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In the final of her two part series on shares, Elizabeth Kerr takes you shopping at the NZX

In the final of her two part series on shares, Elizabeth Kerr takes you shopping at the NZX

By Elizabeth Kerr

Welcome back everyone to Part II of Shares Are Not Boring!

 You are forgiven for thinking my passion for investing in the New Zealand Exchange (NZX) is a little unnerving; but anytime you are choosing to save and invest rather than spend unnecessarily is worth getting excited about.

Following on from last week's column with my take on the NZX, what shares are and how in their simplest form you might make money off them,  I bet you’re perched on the edge of your seat to see what company shares I thought you should all be filling your money machine up with.

Which company shares should I buy?

Imagine that the NZX is one of those mega shopping malls made up of smaller shops all under the one roof.  Each shop is a listed company on the NZX we can choose to invest in.

On the left you might see a store specialising in milk products (Fonterra), another selling TV & sports shows (Sky TV), further down is an outdoors & camping shop (Kathmandu), a discount store (The Warehouse Group), on the other side of your imaginary NZX mega mall you might see a store selling accounting software (Xero), Dishwashers (Fisher & Paykel) there is even a 2nd Hand shop (Trade Me) and a telephone shop (Spark). Right down the end is a food court (Restaurant Brands NZ), a bank (ANZ ), a shop selling you power (Contact Energy), another specialising in travel (Air NZ) and another selling building materials (Fletcher Building).  You get the idea.

Picture in your hand is a portion of your savings that you have been dutifully setting aside and you are wondering which of these companies you should invest in and how much you should give to each one. (Don’t invest money you can’t afford to lose!)

As you are walking around you might be thinking to yourself: “Air NZ looks good but what if no one wants to travel anymore and people prefer to stay local and embrace camping. That may mean that AirNZ shares might go down and Kathmandu goes up”. You continue walking…”maybe all this new housing means people need new dishwashers and building materials so Fisher & Paykel and Fletcher Building could be a sure bet”… but hang on… doesn’t that stuff come from China now”….  “Oh I don’t know” you fret…. "I’m not sure what these company shares are going to do”.

So round and round the NZX Mega mall you go. (…“maybe property investment is easier – seems so much simpler” you wonder?)  

Stop!!!   What if I told you that you didn’t have to choose at all? What if instead of worrying about how much to invest and in which companies (stores), your money could be spread over the lot according to how well one store is performing against the others?  Now that sounds like a good idea doesn’t it? 

Well you can! For new investors or those too busy to decide for themselves, NZX sell a product named “Smartshares”. Without any help from brokers you can invest in what the market calls a “Passive Exchange Traded Fund” or ETF for short. 

In normal speak, that means your money is spread across a group of companies with one single purchase, without you having to do anything. Your investment is adjusted according to adjustments in the index, giving you an investment that mimics what is happening in real life. 

For example, let’s take the top 10 companies on the NZX (Smart TNZ fund), if you had $100 this week it could be invested as below:

Spark New Zealand Limited (SPK) $17.48
Fletcher Building Limited (FBU) $17.31
Ryman Healthcare Limited (RYM) $11.84
Auckland International Airport Limited (AIA) $11.71
Fisher & Paykel Healthcare Corporation Ltd (FBH) $11.11
Sky City Entertainment Group Limited (SKC) $6.83
Contact Energy Limited (CEN) $6.62
Sky Network Television Limited (SKT) $6.35
Xero Limited (XRO) $6.33
TradeMe Group Limited (TME) $4.42

The magic lies in diversification

Diversification simply means spreading your money across different investments, so if one has a bad year, there will usually be another one that performs really well therefore (in theory) balancing your returns out for the positive.

Depending on how the companies within the group perform, a few may drop down a couple of spots or a new company might appear in the top 10 knocking the bottom one off. In that situation your passive (i.e. don’t-have-to-lift-a-finger-fund) will rebalance by selling the under-performing share(s) and reinvesting into the new company(s). This recalibration is done every six months quarter.

There are no brokers involved and so the fees you pay for this type of investment are much less than if there were. Between 0.54% and 0.75% depending on which Smartshares fund you invest in, to be exact.

So what sort of money can I expect this part of my money machine to spit out?

If you decided five years ago to invest $100 each month into the FNZ fund, which tracks the Top 50 companies on the NZX  then you would have ….*drum roll please*.. $8984.00!!  That is after tax and management fees too.  So for drip feeding approximately $6100 all up you are entitled to an extra $2884 for doing absolutely nothing.  Now that is my kind of day job!!!

But what if you didn’t want to drip feed into it each month... Let’s say five years ago you invested $5000 and forgot about it, reinvesting all the dividends so then today you would have $8668.29. That’s an increase of 73% over five years. Fancy that... I bet you don’t get that from your everyday banking account?!

In the above scenario if you wanted to have the dividends paid out to you over the five years then today you would have just $7277 in the fund and would have received $1000 in dividends to your personal bank account for your spending pleasure.

In both of these scenarios the figures are after the management fees and PIE tax at 28% have been deducted. (If you’re super enthusiastic and want to read the methodology for figuring out the returns you can do so here).

A word of caution: some people can be really passionate about which is better – active or passive investing, going to great lengths to convince you one way or the other. (“Active” means you, or a broker you have employed, are consciously choosing which companies to buy and sell and how much money to invest in each transaction). My advice is that it’s no ones business how you invest, as long as you are happy with the risk and the results then that is the main thing. Having said that, be open to the education talking to other investors might bring.

How to get in on the action?

I know what you’re thinking...“I’m a smart person, in fact I’m so smart I know I don’t have the time or energy to learn everything I need to know in order to actively choose the best companies to buy or sell so I had better get me some Smartshares.”

To get into the action all you need to start with is $500. Thereafter you can invest as little as $50 per month. You can organise the entire process online by visiting and following the Invest Now link.  It’s easy to get started and before you know it you can boast to your friends that you too are investing in the share market. (Remember Wolf of Wall street is fictional, you are not Leonardo Dicaprio!)  

The NZX provides 10 different Smartshares products, (or using my example above there are 10 different NZX mega malls you can invest into). These 10 are grouped in the 4 categories below:

NZX Product Name

(NZX Mega Mall)

(Shops within the Mall)


NZ Top 50 (FNZ)

The top 50 companies by market capitalisation listed in NZ


NZ Top 10 (TNZ)

The top 10 as above….


NZ Top 20 (OZY)

The top 50 companies by market capitalisation listed in Australia.

SMART Medium

NZ MidCap (MDZ)

Made up of medium sized companies listed in NZ


AUS MidCap (MZY)

Made up of medium sized companies listed in Australia


Aus Dividend (ASD)

Made up of 50 companies that payout the highest dividends in Australia


NZ Dividend (DIV)

Made up of 25 companies


Australian Property (ASP)

Real Estate Investment Companies in Australia.


Australian Resources (ASR)

Mining and Energy Companies in Australia


Australian Financials (ASF)

Banking and Insurance Companies in Australia.

You are free to choose just one or as many Smartshare funds as you like to invest in. You are not obligated to just one, but you must have at least $500 up front per fund to get started; followed by at least $50 per month to invest in each one if you wanted to keep adding to them.  

By clicking on the links in the table above you will be able to see the returns that these funds have been boasting in the past and their fees. (Note the SmartDIVDEND and SmartSECTOR funds are new so don’t have any data about their returns yet).

What if I want to get my money out again?

This doesn’t take long at all, but you do need someone to help you. Whilst you can get into a Smartshares fund without a broker you DO need one to help you get your money out.  Just call any of the NZX Participants and you should have the money back within a day or two, after you have satisfied to them that you are who you say you are (i.e. the Anti-money laundering (AML) paperwork).

In conclusion

If you’re thinking that this all seems really simple then I’ll consider this column a success. I know the jargon and abbreviations thrown about can make investing in the share market seem really daunting and probably not worth the bother, but at least now you know you don’t have to adopt the characteristic fat-pinstripe suit and exceedingly shiny shoes to get involved.  

You can do it all by yourself, and starting out with a simple investing product like NZX Smartshares, might be a great way to dip your toes in and see how it feels.  


Updated: NZX advises rebalancing of the portfolio is done quarterly not six monthly.

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If you are tax resident in New Zealand what amount of tax are you liable to pay on the gains when you sell?

It is similar to property investments. If you are a genuine long-term investor then there is no capital gains tax. So if you buy often and only sell rarely  when there is a reason to sell e.g. to move out of a poorly performing investment to another one or to cash out permanently then there is no tax to pay. If you regularly trade (buy and sell) investments that you have held for a short period only then you will be considered a trader and subject to caiptal gain taxation. Rule of thumb is keep it to less than 10 sales per year.

Interesting. That sounds painfully subjective. Here in the UK you are allowed £11,000 of gains free each year and are taxed on the balance over that.

I used to be UK resident and know the regime. Now that I have been doing this for a while a single sale would take me over the UK threshold so I prefer the NZ system :)
I still have some UK investments and have to use the FIF scheme. The main benefit of this is that it is simple. The downside is you are losing 1.65% of the value to tax each year rather than a lump sum at the end. It does at least make you think hard about whether your money would be better invested elsewhere (the argument for a land/asset tax discussed elsewhere on this site).

But with UK shares any dividend has already had tax deducted at 10% before payment.
So if you get dividend paying shares you can deduct that from your 1.65%. If the yield is high enough you can actually end up paying less than an equivalent NZ share would.
BUT it is all very complicated and hardly worth it for holdings totalling under 500k value.

Actually the uk dividend tax is specifically excluded for FIF calcs

Note that the SmartShares products do have some some quirks.
FNZ is limited to a maximum of 5% in any company so you will not get full exposure to the largest companies (Fletcher, Spark). This can be considered a good or bad thing depending on your point of view.
Their Australian funds cover shares 1-20 and 51-200 of the ASX so you are missing 21-50 in the list. Again, this could be good or bad depending on your outlook.
The reason I cite the two above is that because of these quirks, you are not really taking a passive view of the market as whichever fund you take will be skewed by its omissions. They are still good products and I use them as they are the best available from NZ. (There are overseas options but these come with other risks/benefits that will take too long to explain here.)
If smartshares are reading this - please create genuine NZX50 and ASX200 trackers. If you also create a MSCI Global Index tracker, you will receive most of my investment money.

Hi kiwimm
I Think your wish on MSCI global will be answered soon (going by NZX comments). In the meantime you might want to look at now NZX subsidiary Superlife - who offer a low cost MSCI World (ex Aust) fund for invesment either currency hedged or not, via kiwisaver or direct.
I wouldn't be surprised If NZX use these funds to roll up into a new ETF shortly as they have done with the new dividend funds.

I am a long-time Superlife member and I use this fund as part of my Kiwisaver. For non-pension investing, I prefer ETFs as these are tradeable via a broker. Smartshares have been promising a global fund for three years and I am still waiting.

Kiwimm - it will come down to cost and pricing decisions in my opinion.
The NZX can surely do it but not sure they could beat the global alternatives on price or variety of offering.
iShares or the alternatives are generally available at around 0.3%-0.4% for an MSCI replication.
You would not want a product that simply repackaged another ETF into it and slaps another layer of fees - may as well skip the middleman and get on market direct yourself.

As an NZ-domiciled fund can have PIE status reducing some of the tax paid for higher rate earners. They can also work out the PIE and FIF tax so I don't have to.
I would prefer to invest in NZD and let the provider convert the money at commercial rates (a 2% improvement over bank rates). This also reduces the time required to compete a purchae as I don't have to move money overseas or use an expensive nominee account.
A small increase in fees (my global tracker out of the UK cost 0.25%) is worth paying for these benefits. This fee should also drop over time as more money is invested directly or via Kiwisaver.

Great article - thanks Elizabeth. Best I've read on the subject. I don't think the link  "can do so here)." is working.

Minime - link so should be working now - thanks for letting us know

Anyone want to hazard a guess at which would incur more fees, investing in the NZX50 yourself or going through smartshares...  I guess it depends on the total investment you're making. 

Definitely cheaper via smartshares unless you have vast sums of money.
Assuming you buy all 50 shares and only re-balance or add new money once a quarter then you are looking at 50*4 trades at $30 each would cost you $6000. You would need to invest $800,000 for thr fees to be the same. And quarterly rebalancing will lead to a large tracking error.

At least if you bought the whole zoo yourself via a broker you could put down the animals that got sick before the quarter rather than having to wait. Wonder what the opportunity cost is?

Thanks Kiwi.  But you're assuming that I'd rebalance every stock, every quarter?  Surely you'd only sell out of the stocks that drop out of the NZX top 50, or very poor performers?

The index is balanced by market capitalisation so you hold more of the larger stocks. As the prices change you need to hold a different amount. Also each time you had more money to invest, you would need to buy 50 stocks again in the same proportion as the index.
You could buy and hold a set amount of the 50 top stocks but this will not give you the benefit of increasing your share in winners and reducing your share in losers the indexation allows. You effectively just become an active trader with a portfolio of 50 stocks.

If a share increases in price, doesn't your allocation automatically increase as you're holding it? Problem is if you want something to stay a certain % of your portfolio in which case you buy more as it falls, if you're weighting by market cap it's automatic isn't it?
You're right about the problem of new money though, you'd have to either invest very lumplily and accept you're no longer following the index exactly (which isn't necessarily going to make you worse off) or very expensively.

Via my personal TD Ameritrade account in the US they allow me to trade up to 100 non-proprietary ETF's commission free. There are conditions such as being registered via a specific program and having a minimum holding period of 30 days.
NZ brokerage fees are way too high for the service and advice you get unless you are an institution then the costs are close to zero.

And here is where the real market is, according to Reuters,
Maybe we should all learn a lesson, on how the true systems work. One rule for the rich, one for the poor.
Note who is benefitting from Govt employ.
Make the rules, control the market, invite in yer cronies. Feast or Famine, or sops for the won people, not in favour.
Won-der where 'Our Dear Leader" gets his ideas from.
Smile please.... or else....but do not point the finger at me...that is my job.
What shortages...????...then back to the Rolls, or is it the BMW..?? who knows.?

I'm learning good stuff here. Smartshares. Thank you Elizabeth and Kiwimm. And Craig for your comments too.

This is not mentioned in the article above but the important part is that an when you follow an index, you are the market. The market cannot be beaten over time. If it could be beaten then everyone who do it and the market performance would arbitrage it out. A few lucky active funds may beat the market for a short period but this is normally followed by a period of underperformance as over time this averages out. Active investors are paying a fee for the privilege of underperfomance.
In other words, if the market goes up 10% then a passive investor will always earn  the market less fees (0.5%) less any tracking error (usually small for large funds). The active investor will over time earn the market return less their fees (around 2%).
From all the research done on this, not one paper has found that, on average, active funds beat passive funds over any period during any type of market. Good luck trying to pick that winning fund.

Great comments and dialogue everyone.   What do you all think of "drip-feeding" into the funds over time, versus, depositing the money all at once?   

There's some good research on this from Vanguard somewhere. In summary, if you have a lump sum, the best time to invest is now as any delay will involve lost opportunities in a market which has a long-term upward trend.
If drip-feeding, how many drips should you use? Too few and you won't get the benefit, too many and you have been out of the market too long. Psychologically. you may feel safer but there is always risk involved.
If you have a regular saving amount then drip feeding is a no-brainer.

... depends upon your risk tolerance , and you competence in stock/fund picking ...
For most Kiwis , who're kept busy with the day-to-day chores of work , raising the kids , mowing auntie's lawn , and dressing up as sheep ... there's not enough time left over to devote to studying and learning sharemarket investing in greater detail ...
... drip feeding into an index fund may be their best option ...

There is advantage in the dripfeed.  More so I think because of personal circumstances than as an advantageous method.   If you follow the 'pay yourself first' principle then there is a standard dollar amount probably (say x dollars per month) to deal with.  So dripfeed it in.
But I also agree with the view that if you have a lump now, invest it now.  Why would you wait to feed it in?

I like a combo - drip feed as the base, but keep some back in the slush fund earmarked for buying extra when there's a dip. 

....have recently opened an ASB portfolio trader account option with online banking. I imagine the other banks offer the same service.  I have yet to trade on it, but it looks to be simple and enables you to see waiting buy and sell orders, latest price and so on.  You can load up your porfolio to see real time values.  It basically puts you in control - which a portfolio tracker won't.   And a  tracker only focuses on the'll miss oppurtunities such as Restaurant Brands and so on...

I know someone who uses the ASB share trading facility and it seems to work well and is reasonably cost effective if you don't need advice and want to execute only.

I have been paying monthly into Smartshares (FNZ) and reinvesting dividends since its incepetion, which was back in 2007 I think. As an expat Kiwi, it was a good way to keep connected with regular savings back in the homeland and much more profitable than the "tax-free" savings plans hawked all over Asia. It is very easy to adjust monthly payments and all it takes is an email. 
If you have an ASB trading account and want to sell your Smartshares, all you need is a FIN number. The only issue as far as I can see is that it might be relatively difficult to sell all your Smartshares quickly if you have a moderate amount, say over 30,000. And yes, the trading fees are expensive. I trade Nikkei 225 index funds through a broker in Japan and it costs approx NZD10 per trade. 

I use ASB's platform for my trading and it works just fine.  You can set up watchlists which is good for planning, easy to set up a AUD account which you'll need for ASX trading.  Another good feature is you can add stocks into a 'portfolio' without buying them and essentially pretend you had bought a stock at a given price on a certain day and it will display the performance of that stock/portfolio.  Sounds a bit silly but it's good for people who keep asking themselves "what if".  My only criticism is that fees are too high per trade, see comments above. 

Ta.   I also activated an Aussie bank account so AUS divs can flow in there, with the benfit of reading advice on this site also transferred lump cash to AUS in Aus bank a) advantage of FX rate and b) due to the Aus govt bank dpeosit scheme they have..which we don't.  I'm risk adverse as you can tell.!!!..but thx to you posters out there.....your postings are great- particualry because everyone chimnes in and disgree so much :)

Is this a social media advertising campaign for ASB securities? I've used them in the past , and they are hugely expensive and staffed with arrogant little runts who all think they're the next wizards of wall street. I pay 1 dollar US to trade any volume of shares with my US broker and have instant liquidity. ASB charge nearly $30 and are as quick as erosion.

Warren Buffet (coined as the most successful investor of the 20th century, and a big supporter of index investing) had the following to say in his most recent letter to the shareholders of his company:
"Buffet highlights the following investing sins:
1. Active trading
2. Attempts to "time" market movements
3. INadequate diversitifation
4. The payment of high/unnecessary fees to managers and advisors
5. The use of borrowed money"
In light of todays column....Thoughts everyone?

How about the use of other people's insurance premiums to invest - namely the float.
Warren Buffet wrote; “Berkshire’s extensive insurance operation again operated at an underwriting profit in 2013 – that makes 11 years in a row – and increased its float. During that 11-year stretch, our float – money that doesn’t belong to us but that we can invest for Berkshire’s benefit – has grown from $41 billion to $77 billion. Concurrently, our underwriting profit has aggregated $22 billion pre-tax, including $3 billion realized in 2013. And all of this all began with our 1967 purchase of National Indemnity for $8.6 million. Read more

I agree entirely with this. I don't mind using my failures as examples, such as buying into Nikkei equities in 2007 driven by a "fear of missing out" in the bubbles that were bursting out in equities and residential property at the time. While I was able to hedge effectively through currency (JPY was strong relative to most major currencies) and the current boom in the NIkkei (through not selling during the GFC and post-period), Smartshares were a better investment. In fact, loading up on Smartshares would have been a profitable move in 08-09. Whenever I looked at active funds, such as those managed by Milford, returns always looked spectacular, but the fees and taxes were a complete turn off. 
I don't know if I agree with Buffet entirely, even though the guy will be billions of times more succesful than I can ever hope. For example, if someone reduced the amount of regular payments into Smartshares at the current time, I don't think it is necessarily a bad thing, considering historical peaks. Likewise, I think that increasing the amount after "events" is also not a bad idea too. I read the ideas of Taleb who believes that the complexity of today's economic structures is likely to mean more acute and volaties events in the future. Based on that, there is reason to believe that volatility will become the norm. We don't live in a world like The Truman Show, even though many people like to think so. But volatility is good for index funds and people need to get their head around that basic concept. 

Thank you for sharing J.C.