Do actively managed KiwiSaver funds perform better than passive?

Do actively managed KiwiSaver funds perform better than passive?

Investing in managed funds or KiwiSaver is a popular way to diversify and potentially earn higher returns. When choosing a fund, the question is whether to invest via an active or passive fund. Active funds are managed by professionals who aim to outperform the market. Passive funds simply track a specific index.

The debate has been heavily focused on fees in recent years. Passive funds are often cheaper than active funds, which has led many investors to choose them over their actively managed counterparts. However, there are other factors to consider beyond fees. This article takes a different perspective on the active versus passive fund debate with this recent story.


The background

On October 28, 2022, Sixth Street Management and BGH Capital agreed to purchase an 80% stake in Pushpay Holding Limited from existing shareholders for approximately $1.5 billion. However, on February 22, 2023, ACC, ANZ, Nikko Asset Management, and Fisher Funds, which held around 12% of Pushpay Holding Limited, voted against the offer, claiming the price was too low.

These four active management funds conducted in-depth analysis and research on the company to understand its value and growth potential. Active managers use various methods, such as fundamental analysis, technical analysis, and market trends, to make informed investment decisions. This allowed the active managers to have an opinion on what the fair market value of Pushpay shares were. 

In contrast, passive management funds typically do not conduct in-depth analysis or research on individual companies. For example, some popular passive KiwiSaver funds in New Zealand include Simplicity, Kernel Wealth, and Smartshares. These funds aim to track the performance of various indices, such as the S&P500 or NZX 50, by investing in a diversified portfolio of stocks weighted based on their market capitalisation. Passive management funds aim to provide investors with exposure to the broad New Zealand stock market at a low cost, with expense ratios typically lower than active management funds.


What happened next?

On March 16, 2023, Pushpay and all other shareholders agreed on a new $1.42 per share offer from the company's two biggest shareholders, up 6% from the previous $1.34. The company stated that the new offer represented a premium of nearly 38% over Pushpay's share price of $1.03 on April 22, 2022, when it announced that it had received an expression of interest.

According to proponents of active management, this buyout process highlights the important role of active management funds in the market. Active managers have the potential to generate higher returns than passive managers through their investment expertise and in-depth research. If the active management funds had not been involved in the buyout process, Pushpay and all other shareholders would have received less value for their existing shares. 


So what does this mean?

Does this make actively managed KiwiSaver funds better than passive KiwiSaver funds for individual investors? It depends on your worldview. If you believe that by their research, active managers are effectively policing the investment world to ensure value for the universe of shareholders, which results in you getting a better deal - then yes.

However, if you believe you will still get the benefits of the ‘active policing’ while letting the investors in actively managed funds pay for it and are OK with that, passive could be for you.


What should you do?

The active vs. passive debate is nuanced, and no clear winner exists. It's important to remember that choosing the right investment or KiwiSaver strategy for yourself is ultimately more important than whether you opt for an active or passive fund. 

At National Capital, we help our clients do just that. Our research and analysis help us determine which investment strategy is best for each individual, and we recommend the right KiwiSaver provider to implement that strategy. Join the more than 2,000 Kiwis who have already started this journey with National Capital by submitting your KiwiSaver HealthCheck today.


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Monday, 29 May 2023