Q Our sharemarket is relatively small, so what impact do KiwiSaver contributions have - especially when the Member Tax Credits go through to fund managers at this time of year? Does it make a noticeable difference to trading volumes and share prices?
A Over the 12 months to 30 June 2012 just under $800 million was paid out in Member Tax Credits, mostly during July 2011 when Inland Revenue processed member entitlements for the preceding 12 months. This represented one quarter of the entire inflow to KiwiSaver over that period - quite a large sum over a short period of time. But let's look at the asset allocation of KiwiSaver schemes to see where that money went.
There is now nearly $12 billion in KiwiSaver accounts and the majority of KiwiSaver investors are in conservative funds. This means that there is more in fixed-interest type investments (both here and overseas) than share market investments.
The provider with the most funds under management is ANZ One Path with $2.9 billion. Their conservative fund has just 5 per cent in Australasian shares (spread across New Zealand and Australia). I asked Simon Botherway, who is GM Investment Management at ANZ Wealth, for feedback on this reader's question. He said: 'The Member Tax Credits received from the IRD are spread across the month of July and, given prevailing fund preference, a large proportion of members' contributions are allocated to conservative, fixed-income assets rather than shares. In July 2011 there was a pick-up in NZX market activity which was probably due at least partly to the investment of MTCs, however since then the MTC entitlement has halved.'
The New Zealand sharemarket is regarded as more high risk than larger overseas markets, so a large weighting is not appropriate for conservative investors. Why so many conservative investors? Partly a lack of confidence in financial markets, but mostly because of the large number of KiwiSaver investors who have been randomly allocated to one of the six default providers and from there into a conservative fund (the default option).