NZX predicts happy days with the Fonz

By BRIAN FALLOW

The New Zealand Exchange today launches a savings product designed to attract people with modest means and minimal sharemarket experience.

The Fonz (for Fifty of New Zealand) is a passive or tracker fund whose value rises and falls in line with the New Zealand sharemarket's top 50 companies.

It will not exactly track the top 50 index, however, as no single stock can have more than a 5 per cent weighting in the fund.

For the initial public offering, which opens on Monday and closes on December 3, the minimum investment has been set at a low $1500.

Unitholders who invest in the IPO will be able to sign up for a regular monthly contribution thereafter of at least $50 a month at a transaction fee of 25c a month.

Investors are also encouraged to reinvest their dividends, although the option of a cash dividend exists.

New Zealand companies' practice of paying relatively high dividends, by international standards, is touted as one of the attractions of the fund. If the fund had existed over the past 12 months it would have paid a dividend of 6.4 per cent.

Fonz offers the two normal advantages of a passive fund.

It is a relatively cheap way of investing in a diversified, and therefore less risky, portfolio of shares.

And, unlike superannuation schemes and actively managed unit trusts, it is not subject to capital gains tax.

However, Finance Minister Michael Cullen intends to scrap the capital gains tax on those investment vehicles.

In any case, said NZX chief executive Mark Weldon, these days most employees do not have access to the master trust structures that employers tend to use to provide workplace superannuation schemes.

The absence of a tax advantage had not hampered the rapid growth of similar passive funds offshore, he said.

The Fonz product offers very competitive management fees - 0.9 per cent a year, about half the industry norm. For long-term investments small differences in fees can accumulate into significant differences in returns.

New Zealanders had as much of their wealth in cars as in stocks and bonds, Weldon said, which ranked us alongside Argentina and the Philippines and well below countries to whose standard of living we aspired.

Market research NZX had undertaken had found a widespread lack of knowledge of how to start investing in the sharemarket.

"We also found a desire to have things that don't involve a huge amount of hassle."