirect customer get to stay in the same fund and will save more on fees because InvestNow does not charge admin or transaction fee. It will also expand InvestNow customer based. I hope it will lead InvestNow to bring more high quality and low-cost index fund to New Zealand like Vanguard and Blackrock.

Check out my blog on InvestNow here.

Investnow – Invest in Vanguard Fund with 0.20% Fee

Smartshares reduces fee on award-winning ETF

Screen Shot 2017-10-03 at 1.26.05 PM.png

SmartShares’ NZ Mid Cap ETF recently won the New Zealand Equity Sector Fund of the year at the 2017 FundSource Awards.

The NZ Mid Cap ETF tracks the share price of 38 New Zealand Stock and its median market cap at 1,090 million. The index is made up of top 50 companies in NZ stock exchange but excluded the top 10 companies and product issued by non-New Zealand issuers. You can find the stock of The A2 Milk Company, Xero, Air New Zealand, Mercury, Mainfreight and Port of Tauranga in this ETF.

Here is the sector breakdown on Mid Cap ETF.

Screen Shot 2017-10-03 at 11.17.32 AM.png

SmartShares just lower their management fee from 0.75% to 0.60%. So this is good news for their current investors. This ETF used to have the biggest cost difference with their ETF fund counterpart in SuperLife. Now the cost is more in line with SuperLife ETF fund. However, SuperLife still has the lower management cost at 0.49%.

Check out my comparison on management fee between SmartShares and SuperLife.

Sharesies added New Socially Responsible Funds

Screen Shot 2017-10-03 at 1.31.13 PM.png

Sharesies, the new Wellington start-up, just added two socially responsible funds from Pathfinder Asset Management. They are The Pathfinder Global Responsibility Fund and the Pathfinder Global Water Fund.

Socially responsible investing also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social good to bring about a social change. Those funds will invest in companies practices that promote environmental stewardship, consumer protection, human rights, and diversity. They avoid business involved in armaments, gambling, tobacco, thermal coal and pornography.

Pathfinder Asset Management said Environmental, Social and Governance (ESG) scores as one of the factors to invest with those two funds. Pathfinder Global Responsibility Fund targets 250 stocks from around the world and Pathfinder Global Water Fund target on 50 to 100 companies that generate significant income from water-related activities. Both funds are actively managed, and the management cost is 0.93% and 1.3% per year. Also, those two funds have a transaction fee on buy and sell of 0.05%. So if you invested $50 in either fund, $0.025 would be charged as a transaction fee.

I think Sharesies did a great job adding socially responsible funds on their platform as the fund will appeal to their core customers. However be aware of those two funds are actively managed, and there is a transaction fee on buy and sell.

Check out the fund info here. The Pathfinder Global Responsibility Fund and the Pathfinder Global Water Fund.

One More Thing

One last thing, Simplicity added Guaranteed income fund and I’ve got a sperate blog on that.

The Best Way to Invest for Your Children in New Zealand – What to Invest

This is the second part of my investing for children series. In a previous post, we talked about why should we invest for your kids and what you need to know beforehand. Now, let’s dive into what to invest for your children in New Zealand.

Index Fund & ETF for Kids

In case you don’t know, I am a big fan of the low-cost index fund and ETF because this is a low-cost investment option with a diversified portfolio and low entry requirement. Naturally, I will put my kid’s investment into them as well as a managed fund with ETF and Index fund in it. However, lots of investment services won’t accept anyone who is under 18 years old as investors. Basically, under their terms and conditions, you will have to be 18 years old or over to sign that agreement. Therefore, there are not a lot of choices for children.

 

7PhLQGY.gif

Looking for investment options for my kids

Furthermore, a good investment for kids is kind of the hidden gem out there. The one that advertised heavily aren’t very good, and you will have to dig deep to find the good ones. After lots of googling, emailing and reading, here are my top picks.

SuperLife MyFutureFund

Hidden Gem No.1 is Superlife MyFutureFund. This is a different service from SuperLife KiwiSaver and SuperLife Invest (non-KiwiSaver Service). This service doesn’t have a web page at the moment so you won’t find it on SuperLife web site. The information is buried under SuperLife Invest Product Disclosure Statement, page 26 and 27 of that PDF file.

(Superlife is currently redesigning their website. The myfuturefund page will return after that.)

MyFutureFund itself is NOT an index fund or managed fund, it’s just a way that allows children to invest in SuperLife’s product. The account is in the child’s name but the guardian/person opening the account has control of the account including access to the funds through until 18 years of age. The account is separate from parents account, but you would be able to view the account through a “linked” membership.

MyFutureFund has access to the all Superlife investment options. There are over 40 different investment options available for kids including ETF, index fund, sector fund and managed fund. My personal picks for my kids are SuperLife 100 and Overseas Shares (Currency Hedged) Fund.

SuperLife 100 is made up of mostly Vanguard Index fund and ETF plus fund from Somerset. The investment included, 55% of international shares, 33% of Australasian shares and 12% listed property. The management cost is 0.52% and risk indicator at level 4. Three years return after tax (PIR at 28%), and fees are 8.35%. Seven years return is not available.

Overseas Shares (Currency Hedged) Fund is made up of eight Vanguard ETF. Invested 100% in international shares and mainly in US and Europe stock market. The management cost is 0.48% and risk indicator at level 4. Three years return after tax (PIR at 28%), and fees are 7.52%. Seven years return is 11.47%.

I picked those two funds because they are both diversified and contain 100% growth asset. Regarding fees, the management fees are relatively low, and SuperLife’s annual admin fees are only $12/years. They do not have regular contribution requirement, minimum investment amount can be just $1. So Superlife is great for both regular and irregular investing for your kids. I already got an account with SuperLife on my own so linking the kid’s account is straightforward and easy.

What about Investment for Mid-term

Those two fund that I suggested were 100% growth asset, so they are aggressive fund. They provide a great return for long-term investing. However, they will be too risky for mid-term investment. If you plan to use that money within 4-10 years, you may consider some other fund with lower growth asset.

SuperLife 30, 60 and 80 are similar to SuperLife 100 but added a different percentage of income asset. Fund with more income asset will have a lower range of gain and loss in any given year, and better return during recession compare to 100% growth asset fund. On the other hand, when the market is booming, those funds will have a lower return.

I think Superlife 30 will be ideal for 4-6 years investment, Superlife 60 will be great for 6-8 years, and Superlife 80 will be ideal for 8-10 years. For example, if your kid is 12 years old and planning to use that money for the university at 19-year-olds. Your investment timeframe will be 7 years, and you should consider Superlife 60. For any plan under 4 years, term deposit with the bank is a good choice.

How To Join MyFutureFund

SuperLife doesn’t have the easiest way to join so there is how you can join them. You will need to fill in the application form from SuperLife and send it over by mail or email.

  1. Download and read SuperLife Invest Product Disclosure Statement
  2. Go to Applications form (page 22 of the PDF file) and fill out your kid’s details and use a separate email set up for kids investing.
    Screen Shot 2017-09-11 at 10.35.29 PM.png
  3. Under Saving section, you choose how you are going to invest. It can be one lump sum investment, regular investment or both. The example below starts with $500 lump sum investment with NO regular contribution.
    Screen Shot 2017-09-11 at 10.45.08 PM.png
  4. Fill out the Communications and ID verification. You should be using NZ passport or NZ Birth Certificate for the kid.
  5. Under Investment strategy, they will ask if you would pick their managed fund first.  If you wish to join SuperLife 100, just tick as below.
    Screen Shot 2017-09-11 at 10.50.27 PM.png
  6. If you wish to join other funds or join multiple funds, you’ll need to tick “My Mix” and go to the next page.
  7. At page 5 of the application form (page 26 of the PDF file), fill in initial investment or regular investment. You can set the amount by actual dollar value or by percentage. At the example below, I invest 50% to Superlife100 and 50% to Overseas Shares (Currency Hedged Fund).
    Screen Shot 2017-09-17 at 10.11.54 PM.png
  8. On the right side of My Mix page, you can decide what to do with your investment income. They can be reinvested into the fund or save the return in cash fund. Reinvestment is the most common choice for kids. Below that, you can decide rebalancing options, I suggest to use the standard rebalancing for the kids.
  9. At the next page (page 25 of the PDF file), after you pick the beneficiaries (usually “My estate”), DO NOT sign at the bottom. You should move onto the next page.
    Screen Shot 2017-09-17 at 10.36.14 PM.png
  10. At the next two pages (Page 26 and 27 of the PDF file), you will have to fill in your own information as the guardian, supply the ID information, and sign it.
  11. Once you completed the application form, you can send it over to SuperLife, and the investment account will be ready in a couple days.

If you have any other questions, contact Superlife with superlife@superlife.co.nz or call them at 0800 27 87 37.

InvestNow’s Vanguard Fund

The second gem is InvestNow. InvestNow is an online investment platform provide multiple investment fund for their investors with low entry require and no middle-man fee. You can check out my blog post on InvestNow here. Unlike other investment services, InvestNow’s term and condition do not have an age restriction. Therefore, InvestNow opens the door are a whole range of investment fund for your kids. You can check out the full range of investment fund from InvestNow here.

Screen Shot 2017-09-17 at 10.42.19 PM.png

Out of all those investment options, my pick for my kids is Vanguard International Shares Select Exclusions Index Fund.  That fund launched for AUS and NZ market in late 2016. It contains about 1500 listed companies across 20 developed international markets (without Australia). This fund is an ethical fund as they excluded Tobacco, controversial weapons and nuclear weapons investment.

The BEST things about this fund are the cost. It only charges 0.20%/year on management fees and NO annual admin fee. The fund itself is a wholesale fund, which means it usually only accept institutional invest. The minimum initial investment required was AUD $500,000. The good news is, investors can join this fund via InvestNow with just $250 investment. (InvestNow will lower that requirement to $50 shortly.)

There is two version of this fund, one with NZD currency hedged with 0.26% management fee and one without currency hedged with 0.20% management fee. Without currency hedge, the fund is exposed to the fluctuating values of foreign currencies. So this fund will have a higher risk and lower cost. On the other hand, you will pay a higher fee for a more stable return with the currency hedged fund.

Here is the link to check out those two funds in details.

Vanguard International Shares Select Exclusions Index Fund

Vanguard International Shares Select Exclusions Index Fund – NZD Hedged

Pay Tax on Investment

Those two funds have a different tax treatment compare to common PIE fund. With PIE fund, the investor usually just need to submit their IRD number and PIR rate once, then they don’t need to worry about tax. With those Vanguard funds in InvestNow, they are Australian Unit Trusts and will be taxed under Foreign investment funds (FIF) rule. Investors are required to submit their income from FIF and file a tax return every year. If the holding amount is under NZD $50,000, which should be the case for most children investors, you will need to pay tax on the dividend you received with the kids’ RWT rate. If the holding is over NZD $50,000, you will have to calculate your taxable income with either Fair dividend rate (FDR) method or Comparative value (CV) method.

For children investors with portfolio value under $50,000, filing a tax return on dividend received is not too hard. You will need to file a Personal tax summaries (PTS) with IRD, and it can be done online. I will share how I do that with my kids next year. Regarding FDR and CV method, I personally don’t know how to do it. You better to talk to a tax accountant for that.

How to Join InvestNow

InvestNow sign-up process is very straight forward so there won’t be a step by step guide. You’ll need to click on the join link on InvestNow home page and use a separate email address to sign up. After you sign up an account, InvestNow will ask you to provide information on identification. You don’t have to complete that. Instead, contact them directly with contact form or call them at 0800 499 466 and let them know you want to set up an account for your children. Make sure you got the following information ready

  • Email address of the account
  • NZ birth certificate or a passport for a child
  • IRD number of the child
  • PIR and RWT rate for the child
  • Proof of guardian’s address

InvestNow will be able to set up an investment account from here. They can also link multiple child accounts to your current InvestNow account if you have one already.

Update on functions

Currently (at 19 Sept 2017), InvestNow don’t have auto-invest function, and the minimum transaction amount is at $250. So it’s not the best choice for someone who wants to regularly invest for their kids because they will have to transfer $250 into InvestNow, then login to their platform and manually invest that money into the fund. The Good news is InvestNow will implement auto-invest function and lower the minimum transaction limited to $50 shortly. So Investors can set up instruction to let InvestNow automatically invest into your preferred fund everytime you transfer money to them.

(Update, InvestNow added auto-invest function with $50/transaction.)

Conclusion

Here is the breakdown of my top picks compare to our kid’s investment requirement.

Screen Shot 2017-09-19 at 2.43.56 PM.png

  • Superlife MyFutureFund provides a full range of fund for different investment timeframe. They have all necessary function for you to setup different investment plan for your kids. A great “set and forget” solution. However, they don’t have the lowest fee.
  • InvestNow allows user to invest in a great Vanguard investment fund with 0.20% management fee and no annual fee. However, you will have to do a tax return for your kid every year.
  • Feel free to contact them before you sign up and understand the process. I found both companies is great with answering customer questions.

In next part of my investing for kids series, we will look at some other investment options including KiwiSaver, Bonus Bond, SmartShares and more. If you are currently invested in or considering some investment program for your kids and want me to cover them, drop me an email at thesmartandlazy@gmail.com. I will try my best to cover that.SaveSave

SaveSave

InvestNow Added SmartShares ETFs into their Offerings

InvestNow announced they added 7 SmartShares ETFs into their investment platform. They are the following:

Screen Shot 2017-08-18 at 9.52.26 PM.png

You can access to those ETFs from SmartShares, Superlife, and Sharesies (on some ETF) already. I’ve compared the cost on those ETFs on the previous post and concluded you should get most of the ETF from Superlife except US 500; SmartShares was the better choice for US 500. You can check out the related post below

Related post: Compare ETF Fund Cost between Superlife and Smartshares

Cheapest Option for US 500 ETF

Smartshare was the cheapest option for investing in US 500 ETF because of the low management fee at 0.35% and no annual admin fee. There is a $30 set up fee if you use SmartShares contribution plan and at least $30 exit fee when you sell your ETF.
If you buy or sell the ETF on the share market, there will be $30+ transaction fee on each transaction. Superlife US 500 ETF fund has a higher management fee at 0.49% and charges a $12 annual fee. Sharesies have the same management fee with SmartShare, but they charge $30/year on admin fee. Therefore SmartShares contribution the cheapest option for US500 ETF investing.

Now InvestNow added SmartShares ETF into their offerings, it further lower the cost of US500 ETF. InvestNow offers an investment platform for investors with no annual admin fee. Investors can also bypass the $30 set up fee and the cost of exit the fund on SmartShares ETF. The minimum investment amount lower at $250 and no contribution commitment required. The management fee will be the same with SmartShares at 0.35%. Check out the comparison below. (Update: InvestNow client can now set up regular investment with just $50/transaction.)

 

 

Different Way of Contribution

By looking at the number, InvestNow investors can save on $30 set up and the $30+ cost of exit, so it appears to be a better deal to SmartShares. There is a difference on how you contribute to the fund between Smartshares and InvestNow. Take a look at the function difference below.

Screen Shot 2017-08-17 at 10.19.29 PM.png

The main limitation for InvestNow investors is the lack of small amount direct debit. SmartShares Investor will be committed to at least $50/month contribution (can be stopped at request). InvestNow investors are free to contribute whenever they want. However, the minimum contribution amount will be $250/transaction. If you only have $50/month to invest, you will have to put money in InvestNow once every five months to reach the $250 requirements. So on the one hand, you will save $30 in the beginning, but you will miss five months possible loss/return. (Update: InvestNow client can now set up regular investment with just $50/transaction.)

Compare Return Between InvestNow and SmartShares

(Update: InvestNow customer can now set up regular investment plan with just $50/transcation. InvestNow will be a better choice over SmartShares in terms of cost.)

To work out which one is the better deal on US 500, I ran an analysis to compare the return between InvestNow and SmartShares.

I assume the investor has $500 available to invest and can contribute $50/month. With SmartShares, the fund going to start with $470 due the to $30 setup fee and the investor will contribute $50/month. At InvestNow, investor’s fund will start with $500 and will contribute $250 every five months. The investor will continue for five years (60 months) without any withdrawal. Expected return rate is 10.32% before tax. Here is the breakdown.

Screen Shot 2017-08-17 at 10.54.15 PM.png

Although SmarShares charge a $30 setup fee up front which lowered the starting amount to $470, they ended up with a higher end balance at $4,640.51. The reason is Smartshares investor contribute $50 every month, and those funds are growing while InvestNow customer’s money is sitting in the bank doing nothing.

Here is the result of different levels of contribution at the end of the fifth year.

Screen Shot 2017-08-17 at 11.46.57 PM.png

SmartShares investor has a higher return over InvestNow at a lower rate, the gap close as they reach $250 marks. I stopped at $250/month because once you can contribute that amount, you can put money in InvestNow every month. From this point, InvestNow customer will always have better return over SmartShares

It seems SmartShares will be a better deal if your contribution under $200/month. However, there is a flaw in this analysis.

In my assumption, I set the rate of return at 10.32% for all five years. It assumpts the share price of the ETF going up in a straight line and investor will have a positive return every month. However, in real life share price goes up and down every day. By contributing less frequently, InvestNow investor may lose some of the gains during those five months, but they also avoid some drop as well. Afterall, the share price looks like this in real life.

Screen Shot 2017-08-17 at 11.19.52 PM.png

Applying Real Data

So I collected the share price of US 500 ETF for the past 24 months and plugged that into our analysis. Here is the result. Click here to see the ROI. 

Screen Shot 2017-08-17 at 11.50.36 PM.png

This time InvestNow ended up with a higher balance over SmartShares. In fact, Investnow beats SmartShares on every contribution level with past data. Check out the result below.

Screen Shot 2017-08-17 at 11.48.25 PM.png

The Real Deciding Factor

No one knows how the US 500 ETF is going to perform in the future so either service can be cheaper. If you look closely at the amount, the cost difference between InvestNow and SmartShares are insignificant, less than 0.1% of your fund. So investors will need to consider their contribution level and the experience of those two services.

In my opinion, InvestNow functions and its user interface are much better than SmartShare. InvestNow have a modern, clean and easy to understand platform. SmartShares’ holder will be checking their current stock holding on Link Market Service web site. The interface feels like it stuck in 2010.

Related post on InvestNow and SmartShares (Link Market Service)

The main limitation on InvestNow is lack direct debit option, so it’s not a “set and forget” type of investment solution. The investor will have to deposit the money into InvestNow platform and manually invest US 500 ETF on InvestNow website. InvestNow said the direct debit function is on the road map so the situation may improve in the future.

Link Market Service interface for SmartShares is not good, but you can view your holding on other services like ShareSight, Google Finance, and Yahoo Finance to improve that experience.

Conclusion

It’s great to see InvestNow adding more and more fund onto their platform. I prefer InvestNow interface and function over SmartShares. However, I understand everyone circumstances are different so here are some recommendations which service you should consider on US 500 ETF.

  • Use SmartShares if you want a ‘Set and Forget’ solution and you plan to contribution between $50 – $200/month. (Update: InvestNow customer can now set up regular investment plan with just $50/transcation. InvestNow will be a better choice over SmartShares in terms of cost.)
  • Use InvestNow if you like their user interface (you can register for free on InvestNow to check out the interface), don’t want to commit to a monthly contribution plan and happy to invest manually at minimum $250.
  • Use SuperLife if you already have a portfolio with SuperLife and want to have all funds under one flexible service with great functions.
  • Use Sharesies if you like their interface. Check out my comparison here.
  • For other ETFs, you should use SuperLife, here is why.

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

 

 

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 is 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

(updated Oct 2017)

Screen Shot 2017-10-03 at 9.42.55 PM.png

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 overseas 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 overseas ETF is US 500. It tracks the top 500 companies on US stock example, most of them are top international corporations.

Some people have 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 has 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.

Screen Shot 2017-06-13 at 10.35.17 PM.png

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.

(updated Oct 2017)Screen Shot 2017-10-03 at 9.47.21 PM.png

 

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 experienced investor.
  • Simplicity has the lowest cost managed fund in Conservative, balance and growth area. Great for anyone with $10,000 to start investing.
  • InvestNow user can easily invest in Vanguard index fund in Australia with 0.20% – 0.26% fee. Great for someone who can handle their tax return on dividend received (not that hard) or calculate under FIF rule.
  • SmartShares is good if you wish to buy ETF on the share market.
  • There are other ways to invest into a passive fund and ETF in New Zealand, like ASB Investment Fund, AMP, and Lifestages. However, the cost of those funds is quite high compared 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.

 

SaveSaveSaveSaveSaveSaveSaveSave

SaveSave

Simplicity Cease Offering on InvestNow… but Don’t Let it Stop You

Last Friday I wrote about investing Simplicity non-KiwiSaver fund via InvestNow from as little as $250.

However, I am sorry to say this opinion is no longer available. Simplicity decided to cease offering on InvestNow.

CqLObMA.gif

You can read the statement from InvestNow here.

I am personally disappointed as this is a great way for anyone to invest in a quality low-cost fund with a low initial investment. I was planning to invest in Simplicity fund but I don’t have the fund until next month, so I missed out on that.

What does it mean for the investors?

If you are InvestNow user and you already invested your money into Simplicity fund via InvestNow, you will be able to hold your investment in the fund, but you will not be able to make new investment.

For those who wanted to join Simplicity Fund but don’t have $10k available, you will have to keep saving until you reach $10k…. or not. Hear me out!

Don’t wait, Start NOW!

If you have some money to invest now, you don’t have to wait. I would suggest you invest those fund elsewhere rather than save for months and years to reach $10K.

I know Simplicity fund is excellent, and I may even say it’s the best fund in this country. However, that is just the best fund when you have $10k or more. It doesn’t mean you can’t invest in anything else before you come up with $10K.

You can invest in Superlife 80, which is similar to Simplicity growth fund. Superlife 80 holds 80% growth asset (Share, property) and 20% income asset (Bond, cash). They also invested in Vanguard fund and ETF. Superlife a higher management fee (0.50%) and small annual fee ($12). The most important thing is there is no minimum initial investment requirement. If you are young and happy with the risk, you can go with Superlife 100, a managed fund with 100% growth asset, something Simplicity do not offer.

If you already put the money in InvestNow, you can invest in their Vanguard fund with just 0.26% fee. Simplicity Growth invested 60% into that fund (and you will have to pay tax on dividends received). I’ve done a blog post on that.

My point is, there are lots different opinion for investor out there. Don’t let that $10K hurdles stop you and start investing. You will reach $10k before you know it.

giphy.gif

 

Investnow – Invest in Vanguard Fund with 0.20% Fee

Investnow is a new online investment platform and fund management service just started this year in New Zealand. It is NOT an investment firm but a marketplace for investment funds. Kiwi investor can directly invest into the selected fund on investnow platform without the middle man. I’ve done some research on the company and invested some money via the service. Here are my findings.
Screen Shot 2017-05-04 at 2.39.11 PM.png

Range of Fund

Investnow offers 33 different investment funds from both local and international fund manager. The investor needs to deposit minimum $1000 $250 into Investnow transaction account and invest into the fund on their platform at $250 minimum.
1705-How-it-works-1200x1447.jpeg
Here is the list of the fund provider
 Logos.jpg

No Transaction/Admin/Joining/Setup/Exit Fee

The main selling point for Investnow is no transaction/admin/Joining/Setup/Exit fee at all. When you put $1000 $250 into Investnow, Investnow won’t charge anything on your money. You can invest that full $1000 $250 into different funds. You only need to pay the cost of each investment fund.
Investnow made their profit by charging investment fund providers to list their funds on their platform.

The REAL selling point

Since investor can contact most of those investment funds directly and set up an account, no transaction/admin fee is not a real selling point here. For me, the real selling point for Investnow is low barriers to entry and Vanguard fund.
If you want to invest into those funds directly without Investnow, the majority of those funds have a minimum initial investment amount from $2000 to $500000. For example, Fisher Fund’s International Growth fund require minimum $2000 initial investment and Mint asset management’s Australia New Zealand Real Estate Investment Trust minimum investment is $5000. If you invest from investnow platform, you can put only $250 into those funds. It dramatically lowers the entry requirement for those funds and makes it more accessible to the average retail investor.

Vanguard fund

Vanguard

The most significant benefit with investnow (for me at least) is you got access to Vanguard International Shares Select Exclusions Index Fund. That fund launched for AUS and NZ market in late 2016. It contains about 1500 listed companies across 20 developed international markets (without Australia). This fund is an ethical fund as they excluded Tobacco, controversial weapons and nuclear weapons investment.
Simplicity Kiwisaver invests heavily into this Vanguard fund. 61% of Simplicity Growth fund invested in Vanguard International Shares Select Exclusions Index Fund.
There are two versions of this fund. Vanguard International Shares Select Exclusions Index Fund has a low managed fee at 0.20%. The Fund is exposed to the fluctuating values of foreign currencies, as there will not be any hedging of foreign currencies to the Australian dollar. So this fund has a higher risk due to foreign exchange fluctuation. Vanguard International Shares Select Exclusions Index Fund – NZD Hedged are hedged in New Zealand Dollar with a higher management fee at 0.26% but with lower risk.
For individual investors, if you want to invest into this fund directly, you will have to start with $500,000 AUD. Investnow lower that entry barrier down to just $250. In my opinion, this is a great fund to invest because of the low-cost, diversified portfolio and low barriers to entry.

Everything sounds good, so what’s the catch?

Yes, there one thing not so good about Investnow. You’d need to do your tax return if you invested in Vanguard funds.
Admittedly, I am not good at tax. So the following information may be wrong.
From what I understand, those two Vanguard funds are not the same with other listed fund on their platform as they are not PIEs fund. Vanguard funds are Australian Unit Trusts. Accordingly, they are taxed under the FIF rules (that apply to global shares). Investors need to do their own tax return. Investnow produces consolidated tax information to help investors to complete their own FIF tax return.

My Experience

After some research and background check on the company, I invested $1000 into Investnow and tested it out.
The sign-up process was quite simple; I managed to complete in 5 mins. The interface is easy to understand. The funding and investing took 1-2 days to complete. You can check out your holding and performance any time.
Check out the screenshots below. 
 
One thing worth mentioning is Investnow use a Two-Factor Authentication for login. You need your username, password and a six-digit passcode that send to your email or phone to log in. I recommend using your phone to received that passcode in txt.

Conclusion

So far I am happy with the Investnow as its allow me to access Vanguard fund with just $1000 $250 investment AND no one charging me extra fees in the middle. The service is straightforward and easy to use. The only concern will be the tax implications on its investor if you invest in the Vanguard fund. (Personally, I need to figure that out before next April.)
InvestNow is free to join. You don’t have to deposit $250 to become a user. You can just sign up with an email address and check out the offering.
Investnow is a new company; some investor will (and they should) question the legitimacy of the company/service and the safety of their investment. I’ve done research on that and I will share that in the next post.
(UPDATE: InvestNow recently lower their minimum deposit amount to just $250.)
Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.