Personal Finance

  • Elizabeth Kerr is super excited about the NZX providing Kiwis access to international ETFs for their Money Machines

    By Elizabeth Kerr

    Welcome back everyone. I had a nice warm and fuzzy column all lined up to get you refocused on your financial vision…but we can do warm and fuzzies together anytime.

    Instead this week I want to talk about Smartshares and the NZX again.

    If you’ve been hiding under a rock for the past week make sure you read today’s’ column to the end because shit just got real!!!

    No longer are we New Zealanders forced to invest our money machines in our own backyard, with a side helping of shares from Australian companies; we can aim for world domination for our dollars, because last week the NZX announced the introduction of 9 new INTERNATIONAL Exchange Traded Funds (ETFs).

    That’s right, the NZX has partnered with Vanguard in America so we can get exposure to companies all over the world in a way the average New Zealand investor hasn’t been able to do so easily before.  

    Lets talk Vanguard

    If you haven’t heard of Vanguard before then this is what you need to know. Jack Boggle, an insanely smart guy, figured out that to be a successful investor and make lots of money one doesn’t need to beat the market and get the best returns, one just needs to participate IN the market and the money will come - ie you don’t need to choose the winning horse in a race every time; you can just routinely bet a little on them all in each race and you will make some guaranteed money that way instead.  

    To add to his idea he looked around and saw the fund managers, even with their shiny shoes and expensive educations, couldn’t accurately pick the winning companies to invest in often enough over the long term to make all their clients wealthy, but were happy to keep charging them huge fees to keep trying.

    So, Jack devised a low fee way of investing by using an index which gave average returns, but and here’s the clincher…did so consistently all the time, meaning the investor made just as much money over the long term. It is this theory which makes up the basis for the Smartshares products which I have written about before here and here.

    The other really important thing to note is that no one really owns Vanguard per se. It exists solely as a vehicle for its investors to invest in these company indexes therefore can afford to keep the fees low as there are no profits required to prop up the company xmas party or payout performance bonuses to their staff.  

    How does it work?

    If you’re interested and you haven’t already got a Smartshares account with the NZX then go online and click on Invest Now. There are already 10 Smartshares products to choose from within NZ and Australia. The additional nine international ones (to be available July 29) are listed in the table at the end of my column.  

    All you need to do is fill out the paperwork, invest an upfront $500 and a minimum $50 at least every time after that, and the NZX will go and invest it in the underlying Vanguard ETF fund of your choice from the nine offered. Your return will essentially mimic the same returns Vanguard gives all it’s investors in those funds, less NZX fees and tax of course

    As you can see I’ve taken a few liberties and included some extra information in my table for you. Don’t blow an artery if I’ve got it wrong, you need to do your own due-diligence first of course, but I thought you’d be interested to know what the average returns over the last 5-15 years have been for some of these funds and what would be in your bank account if you’d invested US$10,000 with them at the time these funds were started. The first and most obvious is that all the funds have increased the initial deposit.  But if you look at the actual graphs on the Vanguard website you can see there were some shaky times, and your knuckles might have turned white from holding yourself back from withdrawing your funds in fear.   

    Why Vanguard? Why didn’t the NZX just do it themselves?

    Basically it comes down to scale. NZ is but a pimple on the globe and doesn’t have the money, or investor population to justify all of the work required to go and invest in 500 US based companies AND only charge a teeny tiny fee for the privilege. It just makes sense for the NZX to partner with someone who is already doing it well.

    Why not just go direct to Vanguard yourself?

    I have been reading the forums this week and I know some of you are still disappointed the fees aren’t as cheap as in the US and that you think you could save more money by investing directly through investment brokers in the US, and sending money via cheap foreign exchange vehicles. And yes, you could probably do that some of the time… but for the most part the power of these products is that it makes international investing accessible, cheap and easy for the average NZer putting away their loose change for an early retirement, and there is no faffing about with foreign exchange rates as that’s all taken care of for you.  Other things to note are:

    • If you were to go direct you would need a minimum of US$3000 to start your account, whereas with the NZX you just need the minimum NZ$500 and NZ$50 per deposit thereafter. Whoop whoop!
    • You can call the NZX for support and not need to be awake in the middle of the night trying to get hold of someone in America to answer your questions.
    • The dividends are paid out to you in $NZ.
    • AND (this is important!) you have the option of reinvesting your dividends back into the fund again if you want to.
    • No foreign exchange process that needs managing by you and a third party.
    • As with all Smartshares products, it's all automatically and impartially invested according to a companies weighting within an index.  

    What are the fees then?

    The very first time you make an investment into one of these international Smartshares products you will need to pay an Application Fee. This will be $30 for amounts less than NZ$20K or 0.2% for amounts over NZ$20k. This is a one-off fee. If you are intending to keep investing in your chosen fund at all thereafter you don’t have to pay it again.

    The fee by the NZX for managing these funds for you is 0.30% for the US 500 Trust (USF) and 0.45% for the 8 others.  

    Who likes PIEs?

    No I’m not talking pastry and mince I’m talking Portfolio Investment Entity.   This means that the funds will be taxed at 28% flat. No questions asked.

    What happens from here?

    Well the Financial Markets Authority (FMA) has to give these new Smartshares products their big fat tick…and then it’s open for your business from tomorrow hopefully.

    In closing

    I’m coming dangerously close to endorsing a product here, but I’ll stop short by repeating the power of these funds is in the accessibility for average NZers who want their money to swim with bigger fish, but don’t have the time, inclination or aptitude to figure out how to do it all themselves. If you’re thinking of giving it a go – which fund would you choose?

    Smartshares ETF Name

    What & Where

    Fees

    Fund Performance

    1. US 500 Trust (USF)

    Invests in Vanguard’s S&P 500 ETF, which aims to track 500 large securities listed on the NYSE or NASDAQ markets. (VOO)

     

    Vanguard Fee:0.05%

     

    NZD Fee: 0.30%

    $10,000 USD in June 2010 would be $20,888.83USD today. 

     

    An average return of 16.55% per year.  (no data earlier than 2010)

    2. Europe Trust (EUF)

    Invests in Vanguard’s FTSE Europe ETF, which aims to track securities in developed European markets including Germany, Switzerland and the UK.

    (VGK)

     

    Vanguard Fee:0.12%

     

    NZD Fee: 0.45%

    $10,000 USD in June 2005 would be approx $17,440USD today.

     

    An average return of 4.70% per year.

    3. Asia Pacific Trust (APA)

    Invests in Vanguard’s FTSE Pacific ETF, which aims to track securities in developed Asia Pacific markets, including Japan, Singapore and Australia.

    (VPL)

     

    Vanguard Fee:0.12%

     

    NZD Fee: 0.45%

    An average return of 5.34% per year over the last 10 years.  

     

    $10,000 USD in 2005 turned into $16,817USD today.

    4. Emerging Markets Trust (EMF)

    Invests in Vanguard’s FTSE Emerging Markets ETF, which aims to track securities from emerging markets including Brazil, China, and India.

    (VWO)

     

    Vanguard Fee:0.15%

     

    NZD Fee: 0.45%

    $10,000 USD in June 2005 would be approx $21,494USD today. 

     

    7.36% average per year.

    5. Total World Trust (TWF)

    (VT)

    Seeks to track the performance of the FTSE Global All Cap Index, which covers both well-established and still-developing markets.

    Has high potential for growth, but also high risk; share value may swing up and down more than U.S. or international stock funds.

    Only appropriate for long-term goals

    Vanguard Fee:0.17%

     

    NZD Fee: 0.45%

    $10,000USD in 2008 will have turned into $14,365 or 5.3% average return per year..

    6. US Large Value Trust (USV)

    (VTV)

    Seeks to track the performance of the CRSP US Large Cap Value Index, which measures the investment return of large-capitalization value stocks.  Provides a convenient way to match the performance of many of the nation’s largest value stocks.

     

    Vanguard Fee:0.09%

     

    NZD Fee: 0.45%

    $10,000USD in 2004 would be $19,950USD today representing an average return of 7.36% per year since inception.

    7. US Large Growth Trust (USG)

    (VUG)

    Seeks to track the performance of the CRSP US Large Cap Growth Index.

    Vanguard Fee:0.09%

     

    NZD Fee: 0.45

    $10,000 USD in 2004 would be $23,980USD today.  An average return of 8.06% per year.

    8. US Mid-Cap Trust (USM)

    (VO)

    Seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks.

    Provides a convenient way to match the performance of a diversified group of medium-size companies.

    Vanguard Fee:0.09%

     

    NZD Fee: 0.45%

    $10,000 USD in 2004 would be $24,475 USD today.  An average of 9.67% since inception.

    9. US Small-Cap Trust (USS)

    (VB)

    Seeks to track the performance of the CRSP US Small Cap Index, which measures the investment return of small-capitalization stocks.

    Provides a convenient way to match the performance of a diversified group of small companies

     

    Vanguard Fee:0.09%

     

    NZD Fee: 0.45%

    $10,000 USD invested in 2004 would be $24,762USD today or 9.42% since inception.

     

     

     

    *** use the codes in brackets and bold text - for example (VB) as immediately above - on the Vanguard.com website to see the Smartshares underlying Vanguard fund performance.  It’s really quite interesting and you can compare different funds performance against each other.

  • How to make sure you're not under-selling the value of your house to your insurer

    If your home was to be destroyed in a disaster tomorrow, are you confident your insurer will cover the full cost of rebuilding it?

    Following the Canterbury quakes, insurers changed their policies for home cover from full-replacement to sum insured.

    Rather than your insurer paying whatever it takes to rebuild/repair your house to a similar standard to before it was damaged, it will now pay a pre-specified amount to rebuild/repair the house.

    Insurance companies have put the ball in their customers’ courts in terms of providing an accurate value for their homes.  

    It’s essential you take this responsibility seriously.  

    How to get an accurate valuation done

    There are two ways you can get a valuation done on your property; use an online calculator provided by your insurer, or hire an expert.

    AA Insurance (AAI) customer relations manager, Amelia Macandrew, says “The Cordell Online Calculator provides estimated typical building replacement costs for standard residential homes.

    “It’s important to note that this calculator may not be suitable for all homes with special features.

    “So, if you have a home with special features, or one that isn’t considered standard, a builder, architect, quantity surveyor or other valuation expert can provide an estimated rebuild cost for your property.”

    Emmitt Consultants senior quantity surveyor, Chris Peel, agrees.

    “If your house is destroyed by a fire, and at the end of the street there’s another house that’s exactly the same as yours, it’s easy for the insurance company and builder to go and have a look at that house, and calculate how much it’ll cost to rebuild.

    “Whereas if it’s more of a traditional villa that was built 50 or 60 years ago by a particular family, so it’s the only one of that style on the street, it’s much harder to obtain its value.

    “You don’t know what sort of period features might be in the house; what sort of upgrades have been done to the property – integrated sound systems, vacuum systems, or renovated kitchens.”

    He says it’s difficult to prove to an insurance company what was there, when it’s no longer there.

    When to update your sum insured

    Peel suggests you update your sum insured with your insurer every couple of years.

    If you’ve paid for a quantity surveyor before, he says you’ll have a good idea of the rebuild/repair cost, so could be better placed to use a calculator thereafter.

    However Peel points out the fact that calculators don’t take into account that we are in a property boom, where construction costs are high. He says there’s a risk that there’s a lag between when calculators are programmed, and prices change.  

    He says it costs between $500 and $1000 to get a quantity surveyor to do an assessment on a house.

    AAI suggests it’s good to check your sum insured every year when your policy comes up for renewal.

    Macandrew says, “While your policy will include an adjustment for inflation, it won’t include any changes, additions or omissions to your property.

    Therefore she says it’s essential to remember to update your sum insured if you’ve made any significant improvements, extensions, renovations, etc.

    For those buying a new home, Macandrew points out, “It’s important you don’t rely on market value or your purchase price to determine your sum insured. This is because, in most cases, the cost of building a new home is completely different to both of these values.”

    And if you’re moving from one insurer to another, “you will also need to check that your sum insured is correct, and your new policy covers everything in the same ways as your previous policy, because cover can differ between insurance companies.”  

    Don’t be complacent

    Peel believes people have become slack maintaining their sum insured policies.

    “When sum-insured started, I think there was a lot of panic. Insurance companies and the building industry to some extent put a bit of fear into homeowners, and said, “You must do this, you must do that”, and I think that as a result of that there was a huge influx [of people hiring experts to do valuations],” he says.

    “But now days, we’re finding that less and less people are bothered. They’re either relying on one that was done a couple of years ago, or they’re sticking it into a calculator and making their own adjustments.”

    (Also see this video interview with AA Insurance CEO Chris Curtin about sum insured).

  • New bank customers leapfrog existing customers in receiving bank mortgage rate cuts

    Mortgage holders who awaited last week’s Official Cash Rate (OCR) cut with baited breath, will have to keep holding their breath.

    While it didn’t take most banks long to announce cuts to their floating interest rates, following the 25 basis point OCR cut to 3% last Thursday, existing customers are having to wait weeks before being able to enjoy the benefits of the changes.

    New customers on the other hand, have been able to take advantage of the lower rates within days of the changes being announced.

    As shown in the table below, all the major banks are making their existing customers wait at least two weeks from the time their rate changes are announced to the time they come into effect.

    For example ANZ customers need to wait 18 days; the Co-operative Bank’s customers 17 days; and ASB's 14 days.

    Even though BNZ has outdone the other banks with its 35 basis point rate drop, its customers still have to wait 19 days for the cut to come into effect.

    HSBC is the only bank that’s made its rate change effective immediately.

    Even though HSBC was four or five days slower than the other banks to cut its rates, its customers are still reaping the benefits of the cut sooner than other banks’ customers.

    Nonetheless, it’s a different story when it comes to banks attracting new business.

    Co-op, Kiwibank and HSBC made their rate changes effective for new customers on the same day they were announced. Unusually, Co-op announced cuts to its rates three days before the Reserve Bank's OCR announcement.

    For new customers the likes of ASB, Westpac and TSB allowed their new rates to be effective within three to five days of them being released.

    Issue flies under authorities’ radars

    Interest.co.nz asked the Commerce Commission whether it monitored this differing treatment between new and existing customers, and the time lag between rate changes being announced and taking effect. It said no, and referred us to the Reserve Bank.

    The Reserve Bank said it regulates banks’ financial stability, not how they interact with their customers.

    Meanwhile, a spokesman for ANZ said the bank had followed the same timeframes as it did in a rising interest rate environment with these changes.

    “We give existing customers notice and it enables us to send letters notifying the specific changes. Our approach isn’t dictated by any legal requirements. The point is that we take a consistent approach in a rising as well as falling interest rate environment," the ANZ spokesman said.

    And a Kiwibank spokesman said; “This is consistent with our process when we increase variable interest rates as well. This gives us time to communicate the change to our customers so they can adjust any repayments if required.”

    Floating Mortgage Interest Rates
     

    Announced 

    Effective for 
    new clients
    Delay
    days
    Effective for 
    existing clients
    Delay
    days
    Old rate New rate Change
                     
    ANZ Jul 23 Jul 27 4 Aug 10 18 6.49 6.24 -0.25
    ASB Jul 24 Jul 29 5 Aug 7 14 6.50 6.25 -0.25
    BNZ Jul 23 Jul 27 4 Aug 11 19 6.34 5.99 -0.35
    Kiwibank Jul 23 Jul 23 0 Aug 6 14 6.40 6.15 -0.25
    Westpac Jul 24 Jul 27 3 Aug 10 17 6.40 6.15 -0.25
                     
    Co-op  Jul 20 Jul 20 0 Aug 6 17 6.45 6.20 -0.25
    HSBC Jul 28 Jul 28 0 Jul 28 0 6.60 6.35 -0.25
    SBS  Jul 23 Jul 27 4 Jul 27 4 6.39 6.14 -0.25
    TSB  Jul 23 Jul 27 4 Aug 10 18 6.49 6.24 -0.25
  • Our comprehensive review of regular savings returns to June 30, 2015 for Aggressive KiwiSaver funds, identifying who has the best long-term returns

    "Only when the tide goes out do you discover who's been swimming naked" says Warren Buffett.

    Return data for the past few months is providing hints as to who has been swimming without their budgie smugglers or bikini's on.

    It is easy to make money when everything is fine and dandy and markets are rising on a continuous upward trend, the skill is to do the same when markets are in a state of chaos.

    This is where asset allocation, investment process, strategy and manager skill comes into play.

    Not everyone who has done well in the past few months will have done so via skill (although many will claim this). With a majority of the exposure in this category being to growth assets (i.e. over 80%) the drivers of returns are invariably going to come down to a handful or factors which provide incremental differences which cumulatively add value to the investors return. Some of the factors we have identified which are impacting returns for the past quarter and these are in no particular order of significance:

    • market exposure (being over or underweight specific regions or markets e.g. over exposed to Europe or emerging markets was negative overall);
    • cash exposure (holding greater exposures to cash and less in equities will be insulating portfolios when markets decline and detract from returns on the upside);
    • sector or industry bias (i.e. being more exposed to specific sectors or sub-industries such as Financials, Industrials, Healthcare was positive and Energy or Telco's was negative);
    • investment style and strategy (Large and mid cap growth companies outperfomed large and mid cap value style companies);
    • currency strategy (having a zero hedge or dynamic hedging policy has benefitted managers against those with fixed or mandated exposures); and
    • exposure to alternative assets (e.g. exposure hedge funds and multi-strategy investment strategies which can benefit from both up and down markets).

    At present KiwiSaver managers are not required to publish specific attribution analysis for their funds and therefore we can not unpick the returns to provide a definitive explanation as to what strategy, country, sector exposures, specific securities or hedging positions have added or detracted value over the period.

    KiwiSaver scheme providers are required to publish their top 10 holdings at the end of each quarter and full breakdown of holdings each year (ending March 31) so we can see the main holdings and exposures.

    While we can not accurately unpick all the returns and give definitive explanations around exactly which assets added the most value (or detracted value) the broad themes outlined above will provide a general overview of drivers behind the returns and enable readers to approach their adviser or KiwiSaver manager for specific details.

    Looking specifically at our regular savings data we have seen a change at the top of the leaderboard.

    For the first time in six months something other than a property fund has taken top spot in the Aggressive KiwiSaver category. ANZ OneAnswer International Share fund has climbed up the rankings and knocked the property funds off top spot.

    During the latest quarter Mercer SuperTrust funds ceased to operate and the funds were diverted to the main Mercer suite. This has reduced our universe of funds that have been going from April 2008 from 23 to 21 funds. Of the 21 funds that have been going since April 2008, 13 have provided investors with double digit long run returns based on our unique regular savings basis.

    If we include the ANZ OneAnswer Sustainable Growth fund which has been only a couple of months less than the main universe the ratio becomes 14 out of 22.

    ANZ OneAnswer International Share fund, ANZ OneAnswer Sustainable Growth fund  and Kiwi Wealth's Growth fund have been the biggest movers in recent times.

    ANZ's Australasian property fund and Milford's Active Growth fund continue to perform well and retain their spots near the top of our performance rankings. Other big movers in recent times have been Grosvenor International Share Fund and Craig's Equity Fund. The Craig's Equity Fund has a large global equity component and is unhedged so this fund has received the full tailwind of the rapidly depreciating NZD.

    Another fund that has benefitted handsomely from being unhedged is the AmanahNZ KiwiSaver Plan1. On a regular savings basis the Amanah fund has returned just over 26% since it began in March 2014.

    The other short-termer gaining recognition in the market is the Generate Focused Growth Fund. On a regular saving basis the fund has provided savers with a 14.6% in just over two years. Unlike some of the other top performers who have had a currency pick up the Generate Fund is partially hedged. The level of hedging has only recently been reduced and will have faced some headwinds recently. We highlighted this fund as one to watch in a previous review.

    We are always conscious that short term track records should not be an indicator of a manager's ability to add value. It will be interesting to see how both Amanah and Generate perform in down markets after having enjoyed a purple patch.

    On our regular savings basis, the average of the top five funds would have resulted in you earning $17,248 more than you have contributed. These earnings are down approxiamtely $100 on last quarters review.

    While that may not seem a lot based on an average ending fund value of approximately $41,000 it is significant when you realise that $23,747 is what you, your employer and the Government contributed.

    The average of the top five Aggressive funds earnings after-tax and after-fees is $9,223 (previously $9,838) more than the $8,025 you would have earned from the average of the top five Default funds.

      ANZ OneAnswer International Share Fund is our ‘best-in-class’ Aggressive fund performer.

    To be awarded this classification it must not only have the best track record for the full period, but its return over the past three years must not be less that those it earned over the full period.

    The second table below highlights those funds that have not been going the full distance and they are ranked on the level of contributions made based on our regular savings calculations.

    Many of the funds in the second table have achieved returns over the short to medium term which would see them placed in the upper echelons of the main table if we ranked solely on performance.

    Here are the full comparison as at June 30, 2015 for Aggressive Funds.

     
    Aggressive Funds      
    Cumulative
    contributions
    (EE, ER, Govt)
    + Cum net gains
    after all tax, fees
    Effective
    cum return
    = Ending value
    in your account
    Effective
    last 3 yr
    return % p.a.
    since April 2008 X Y Z
    to June 2015      
    $
    % p.a.
    $
                     
    ANZ OneAnswer Int'l Share A A IE 23,747 19,204 13.5 42,951 20.3
    ANZ OneAnswerAustralasian Property A A P 23,747 17,471 12.5 41,218 13.8
    Milford Active Growth A G AE 23,747 17,153 12.3 40,900 13.9
    Aon Milford A G AE 23,747 16,968 12.2 40,715 13.7
    ANZ OneAnswerSustainable Growth A A IE 23,136 14,559 11.5 37,695 17.4
    ANZ OneAnswer Growth A G G 23,747 15,443 11.3 39,190 14.3
    ANZ Growth A G G 23,747 15,315 11.3 39,062 14.2
    Kiwi Wealth Growth Fund A A A 23,747 14,873 11.0 38,620 16.9
    Aon Russell LifePoints 2045 A G A 23,747 14,647 10.9 38,395 15.4
    ANZ OneAnswer Australasian Share A A AE 23,747 14,173 10.6 37,920 15.2
    ANZ Default Growth A G G 23,747 14,102 10.5 37,849 12.7
    Mercer High Growth A A A 23,747 13,899 10.4 37,647 12.6
    ANZ OneAnswer Int'l Property A A P 23,747 13,625 10.2 37,372 8.1
    ASB Growth A G G 23,747 13,523 10.2 37,271 13.5
    Fisher Funds Growth A A A 23,747 13,140 9.9 36,887 12.6
    Westpac Growth A G G 23,747 12,439 9.5 36,186 12.7
    Staples Rodway Growth A G G 23,747 12,191 9.3 35,938 12.0
    AMP Aggressive A A A 23,747 10,846 8.4 34,593 12.0
    SmartKiwi Growth A A AE 23,747 10,380 8.1 34,127 12.4
    AMP Growth A G G 23,747 10,304 8.0 34,051 10.9
    Grosvenor High Growth A A A 23,747 10,295 8.0 34,042 12.4
    Fisher Funds Two Equity A A IE 23,747 10,271 8.0 34,018 12.1
    ---------------
    Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
    A = Aggressive, AE = Australasian Equities, G = GrowthIE = International Equities, P = Property

    For those funds that have not been going for the full period (April 2008 to December 2014) the results are shown below. In this group Amanah KiwiSaver Plan has been the standout performer followed by Generate Focused Growth and Grosvenor International Share fund. Both Generate and Amanah are relative newcomers to the KiwiSaver universe and are yet to prove themselves over the long-term. However, the short term data shows some promise.

    Aggressive Funds      
    Cumulative
    contributions
    (EE, ER, Govt)
    + Cum net gains
    after all tax, fees
    Effective
    cum return
    = Ending value
    in your account
    Effective
    last 3 yr
    return % p.a.
    since April 2008 X Y Z
    to June 2015      
    $
    % p.a.
    $
                     
    Grosvenor Geared Growth A A A 19,462 9,803 10.7 29,265 13.6
    Craigs Equity A A A 18,785 11,109 12.6 29,894 15.6
    Lifestages Growth A A   17,902 6,613 8.4 24,515 11.1
    Grosvenor International Share A A IE 16,435 9,087 13.1 25,522 15.6
    Grosvenor Socially Responsible A A AE 16,435 6,746 9.9 23,181 11.3
    Grosvenor Trans-Tasman Small Companies A A AE 16,435 2,336 2.6 18,771 4.0
    Craigs NZ Equity A A AE 14,661 6,811 12.0 21,472 11.6
    Craigs Australian Equity A A AE 14,661 2,652 3.9 17,313 2.8
    Generate Focused Growth A A A 7,044 2,786 14.6 9,830 n/a
    Amanah KiwiSaver Plan A A   3,812 2,215 26.2 6,028 n/a
    ---------------                
    Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
    A = Aggressive, AE = Australasian Equities, G = GrowthIE = International Equities, P = Property

    There are wide variances in returns since April 2008, and even in the past three years, and these should cause investors to review their KiwiSaver accounts especially if their funds are in the bottom third of the table.

    For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.

    The right fund type for you will depend on your tolerance for risk and importantly on your life stage. You should move only with appropriate advice and for a substantial reason.

    Our June reviews of the Default, Conservative, Moderate, Balanced and Growth funds can be found here, here, here, here and here

    ----------

    1. The author is an investment strategist for the Amanah KiwiSaver plan and has a vested interest in this fund.

  • Typical first home buyers $31.56 a week better off in June: interest.co.nz Home Loan Affordability Reports show

    Housing became a little more affordable for first home buyers last month thanks to a combination of falling mortgage interest rates and a slight drop in lower quartile house prices.

    According to interest.co.nz's Home Loan Affordability Reports, the mortgage payments on a home at the national lower quartile selling price would have consumed 23.1% of a typical first home buying couple's take home pay in June, down from 25.24% in May.

    In dollar terms their mortgage payments would have declined by $31.56 a week.

    Even first home buyers in Auckland would have benefited from the changes, with the weekly mortgage payments on a lower quartile priced home in the region dropping from $821.83 a week in May to $794.96 a week in June, providing a saving of $26.87 a week.

    Around the country affordability improved in eight regions in June - Northland, Auckland, Waikato/Bay of Plenty, Hawkes Bay, Wellington, Nelson/Marlborough, Canterbury/Westland and Otago - and worsened in four - Manawatu/Wanganui, Taranaki, Central Otago/Lakes and Southland.

    The Home Loan Affordability Reports calculate the mortgage repayments on the REINZ's lower quartile selling price in each region, and calculate how much of a typical first home buying couple's income that would consume.

    The mortgage payments are based on a 25 year mortgage at the average of the major banks' average interest rates for a two year fixed rate loan, while typical first home buyers' after tax incomes in each region are based on the regional median income of a couple aged 25-29, which is taken from Statistics NZ's Linked Employer-Employee Data Survey.

    The deposits needed to buy a lower quartile-priced house in each region are calculated as the lesser of 20% of the purchase price, or the amount that would be accumulated if the couple saved 20% of their net income for four years, and earned interest at the average 90 day bank deposit rate.

    Lower interest rates main driver

    The biggest driver of the improvement in affordability last month was the change in the average mortgage interest rate, which fell by 0.3% to 5.31% in June compared to 5.61% in May.

    That is the lowest average two year fixed mortgage interest rate since interest.co.nz started calculating the data in January 2002.

    The improvement in affordability was also aided by declines in the Real Estate Institute of New Zealand's lower quartile selling prices in eight regions around the country.

    The national lower quartile selling price declined by $15,000 to $290,000 in June compared to $305,000 in May.

    In Auckland the decline was much more modest, with the lower quartile price declining by $2500 to $614,000 in June.

    The biggest decline in the lower quartile selling price for the month was in Wellington, where it declined by $25,900 to $300,000 in June compared with $325,900 in May.

    That is the lowest it has been since January last year, and along with the drop in interest rates saw weekly mortgage payments on a lower quartile priced home in Wellington decline by $47.56 a week.

    The four regions where affordability for first home buyers worsened in June - Manawatu/Wanganui, Taranaki, Central Otago/Lakes and Southland, all posted substantial increases in their lower quartile selling prices, which more than wiped out the benefits of the fall in mortgage interest rates.

    In Manawatu/Whanganui the lower quartile selling price increased from $163,100 in May to $173,600 in June, in Taranaki it increased from $234,500 in May to $250,000 in June, in Nelson/Marlborough it increased from $295,700 in May to $296,600 in June and in Central Otago/Lakes it increased from $388,900 in May to $403,800 in June, which was a new all time high for the region and the first time it has been above $400,000.

    Seriously unaffordable

    While the improvement in first home affordability would have been welcome in the eight regions in which it occurred, housing remains seriously unaffordable for first home buyers in Auckland.

    The interest.co.nz First Home Loan Affordability Reports consider mortgage payments to be affordable when they do not exceed 40% of take home pay.

    By that measure, buying a first home (at the lower quartile selling price) remains affordable in all regions of the country except Auckland, where the mortgage payments would eat up more than half (52.14%) of a typical first home buying couple's take home pay.

    Up until two years ago, housing was still affordable for first home buyers in Auckland because the mortgage payments on a lower quartile home would have taken up 38.73% of a typical couple's income in June 2013.

    But since then the lower quartile home's price in Auckland has increased by $164,100 (36%), rising from $449,900 in June 2013 to $614,000 in June 2015.

    Although the average mortgage interest rate has dropped from 5.49% to 5.31% over the same period, that has not been enough to offset the massive rise in house prices.

    Neither has the increase in incomes.

    Mortgage payment increases out pace wage rises

    Over the last two years, the median take home pay of a typical first home buying couple in Auckland has risen from $1488 a week in June 2013 to $1525 a week in June 2015, an increase of just $37 a week, while mortgage payments on a lower quartile priced home would have increased by $218.41 over the same period.

    Essentially, rapidly rising house prices in Auckland have far outpaced both falling interest rates and rising income levels, and unless there is a significant fall in house prices or a substantial jump in incomes, housing is likely to remain seriously unaffordable for first home buyers in the region.

    Regional First Home Affordability June 2015

     

    REINZ
    Lower Quartile 
    Selling Price 

    Weekly
    Mortgage Payments
    % of
    First Home Buyers'
    Net Income
    Northland $252,300 $292.18 20.72%
    Auckland $614,000 $794.96 52.14%
    Waikato/Bay of Plenty $257,500 $299.41 21.13%
    Hawkes Bay $216,600 $242.56 18.00%
    Manawatu/Wanganui $173,600 $193.05 13.48%
    Taranaki $250,500 $289.68 20.23%
    Wellington $300,000 $358.49 22.96%
    Nelson/Marlborough $296,600 $353.76 24.95%
    Canterbury/Westland $343,700 $419.23 27.74%
    Central Otago/Lakes $403,800 $502.77 35.81%
    Otago $195,500 $217.40 15.49%
    Southland  $151,200 $168.14 11.73%
    All New Zealand $290,000 $344.59 23.10%

    The interactive charts below track how first home affordability has changed in each region since 2002 .


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  • Some major banks quick to pass on RBNZ's 25-basis point cut to official interest rates

    Banks have been quick to react to the latest cut to the Official Cash Rate by the Reserve Bank, with some immediate falls in floating mortgage rates announced.

    And BNZ has set a new low for the current rates cycle with a floating rate just under 6%. The bank has dropped the interest rate on its floating home loan product TotalMoney, at a greater rate than the decrease to the OCR – from 6.34% to 5.99%

    BNZ Director of Retail and Marketing Craig Herbison said with rates constantly moving, it may be time for mortgage holders to consider floating.

    “People might be surprised to learn that with BNZ, a floating rate can end up lower than fixed, thanks to TotalMoney, which takes into consideration a customer’s savings with BNZ.

    “For example, if a customer has a $200,000 mortgage and $50,000 in savings, we only calculate interest on $150,000. This means the effective interest rate is 4.49% per annum versus the carded rate of 5.99%. In this scenario, a 30-year loan could be shortened by 10 years, potentially saving the customer $50,000 over the life of the loan,” he said.  

    “In this example, the TotalMoney effective floating rate is actually lower than today’s Classic fixed two-year rate of 4.99%. I think it’s the market’s best-kept secret."

    The new rate is effective Monday 27 July 2015 for new customers, and 11 August 2015 for existing customers.

    ANZ today announced it will lower the interest rates on its Floating and Flexible home loans by 0.25% p.a. – to 6.24% for ANZ Floating Rate Home Loans, and 6.35% for Flexible Home Loans. The new rates will take effect for new ANZ Floating Rate Home Loan customers from Monday 27 July and for all existing Floating Rate and all Flexible Home Loan customers from Monday 10 August.

    Kiwibank has made an immediate cut to variable and revolving mortgage interest rates following today’s announcement by the Reserve Bank. The rate cuts match the full reduction of 0.25% bringing the floating rates down from 6.40% to 6.15%. The reduction is immediate for new customers and will take effect in two weeks for existing customers.

    SBS Bank said it had dropped "a number of" its following the OCR cut, including dropping its residential floating rate to 6.14% p.a - effective 9am Monday morning. The bank was due to release more details later.

    These announcements all followed the RBNZ trimming the OCR to 3% from 3.25% and with RBNZ Governor Graeme Wheeler observing that "some further easing seems likely". Economists believe the RBNZ is likely to unwind all of last year's rate hikes by the end of the year, which would take the OCR back to historic lows of 2.5%.

    How much more scope there will be for banks to cut mortgage rates further will remain to be seen.

    The new floating and fixed mortgage rates compare as follows:

    below 80% LVR Floating  1 yr  18mth  2 yrs   3 yrs   5 yrs 
        % % % % %
    6.24 4.89 5.55 4.99 5.59 5.79
    ASB 6.50 4.89 5.25 5.10 5.39 5.65
    5.99 5.19   4.99 5.29 5.75
    Kiwibank 6.15 4.89   4.99 5.39 5.60
    Westpac 6.40 5.39 5.39 4.89 5.49 5.79
                 
    6.20 4.89 4.99 4.99 5.20 5.59
    HSBC 6.60 4.89   4.89 5.29 5.60
    6.14 4.99 4.85 4.99 4.99 5.59
    6.49 5.45 5.59 4.99 5.40 5.85

    We will update this table during the day.

  • ​Lawyer dubs warnings from insurers not to lure burglars to your house by posting holiday snaps on Facebook while you're away, as over-the-top

    By Andrew Hooker*

    Sometimes it seems insurance companies can’t help but pour cold water on our pastimes… and now our Facebook use.  

    Who can resist putting up a snapshot of their holiday to make their friends envious? Well, be careful, it might just invalidate your insurance. 

    In the unlikely event that John Key’s house got burgled while he was in Hawaii recently, he might blame his son Max for invalidating his insurance policy, after posting on Facebook about their holiday.

    Yes, the Insurance Council of New Zealand and one of New Zealand’s leading insurers, IAG, suggest putting your photos on Facebook while on holiday could result in a burglary claim being declined. Why? Because apparently ingenious potential burglars might see your post and know you are away.

    The Insurance Council chief executive warns policy holders have a “duty of care” to protect their assets, and that in some cases a social media post may be a breach of that duty and invalidate your claim if you are burgled.

    But luckily, our courts take a dim view of insurers trying to rely on this duty of care to decline genuine claims. For many years judges have recognised that it takes more than just naivety, carelessness or a breach of a duty of care by the policy holder to invalidate an insurance claim. That’s exactly what the insurance policy is there to cover. 

    And insurance industry references to breaches of a “reasonable care” condition in a policy or a “duty of care” on policy holders to protect assets is a gross over-simplification. As with most insurance issues, it depends upon the wording of the policy. 

    There are a number of cases in which the courts have reminded insurance companies that clauses in insurance policies, requiring the policy holder to act with reasonable care, must be interpreted as having regard to the commercial objectives of the policy which is designed to protect policyholders against their own negligence.

    In leading cases, the courts have required more than proof of a breach of a “duty of care”. They have required proof that the insured had acted recklessly or with gross irresponsibility or gross carelessness. 

    Essentially, for an insurance company to decline a claim because it says the insured was not careful enough requires proof that the insured person acted in a grossly irresponsible way. 

    There are a number of actual examples. In one leading case, the insured person left the keys in the ignition of his expensive motor car in a carpark outside his office. He thought it would be safe because one of his staff was going to remove the keys after moving the car.  Clearly it was not safe enough because the car got stolen. The insurance company declined the claim saying that he had not taken sufficient care. In this case the High Court rejected that argument saying that whilst he had acted negligently, it was not at the level required for the claim to be declined. 

    The law reports are full of cases where insurance companies decline claims for stolen vehicles when they are either left unlocked, or with the keys in the ignition or even idling outside a shop. It would be an oversimplification to assume because the policy holder breached a “duty of care” to protect his or her property, the claim can be declined. 

    For an insurance company to rely on someone innocently putting their holiday snaps on Facebook to decline a burglary claim would require much more than a breach of the duty of care or naive enthusiasm to show off about your holiday. 

    Otherwise, where would it stop?

    Would an insurance company decline your claim for a burglary while you were on holiday because you didn’t get your neighbours to collect the mail or mow the lawns, thus publicly illustrating your absence from the house? Of course they wouldn’t. What about the “back after Christmas” sign on the business front door? Would that invalidate your business cover if you were burgled? 

    So it is unhelpful when the insurance industry makes its own customers victims of the ingenuity and ruthlessness of our less honest citizens. Unless there was evidence that the conduct of the policy holder was grossly irresponsible or gross recklessness, the insurance company cannot wriggle out of the claim.

    Is it grossly irresponsible, reckless, or grossly negligent for a person to post holiday snaps on Facebook? Surely it cannot be more negligent than leaving the keys in the ignition of your late model car in a publicly accessible carpark. 

    Of course policy holders have to be careful, or they may not be entitled to the benefit of insurance. But the last thing you need if you are burgled while on holiday is to be punished again when your insurer blames you for sharing the fun with your friends.

    ------------------------------------------------

    *Andrew Hooker is the Managing Director of Shine Lawyers NZ Limited practices as a specialist insurance lawyer in Albany on Auckland's North Shore. He also runs an insurance information website -www.claimshelp.co.nz

  • The repression of saver's returns gathers pace as the OCR is cut and more are signaled. David Chaston updates what has happened to the term deposit market

    Another OCR review, another rate cut.

    And for savers, that likely means lower term deposit offers.

    This morning, ASB is the latest to reduce their term deposit rates.

    And BNZ has cut its bonus saver rates for its RapidSave product.

    The trimming of term deposit and savings rates should now come as no surprise to savers. The same cold wind blew through this sector in June when the previous OCR cut went through.

    Rates for a one year term deposit are now -50 basis points lower now than they were at the start of 2015, and that is before the latest round of reductions flows through the market.

    Term deposit rates are now as low as they were back in 2009.

    The prospect is that they will go even lower, below the lowest we have seen since we started monitoring them in 2001. And using the RBNZ data to go back further, it is likely that savers won't have faced rate offers this low since the 1960's.

    Term deposit rate offers are very 'repressed'.

    The ASB rate changes this morning relate to their whole rate card as they have pushed through a -25 bps cut to nearly every term.

    Earlier in the week, ANZ also reduced their rates, although not quite as aggressively.

    The only opportunity is one that may close very quickly. That is because not every bank has yet announced their cuts.

    On the savings side, BNZ today cut their Rapid Save rate to 3.65% from 3.90% - provided you meet the 'bonus' criteria. Otherwise their 0.10% rate still applies.

    Use our deposit calculator to figure exactly how much benefit each option is worth; you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

    All carded, or advertised, term deposit rates for all institutions for terms less than one year are here, and for terms one-to-five years are here.

    Term PIE rates are here.

    The latest headline rate offers are in this table. Remember, these are not where rates will settle to, just where they are at 9:00am on Friday, July 24, 2015.

    for a $20,000 deposit 6 mths 1 yr 18 mths 2 yrs 3 yrs 5 yrs
                 
    3.65% 3.85% 3.95% 4.05% 4.10% 4.20%
    ASB 3.55% 3.70% 3.85% 3.90% 3.95% 4.05%
    3.80% 4.00% 4.05% 4.10% 4.20% 4.40%
    Kiwibank 3.75% 4.00%   4.15% 4.30% 4.70%
    Westpac 3.75% 4.00% 4.05% 4.10% 4.20% 4.30%
                 
    3.90% 4.00% 4.10% 4.20% 4.30%  
    Heartland Bank 4.00% 4.05% 4.10% 4.15% 4.25% 4.40%
    HSBC Premier 3.50% 3.60% 4.00% 4.10% 4.20% 4.40%
    RaboDirect 3.95% 4.05% 4.10% 4.15% 4.30% 4.50%
    SBS Bank 3.90% 4.05% 4.15% 4.15% 4.30%  
    3.75% 4.00% 4.10% 4.20% 4.50% 4.70%

  • Rents for Christchurch homes advertised on Trade Me Property have fallen by $45 a week over the last three months, but Auckland rents still rising

    The median asking rents for Christchurch homes advertised on Trade Me Property have fallen by $45 a week over the last three months, suggesting the housing supply problems in the city are rapidly coming to an end.

    "The Christchurch rental market for all houses peaked in March with a median rent of $495 per week, before easing back to $440 per week this month," Trade Me Property said in its rental market report for June.

    The median asking rent for 3-4 bedroom houses in Christchurch that were advertised on the website in June was $480 a week, down 4% compared to June last year, while the median asking rent for 1-2 bedroom houses was $350 a week, down 5.4% compared to June last year, and the median asking rent for townhouses was $450 a week, down 2.2% compared to June last year.

    However the median asking rent for home units in Christchurch was up 0.8% to $332.

    In Auckland asking rents continued to rise, and the median asking rent for all types of homes advertised on Trade Me Property in June was $495 a week, up 7.6% compared to June last year.

    The biggest increase in Auckland asking rents was for apartments, which had a median asking rent of $450 a week in June, up 9.8% compared to a year earlier.

    The median asking rents for 3-4 bedroom houses in Auckland was $550 a week, up 5.8% compared to a year earlier.

    "The rental market in the City of Sales is humming the same tune as the city's 'for sale' market and contrasts with the rest of the country where median rents are more subdued," the head of Trade Me Property Nigel Jeffries said.

    In Wellington the median asking rent for all types of homes was $395 a week in June, up 3.9% compared to June last year.

     

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  • Insurer Youi says it may have got some things wrong, but denies charging for quotes as it passes mystery shopping test

    By Jenée Tibshraeny

    Car, home and contents insurer, Youi, admits to suffering some “growing pains” since entering the New Zealand market a year ago.

    The call comes following accusations the South African insurer has charged people without their permission, after providing them with quotes over the phone.

    A Commerce Commission spokesperson says the Commission has been investigating Youi’s “marketing and sales practices” since March.

    While the company’s head of communications Trevor Devitt admits, “we have got some things wrong”, he says Youi doesn’t charge for quotes.

    “Not at all, and I can say that emphatically in capital letters”, Devitt says.

    Youi horror story

    Auckland resident, Naveen Kumar, has a different story to tell.

    Kumar says the insurer withdrew around $950 from his bank account after he received a quote over the phone.

    He says the sales representative told him he would have to provide a bank account or credit card number if he wanted to reserve the special offer he had been quoted, while he went away to think about it.  

    Kumar says the sales person assured him his account wouldn’t be debited.

    However a month after receiving the quote, he noticed Youi had made three withdrawals from his account.

    Kumar says he hadn’t received any policy documents or acknowledgement of the payments from Youi. All he got was an email confirming the quote.

    From here Kumar embarked on a three-week battle to be refunded.

    “They made me beg them for my own money; calling them thrice a day, repeating the whole story to a new sales rep every time, putting me on hold”, he says.

    Youi's response: Kumar knew what he was signing up to

    Youi is adamant it wasn’t at fault in Kumar’s case.

    Devitt went back to listen to the recording of Kumar’s initial conversation with a Youi sales rep, and says he can “categorically state that he was fully aware that the policies were incepted”.

    “He even remarked how impressed he was with the premiums and the advisor’s selling skills and decided to go ahead on that basis.

    “When he called to cancel he mentioned that he had not consented to the policies being set up and I can confirm that this conflicts with what was clearly evident in the relevant phone call.

    “He was asked to provide confirmation of alternate cover because he called in to request cancellation of the policies after their start dates and as such had the benefit of being on cover with us at the time.

    “Once he supplied confirmation of alternate cover, the premiums were refunded in full.”

    Devitt says Youi’s records show policy documents were in fact emailed to Kumar. However Kumar remains adamant they weren't.

    'Devious sales tactic' 

    Irrespective of who’s at fault here, the issue is that Kumar isn’t the only person who’s had a misunderstanding with Youi.

    NZ Herald writer, Diana Clement, wrote a column in March about falling victim to what she described as a “devious sales tactic”.

    She says she was told by a Youi phone sales representative she had to provide her credit card details in order to get a quote.

    She writes, “I handed over my credit card number with the assurance that I wouldn't be charged if I 'cancelled'. After getting the quote, I emailed my cancellation and got confirmation back that he would 'action' the cancellation.

    “Lo and behold, a couple of weeks later, my Visa card was debited $592.67 without my permission.

    “The member of staff I complained to tried to claim disingenuously that the email I sent (and that was acknowledged by Youi staff) wasn't sufficient to cancel.”

    Others have taken to the likes of Facebook and www.productreview.com.au to voice similar complaints.

    Zac Naylor for example left a comment on Youi’s Facebook page on July 15, saying, “I rang you people for a QUOTE. After realising I had made a mistake by allowing you to convince me to give you my credit card 'to complete the quote' I then noticed charges on my credit card and rang you to complain and you did nothing about it so I lodged a complaint with my bank. I have now complained to you people several times and you have done nothing.”

    Youi: some people may have received the wrong end of the stick

    Devitt of Youi says the scripts sales rep use when providing people with quotes or signing them up to policies over the phone don’t prompt them to provide their credit card or bank account details until they’ve agreed to go ahead with a policy.

    Devitt accepts some people may misunderstand what they’re signing up to, but says he’s “comfortable” with the wording of the scripts sales representatives use. He says they are clear and easy to understand.

    “We cannot claim to be at the perfect side of the equation, so yes we have got some things wrong,” he says.

    “Fortunately I see the balance on both side of the scale, so I know the number of times we get it right. Unfortunately the ‘get it right’ times don’t necessarily get the same publicity.

    “…So yes, there have been growing pains, but I think our success is in how we deal with those promptly and taking the feedback incredibly seriously.”

    Mystery shopping exercise gives Youi the thumbs up 

    Youi was unable to provide me with a copy of the scripts sales representatives use over the phone, so I thought I’d put Youi to the test myself.

    I rang its 0800 number to get a quote for some contents insurance on Friday.

    At no point did the sales rep ask for my credit card or bank account details.

    As soon as I got off the phone I received an email, signed off with the name and phone number of the sales rep who helped me, confirming my quote.

    I then rang back to say I wanted to take out a policy. I authorised a direct debit and was reassured I’d get a full refund if I cancelled the policy within 20 days.

    I received the policy document straight away via email.

    Yesterday I emailed to cancel the policy. Youi called me soon after to confirm this over the phone and emailed me confirmation of the cancellation.

    I have been reassured my bank account will be credited within the next five to 10 working days.

    Provided this happens, I feel I’ve been treated fairly by Youi. The salesperson was clear about what I was signing up to, used simple English, and answered all the questions I asked.

    My only concern is that the sales rep didn’t stress the importance of providing really accurate information about my living situation when I got the quote. For example, I didn’t know the exact size of the apartment block I live in, in square metres, so the sales rep put down an estimate.

    This false information may have given the insurer enough grounds to decline a claim further down the track.

    I suspect this issue isn’t unique to Youi, so would urge consumers to be savvy when dealing with any insurer.

    I used my genuine name and details during my dealings with Youi. However I wasn't asked to disclose my profession, so am confident the Youi sales staff I dealt with didn't give me extra special treatment for being a mystery shopping journalist.

    Please email me at jenee.tibshraeny@interest.co.nz if you’d like to share your experiences with Youi or other insurers.

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