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A review of BNZ and Generate KiwiSaver schemes one year on; a solid start and many positives

Posted in KiwiSaver Updated

KiwiSaver may have turned seven but both BNZ and Generate KiwiSaver schemes are relative newcomers and have recently only celebrated their first year of operation.

Entering the KiwiSaver market some 6 years after it first launched poses challenges in terms of market penetration and customer acceptance of what are essentially unproven schemes with no runs on the board from which customers can contrast and compare.

We would suggest the management teams at BNZ and Generate will be reasonably happy with what they have achieved to date.

It should not come as a big surprise that BNZ via its extensive network of branches and investment advisers have signed up around 61,000 members and have just under $277 mln under management as at 30 June 2014.

The major banks dominate the KiwiSaver space in terms of funds under management and their ability to cross-sell and package all their products onto one platform for the convenience of the customer. The rest of the market must rely on their points of difference and unique marketing plans and probably most importantly, their performance.

In contrast to BNZ, Generate have attracted 4,077 new members and have just over $12.3 mln invested.

BNZ’s average KiwiSaver balance per member is $4,537 compared to Generate which has an average of $3,026/member. We must keep in mind that BNZ had a two month head start on Generate KiwiSaver so this comparison is not necessarily a fair basis to compare their market penetration of either Scheme.

With BNZ becoming a default provider from July 1, 2014 it will be interesting to see what impact (if any) the influx of new investors has on the average values.

Using data collected by the Financial Markets Authority (FMA) via quarterly and annual disclosure statements as well as the registered investment statements and prospectuses as at June 30, 2014 the table below provides a snapshot of the various funds offered by both providers and the fees charged.

Provider Scheme Members Value
$ mln
Value per member1 Management Fee p.a. (investment statement) Member Fee p.a.  (investment statement) Total fund fees charged for 12 months to March 31, 2014  (Disclosure Statement)
BNZ Cash 7,398 $27.6 $3,735 up to 0.35% $24 0.28%
  Conservative 17,912 $87.5 $4,882 0.58% $24 0.65%*
  Moderate 15,473 $73.1 $4,726 0.90% $24 0.83%
  Balanced 11,297 $52.7 $4,661 1.00% $24 0.93%
  Growth 8,929 $35.9 $4,023 1.10% $24 1.01%
BNZ total 61,009 $276.8 $4,537      
               
Generate Conservative 815 $2.926  $3,590 1.00% $36 1.27%
  Growth 1,575 $3.986  $2,530 1.00%** $36 1.41%
  Focussed Growth 1,687 $5.427  $3,217 1.00%** $36 1.63%
Generate total 4,077 $12.339 $3,026      

* prior to fund becoming default fund

** Generate do not charge the performance fee directly and it is to be actively managed by the Manager to a maximum average performance fee of 15% of excess returns above a target level across the portfolio of International Equities Managers. An indicative maximum average  performance fee of excess returns above  
a target level  is available on our website  www.generatekiwisaver.co.nz

1 Workplace Savings Survey shows that BNZ's average balance is $6,279 and Generate's average balance is $5,457.

Within the QDS reports there is an anomoly in that if you have a client who is invested in a life stages option product, and that same investor is in multiple funds, they are counted several times and this distorts the true membership numbers. This will also cause the average balances to appear lower than they should be.

Also, there is a substantial delay (approximately 3 months) in signing on new members and applying the kickstarts plus there is a 35 business day lag for the transfer of balanced from one Scheme to another and these factors will also cause the average balances to appear lower .

Performance

The simplest way to compare the performance of the various funds is to calculate the change in unit price over the past 12 months to June 30, 2014.

The unit prices are inclusive of fund fees but before tax and monthly member fees.

We have sourced the unit prices either from the provider’s website or from the provider directly to draw these comparisons.

Provider Scheme Opening Price - June 30, 2013 Closing Price - June 30 2014 Change in value (%) Last three months to June 30, 2014
BNZ Cash 1.0102 1.0422 3.17% 0.75%
  Conservative 0.9829 1.0605 7.90% 2.37%
  Moderate 0.9826 1.0799 9.90% 2.66%
  Balanced 0.9865 1.1044 11.95% 2.74%
  Growth 0.9932 1.1333 14.11% 2.76%
           
Generate Conservative 0.9724 1.0318 6.11% 2.61%
  Growth 0.9739 1.0575 8.58% 2.65%
  Focussed Growth 0.9757 1.0610 8.74% 3.03%

Excluding the BNZ Cash Fund from any analysis, BNZ’s comparative portfolios have experienced greater one year returns, however over the last three months to 30 June, the Generate Growth and Conservative Funds have beaten the BNZ equivalents.

Investment Strategy

Both BNZ and Generate use third party investment managers to execute their strategies, however the approach of the two providers is different.

BNZ use Russell Investments who provide a multi-manager solution for all but the BNZ Cash Fund, which invests into BNZ short term deposits.

Generate take a more hands on approach and chose the managers they believe will allow them to meet their investment objectives.

One of the main variances between the two institutions is within the asset allocations. Generate include exposure to Property and Infrastructure whereas there is no specific allocation with the Russell portfolios offered to BNZ customers.

The BNZ portfolios look more traditional in their structure whereby there are specific allocations to various asset class sectors (except property and alternative assets such as infrastructure).

Generate approach asset allocation in a more dynamic way with no set split between domestic and international fixed interest or property/infrastructure assets. Noticeably there is no specific allocation to NZ or Australian Shares, the preference is for exposure to international shares.

Transparency

It is important to know where your money is being invested. Looking at both BNZ and Generate websites we have been able to find a list of the top 10 holdings via the Periodic Disclosure Statements. This disclosure is a statutory requirement. Generate go one step further than the statutory requirements and release a copy of their holdings at the end of each month on their website.

As is the case with most fund managers who use third party managers to execute their strategy, it is difficult to ascertain where your funds are invested without hunting around and accessing fact sheets and the fund managers website commentary.

Other features

BNZ have leveraged off their association with Fly Buys (which they part own) to entice customers to use their KiwiSaver Scheme and collect fly-buys. BNZ have told us that since they launched the Fly Buys conversion option in June last year, customers have converted over half a million Fly Buys points to $95,000 worth of BNZ KiwiSaver contributions.

BNZ customers can also view their KiwiSaver balance via the internet banking portal.

Generate have an internet portal for their investors and are locally owned and operated. They have also recently received sorted.co.nz’s highest service rating across all KiwiSaver Schemes for the second time in a row.

Market commentary - both Schemes provide market commentary. BNZ do theirs quarterly and Generate provide a monthly newsletter.

Information for investors – both Schemes have what we would call ‘generic information’ for investors with the usual forms in downloadable form. Generate have a very informative news section with topics of interest for KiwiSaver investors.

Conclusion

A solid first year for both Scheme providers. BNZ with their newly acquired default status should see numbers swell further, although not as quickly as when there were fewer default scheme providers.

There is a lot to like about both Schemes and they are different enough to appeal to a broad audience. BNZ is more conservatively and traditionally structured and Generate appears to have a more fluid and flexible asset allocation which could prove advantageous during certain economic conditions.

Both Schemes appear to be competitively priced compared to peers in the growth funds and based on their respective investment philosophies and portfolio structure. The Generate Conservative Fund is more expensive than you would expect with a Conservative Fund where a larger portion of the assets is in fixed income.

Generate charges a performance fee which investors may or may not like however this is not unusual for funds with a total return focus. Generate provide greater flexibility and transparency in their asset allocation and holdings versus a more conservative and traditional looking approach offered from BNZ.

We would suggest more naïve investors may be drawn to BNZ simply because of its brand recognition, default status and more traditional approach, plus the added benefit of seeing your KiwiSaver on your internet banking page and of course the enticement of earning fly-buys.

Those investors wanting greater transparency, more information and news as well as something a little less traditional, plus want a locally owned and operated KiwiSaver provider will more than likely be drawn to the Generate KiwiSaver Scheme.

Updated: Clarification on the performance fee comment regarding Generate KiwiSaver Scheme and also additional information regarding impacts on the average balance size. Workplace Savings survey attached showing 'true' average balance sizes across all providers as at June 30, 2014. Included comment from BNZ regarding Fly-Bys conversions.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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2 Comments

Great analysis thanks Craig.

Great analysis thanks Craig.  

BNZ may be a relative

BNZ may be a relative newcomer to KiwiSaver, but you may want to check their track record with other registered superannuation plans they managed and actively marketed - for instance the Future Lifestyle Plan - Capital Enhanced - which was marketed as being suitable for those 'in retirement or approaching retirement'.    Portions of it have now been frozen for over five years - not exactly an admirable performance - virtually zero return since any income is used for expense of winding up the plan.     They had passed the management of the plan over to AXA who then passed it on to AMP.    But BNZ was actively marketing this superannuation plan when it was frozen.  Suitable for those in retirement?  Hardly.