Friday 28th October 2016
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KiwiSaver providers will be able to offer a low-cost international shares fund that excludes tobacco as well as controversial and nuclear weapons from the portfolio by the end of the year.
In August, Radio New Zealand reported that many New Zealanders were unknowingly allowing their savings to be invested in global share index-tracking funds that included shares in companies that manufacture cluster bombs and land mines.
Vanguard, a global investment firm and one of the most common providers of index-tracking funds to New Zealand KiwiSaver providers has now set out a new international shares fund for the Australian and New Zealand markets, which specifically excludes tobacco, controversial and nuclear weapons.
The new fund excludes 23 companies, compared to Vanguard's International Shares Fund, including Philip Morris International, British American Tobacco, Lockheed Martin Corp, BAE Systems and Boeing. Apple remains the largest holding in both funds, although the exclusions fund has a slightly greater weighting towards the tech giant.
Robin Bowerman, head of market strategy at Vanguard Investments Australia, said the controversy was a factor in the launch of the fund: "It probably prompted us to bring forward the product development to this year as opposed to next year. But there is a global discussion about this, there’s a global context to this, and then there was the local New Zealand concerns around the default KiwiSaver products.
"From Vanguard’s point of view, we’re trying to be responsive to what clients are requiring. We’ve worked pretty hard to get this product to market," he added.
The annual management fee will be 0.26 percent, although this is the price charged to the KiwiSaver fund provider, rather than the fee a saver will pay. The price is slightly higher in New Zealand than in Australia, reflecting hedging for currency fluctuations.
Sam Stubbs, managing director of the newly launched Simplicity KiwiSaver plan, told BusinessDesk: "We will be going into it 100 percent. I would be amazed if the rest of the market didn't as well."
Simplicity's low-fees model is based on its exclusive use of low fee Vanguard products for its international investments.
In terms of sector exposure, the new fund reduces exposure to what are termed consumer staples and industrials. However, it increases the weighting of the fund towards energy to 7.2 percent from 7 percent, just as investors begin to consider climate change issues more closely. Earlier this month, the New Zealand Super Fund announced a divestment strategy for investments exposed to climate change risks, including fossil fuels.
Vanguard's Bowerman said "obviously when you exclude things out of an index, then other things will get re-rated. The whole debate about energy, fossil fuels: that’s going to be an ongoing discussion point. Over time, funds may have to evolve to accommodate that.”
Stubbs said increasing investor demand for investment funds aligned to their personal values was "not going to go away", but said the fossil fuels issue was far more complex than excluding armaments and tobacco: "It's not just emissions from tailpipes, it's plastics and a whole load of businesses. I think it's too early to be saying 'we won't be investing in oil companies'."
Government agencies such as the Accident Compensation Corp and the Super Fund are specifically banned from investing in businesses involved in cluster munitions, landmines, tobacco and the nuclear industry.
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