NZ following overseas trends with growing array of options for savers.

Did you know you can choose the shares that go into your KiwiSaver? Or that you can choose a KiwiSaver scheme that invests in just one sector of the economy? Are you aware that there are Christian- and Muslim-based KiwiSaver funds?

Not all KiwiSaver funds are vanilla-flavoured conservative, balanced or growth funds. As KiwiSaver grows we can expect to see more and more specialist funds - as happened in countries such as the UK, US and Australia as their retirement savings industries matured.

There are KiwiSavers who have other investments and may not want a bog-standard offering. If they already have a mix of local and international investments, they may want to use their KiwiSaver as a counterbalance, not get more of the same.

The Russell Investments LifePoints Target Date Portfolios, which on the surface are standard set-and-forget type funds that change the mix gradually from growth to conservative as you age, are an example of a non-vanilla scheme.


The Russell funds let you set your retirement date later than age 65 - although you can still withdraw your money when you want provided you've reached that age. That means you get the convenience of a life-stages fund, but are not pushed into conservative funds earlier than you want to be.

Under a traditional life-stages fund, says Fiona Lintott, Russell Investments head of investor services, your money will be in a conservative fund by age 65 with only 20 per cent equities. You may still have 30 years left to live. "For some investors, 20 per cent in growth [at retirement] could be too low."

Target date retirement funds are common overseas, says Lintott, and qualify as default funds in the US.

Craigs Investment Partners KiwiSTART Select is unusual in New Zealand, but a well-known type of retirement fund overseas. The fund allows KiwiSavers to mix and match investments within their scheme from more than 160 New Zealand, Australian and global shares and funds.

A Select investor can choose vanilla-flavoured funds such as the conservative, balanced or growth funds. Or they could go for specialist funds such as a world mining fund, or the iShares MSCI Core Emerging Markets fund. Or a Craigs customer could choose to put all of their KiwiSaver pot into a portfolio of listed property trusts, or global equities such as 3M, Apple, Microsoft, Nestle, Google and Toyota.

About 30 per cent of the money in Select, says Stephen Jonas, head of client services at Craigs, has been invested in UK, US, New Zealand and Australian equities in that order.

1 Jun, 2015 6:00pm
3 minutes to read

The sweet spot for this scheme is the cohort of investors aged 50 to 65, says Jonas. "As you would expect, these people have accumulated a little bit of wealth and their KiwiSaver may not be their major investment and they can use it to [take] a little bit of risk."

Grosvenor KiwiSaver also provides funds with a twist for people willing to take on more or less risk than the norm. That includes Options, Geared Growth, Trans-Tasman Small Companies and Capital Guaranteed funds.

The Grosvenor Geared Growth Fund pursues bigger returns by borrowing 25 per cent of the value of the fund to buy more shares. The concept is similar to borrowing money to buy a house. You get the capital gains on the entire value of the home, not just the deposit you put down. Geared investments are viewed as more risky because losses are also amplified.

David Beattie, Grosvenor's joint chief executive, points out that even if the fund went to 50 per cent leverage it would still be far less than the 80 per cent borrowing first-home owners typically make.

The Grosvenor Options Funds buys options over US and other countries' government bonds. It's expected to be highly volatile, but the investment statement says it's suitable for people with long time horizons. It dropped 25 per cent in value in one 10-day period, says Beattie, but recovered. Investors who panic and sell out in this sort of situation shouldn't be in a volatile fund such as this, he says.

Both the options and smaller companies funds aim to achieve a rate of return net of fees but before tax of at least 5 per cent a year and the geared fund 5.5 per cent.

Investors in these funds would ideally have 30 or more years to go before retirement and either be able to stomach the ups and downs of their investment or have a good adviser holding their hand, says Beattie.

An exotic fund aimed at New Zealand's growing Muslim population is the Amanah KiwiSaver. The fund, says Binu Paul, managing director of SavvyKiwi, is managed along Shari'ah principles. It's ethically invested and calculates a "purification" payment for each member to give away as compensation for earning interest on money, which is against Islam.

Another religion-based fund is the Koinonia KiwiSaver Scheme. Its managers select ethical investments that the trustees believe reflect Christian values and it's administered by a non-profit organisation.

Capital guaranteed funds could interest super-conservative investors. Westpac closed its capital guaranteed funds thanks to a lack of investor interest, but Grosvenor still offers one. The fund guarantees that the unit price will never be less than it was the previous March 31.

Typically capital guaranteed funds use derivatives to ensure that the capital doesn't drop during market downturns. This costs money, however, which means the returns aren't as high as they would be in a balanced fund, says Beattie.

We're likely to see more specialist funds as time goes on, says Paul. With $4.1 billion flowing into KiwiSaver a year, a number of funds are running into capacity issues. This means they've become so big that they can't trade efficiently without moving market prices.

"As such, over the next few years I expect to see funds getting more diversified, with allocations to more exotic asset classes embedded within them," says Paul.

"This could also mean you would see more specialist single-sector investment management shops setting up to meet this demand. So while the number of providers may not increase, the number of sectors ... funds have exposure to will rise."

David Boyle, general manager of investor education at the Commission for Financial Capability, believes that there will be further evolution of funds as people become better connected with their investments and look for more options.

Why would someone invest in exotic KiwiSaver funds? The reality is that for the masses, conservative, balanced or growth is all you need. But don't forget that you may be in the wrong one of those.

I'm sure there are some investors who think by choosing some of these funds they can play the markets with their investments. If that's their only retirement investment, they're playing a dangerous game.

There are, however, investors who have a well-diversified investment portfolio anyway.

Investing in specific funds gives the investor an element of control they don't have with standard KiwiSaver schemes.

KiwiSaver is just one part of their retirement savings. If balanced with other investments, then a mining fund or options-based KiwiSaver may be a good choice.

Just how these funds do can be found out by checking the Morningstar KiwiSaver Survey, which is released quarterly.

Whatever fund KiwiSavers are in, the commission encourages all KiwiSaver members to look at and review the fund they are in today and whether it is appropriate for them.