PAUL MCBETH: Measuring what matters

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He’s owned units of the Smart NZX 50 exchange traded fund, Salt Funds Management’s long-short fund, and Milford Asset Management’s active growth and aggressive funds since January 2024. His KiwiSaver funds have been managed by Milford since 2014.

In the insular world of financial services, it’s not too often that one of their ilk speaks out of turn.

So it was hard to ignore Aurellan Asset Management’s Anthony Edmonds sticking his head above the parapet to question the oft-cited S&P Dow Jones Indices’ SPIVA report pitting active managers against their passive brethren, that typically shows half-year in and half-year out that it’s a hard-knock life being a stock picker.

Edmonds’ principal gripe being that the benchmark used in the SPIVA report is one that no local fund measures itself against, and that – with a bit of cherry-picking to prove a point – the domestic passive funds don’t stack up against that gauge either.

Not so much a pox on both their houses as a question of why King Lear and Prince Hamlet are hanging out on the set of Baz Luhrmann’s Strictly Ballroom.

The issue would probably be confined to the rarefied air of cafes and eateries in and around Auckland’s Commercial Bay were it not for the fact that even more restrained jaded hacks like yours truly tend to latch on to the most headline-able lede in the SPIVA report in pointing out it’s hard for any relatively small shop at the bottom of the world to outperform the entire investment world.

And as S&P Dow Jones Indices’ Asia Pacific head of index investment strategy Sue Lee has told us previously, a little local knowledge tends to favour domestic-focused active managers the world over, with the level of underperformance not as stark as those with a global mandate.

Lately I have desperately pondered

Coincidentally, Generate Investment Management’s Greg Smith had been pondering the same issue, and his weekly contribution to the New Zealand Herald trod similar ground to Edmonds’ work. He prefers the methodology of Morningstar’s active/passive barometer, which still shows index-tracking tends to fare better, but at a smaller proportion than that flagged in the SPIVA reports.

In saying that, Generate is unashamedly active and likes to talk up its credentials of retaining a high ranking in Morningstar’s quarterly KiwiSaver scorecard on how well the dozens of managers’ various funds are stacking up. The up-and-coming boutique Aurellan runs both strategies, so doesn’t have quite the same pony in the race.

And being able to cast oneself in the cohort of top performers tends to need a group of laggards with which to distinguish oneself.

Financial adviser Nick Carr chimed in with some useful thoughts that were picked up by interest.co.nz, agreeing that the SPIVA benchmarking was problematic enough to make it hard to confidently rely on, but that you probably wouldn’t want to take a bigger leap on the more vexed question of active versus passive without some deeper domestic research.

Which is kinda Edmonds’ point.

He’s more concerned about the spruiking of a particular style of product based on what he sees as shaky ground.

Dear, I think we’re facing a problem

We’ve already seen the Financial Markets Authority take a dim view on managers pitching questionable sustainability claims, with the regulator issuing guidance a few years back to help providers avoid accusations of greenwashing.

And that was despite the fact that not too many KiwiSavers actually base their final decision on ethical concerns.

As much as we like to think we’re warm and fuzzy individuals – the Responsible Investment Association Australasia’s 2025 research found 75% of New Zealanders want their KiwiSaver to reflect their personal values – Mindful Money’s most-ethical of funds, Pathfinder’s $422.6 million growth fund, slowed its pace of growth from poaching rival scheme members to just 4.1% of its starting funds under management in the March 2026 year from healthy double-digit gains in the prior three years.

In the latest March financial year, it was the big active managers Milford Asset Management and Generate that pinched in big dollar values from rival schemes, while fintechs Sharesies and Kernel Wealth were the ones flying at the fastest clip.

It seems the prospect of generating bigger returns is quite the attraction when households are feeling the pinch.

And if you were simply looking for the highest return over the 10-year rolling periods, you’d be hard-pressed to top the 19.6% delivered by NZX’s $162.8 million SuperLife US large growth fund, which is almost 99% invested in a Vanguard growth exchange traded fund.

I will end up lost in confusion

But Edmonds’ concerns will undoubtedly flicker in the bowels of the FMA, which is getting uncomfortable with how providers have been pitching their past performance in trying to win over members. The tussle for members is getting stiffer in the KiwiSaver market, with 5.3% of funds under management moving to a new provider in the March year, up from 3.5% in 2025.

Competition is a good thing when it sharpens up the offering for customers through new products or cheaper prices, but it can also create perverse incentives if managers spend more time looking at their rivals rather than thinking about their members.

You can have the best-built investment portfolio on the market to deliver risk-adjusted returns over an extended period, but that’s all for naught if your members want to keep up with the Joneses when the inevitable quarterly updates hit the headlines and they see their future nest egg lagging behind.

Putting aside the intellectual debates around whether more expensive active management trumps the cheaper fees of passively tracking indices, the end goal for the KiwiSaver member is to help set themselves up to get into a first home and subsequently improve their standard of living in retirement.

If we get screeds of people wondering ‘what if I’d switched’ when it comes time to start drawing on their 40-year-plus KiwiSaver investment, then we’ve probably got bigger problems to grapple with.

Image from Nicholas Cappello on Unsplash.