By Amanda Morrall
ASB KiwiSaver is the single biggest KiwiSaver scheme in the market with more than NZ$1.6 billion under management. Its Conservative fund is the single biggest KiwiSaver fund on the market.
By ASB's own calculations, more than one in six KiwiSavers are invested in its scheme with more than one in 10 KiwiSavers invested in the provider's conservative fund.
See how ASB's funds performed relative to all other funds here.
Q) Who manages ASB's KiwiSaver money?
A) ASB Group Investments Limited (ASBGI). It's a wholly-owned subsidiary of ASB Bank Limited. It's the "manager of managers" for ASB's KiwiSaver scheme. ASBGI outsources most of its functions to ASB. We have a team of people, myself included, who look after ASB's investment products including our KiwiSaver scheme.
ASBGI doesn't have any employees, it outsources all its arrangements for KiwiSaver including unit pricing, registering, products, development and investment management.. ASBI employs three world renown index tracking investment houses to manage members' money. They are State Street, Vanguard and Colonial First State.
Q) Does ASBGI manage any of the assets within KiwiSaver?
A) Yes, it manages the cash, which is invested in Treasury night and day rolling bills.
Q) What distinguishes ASB from others in this market?
A) Outside of the funds which carry the FirstChoice branding, our funds are all passively managed. That is they are exclusively index tracking funds.
Q) What does that entail?
A) All our underlying assets are managed against a benchmark. So they track the benchmark. We monitor the managers, Street Street, Vanguard and Colonial First State, against that benchmark and if they deviate too far from it we'll go back to them and ask them to explain why. We pay them to track the benchmark. The perversity of it, is that even if they outperform, for whatever reasons, that triggers alarm bells for us. We'll go to them and say "Why did you not track?''
Q) Why is outperformance a bad thing?
A) Because they are paid and selected on the basis they track the index. If they go over the index, they could equally underperform it. For us, it's not about over and under but how far away they are from the index. Even if one or our money managers is out by half a basis point on the index we track, we'll ask them to explain why. If they can't explain it or they continue to track away from the index we'll put them on notice and find a new manager.
Q) What does ASB have against active management?
A) For the ASB KiwiSaver scheme we've made it our philosophy that we remove manager risk. We deliver market returns and their performance has been pretty good. For FirstChoice KiwiSaver, we offer customers the choice of taking on manager risk for our actively managed funds.
Q) What's your criteria for choosing a fund manager?
A) Managers are short-listed and then chosen on the basis of consisent performance history. A combination of quantitative and qualitative analysis is used to assess both the quality of historic performance and also the likelihood of a repeatable performance going foward. ASB also upholds a policy and practice of due diligence which involves on-site meetings at the manager's office and continuous monitoring to ensure performance is as expected given market conditions.
Q) What's your investment philosophy?
A) ASBGI looks to hold the asset allocation reasonably static. There is no active tilting taken to expose more or less of a fund to a particular assset class from time to time. The index tracking investment style has two major benefits:
Firstly, as an investor, you can have confidence that you will get a return that is similar to the markets that the investment funds are invested in. This removes any concerns about individual fund manager performance and means you can focus on choosing an investment fund that invests in the type of assets that best meets your needs. Secondly, index tracking investment funds generally have lower investment management fees than actively managed investment funds because they are not buying and selling securities as frequently. This is important because fees may have a big impact on returns over time.
Q) If markets crash won't ASB KiwiSavers suffer?
A) We regard this current market as being an opportunity for KiwiSavers. Everything is being hit by sentiment. Assets are on sale right now and people are buying them cheap. A good thing about KiwiSaver is you are buying constantly, you're not making big lumpy choices on an infrequent basis, you're putting in a small slice of your income every week.
At points like this, you are buying assets quite cheap. If you look at what's happening globally right now, the price against earnings is cheap. In the U.S. and in Europe, the average PE is between 10 and 11 which is historically quite low. People need to take a breath and step back and look at the similiarities between buying things that are well priced or good value as opposed to buying at the top of the market. It's counter-cyclical to how people think about markets.
Q) Is KiwiSaver a good retirement savings vehicle?
A) The Government is subsidising it hugely. Although people might think they're returns are getting hurt right now, in most instances the subsidies the government pays is far in advance of the return that people are foregoing because of the markets right now. If there were no matching contributions from employers and no Government subsidies then people would be hurting a lot more from market volatility.
Right now it makes sense for people to get into KiwiSaver and get every subsidy they can. Granted those on lower incomes may not be able to forego a slice of their incomes, but if they can they'll benefit.
Q) What changes, if any, have you made to your portfolio construction recently?
We've made adjustments to the AUD/NZD currency model to mitigate currency losses.
Q) How would you describe your investment strategy?
ASB KiwiSaver have the funds that appeal to the mass market with offerings across the risk profile continuum. At the lowest end of the risk spectrum, the NZ bank deposit fund which is 100% invested in cash.
Its conservative/default fund has a 20:80 ratio of equities to cash and fixed-interest; moderate 40:60; balanced 60:40 and growth 80;20.
Q) What kind of returns to you strive to achieve?
ASB KiwiSaver has an underlying index tracking philosophy. This means that the managers that are selected are all index tracking managers. Therefore investors can have confidence that they will get a return that is similar to the markets that the investment funds are invested in.
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