Simplicity launches investment funds that track the NZX top 50 and NZ bond market, under-cutting the NZX's Smartshares ETFs on fees

Simplicity has launched two investment funds that rival the New Zealand stock exchange’s popular Smartshares Exchange Traded Funds (ETFs).

The not-for-profit has launched a ‘NZ Share Index Fund’ that invests in the 50 largest companies that make up the NZX50 index, as well as a ‘NZ Bond Index Fund’ that tracks an index of over 30 New Zealand investment grade bonds.

The funds are structured almost identically to Smartshares’ NZ Top 50 and NZ Bond funds, so should deliver similar gross returns.

Yet taking Simplicity’s lower fee structure into account, investors’ net returns should be higher.

This is how the offerings differ:

  Simplicity Smartshares
Establishment fee None A one-off fee of $30 regardless of the number of ETFs being invested in.
Annual admin fee $30 $0
Annual management fee (of funds under management) 0.1%  NZ Top 50: 0.5% 
NZ Bond Fund: 0.54%
Fee for withdrawing funds $0 Depends on broker. ASB Securities charges 0.30% for sums over $10,000 for example.
Minimum investment per fund $10,000 $500
Minimum that can be added to fund No minimum $250, or $50 if signed up to regular investment plan.

Simplicity CEO Sam Stubbs says Simplicity has maintained a $10,000 minimum investment threshold to reduce the number of transactions investors make and thus keep its costs down.  

“Once we get the efficiencies - the economies of scale - to drop that, we certainly will. I don’t think we’re too far away from doing that.”

He says the funds give New Zealand retail investors access to products at the same price as investors in more developed markets.

“As a non-profit, we only charge what it costs, and that means management fees much lower than our profit making competitors.

“There’s an ever growing body of evidence showing the best way to get higher returns, in bull and bear markets, is by paying lower fees.”

Looking at Simplicity’s fee structure more closely, it becomes more attractive the more one has to invest.

For example, a Smartshares NZ Top 10 investor with $10,000 under management will save 20% if they switch to the equivalent Simplicity fund. Meanwhile an investor with $50,000 will save 68%.

Funds under management Annual fees
Simplicity NZ Share Index Fund investor  Existing Smartshares NZ Top 50 investor  New Smartshares NZ Top 50 investor 
0.1% management fee + $30 admin fee 0.5% management fee 0.5% management fee + $30 establishment fee
$10,000 $40 $50 $80
$50,000 $80 $250 $280

Stubbs says the underlying message behind Simplicity launching two low cost, index-tracking funds is that it wants to get into wholesale asset management.

He says the funds effectively set a new benchmark for what institutions should be able to pay to invest in New Zealand bonds and equities.

“We can’t compete against Vanguard internationally, if you want to invest direct there. But here in New Zealand, no one’s offering what should be offered, which is an absolutely at-cost, passive series of investment funds.”

Stubbs maintains an unintended consequence of Simplicity launching a product that competes with the NZX’s Smartshares, is that it will hold the exchange to account.

Smartshares launched its first ETF in 1996. It has since added another 22 ETFs to its offering, in October surpassing the $2 billion of funds under management mark.

More than 60,000 New Zealanders are invested in Smartshares, either directly or via the NZX’s SuperLife KiwiSaver business, or through financial advisers and investment platforms, Invest Now and Sharesies.

Having launched in September 2016, Simplicity has $400 million of funds under management through its three passively-managed KiwiSaver funds and regular investment funds that mirror those funds.

Ultimately Stubbs believes the NZX should ditch its asset management business.

“We don’t mind having a competitor,” he says.

"But we don’t want their corporate energy going into running a funds management business as opposed to developing a stock market.”

NZX CEO Mark Peterson says, "The public capital market plays a vital and active role in the New Zealand economy and a healthy market is one with a growing range of investable product and wide participation." 

Smartshares CEO Hugh Stevens adds, "It’s fantastic to see another passive fund manager offering access to the New Zealand market.

"This will help push investors of all stripes to consider passive strategies within their portfolio, and validates the approach Smartshares has been taking for more than 20 years." 

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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32 Comments

Smartshares need to try harder. Smartshares have been acting like a monopoly incumbent for too long. They can't even be bothered setting up a decent website. With InvestNow, and Simplicity offering cheaper fees and better service smartshares are looking rather dumb.

Fees are the silent killer for most investments.

For a lot of people this is probably the best way to see it, as both funds are likely to provide the exact same return.

Tell me about it. I just looked at what i'm paying to buy shares on the ASX thru ASB. NZD/AUD exchange spread then minimum $30AUD fee to buy or sell, plus as far as i'm aware Australian franking credits don't translate to NZ imputation so effectively get double taxed on any dividends.

Anybody know of a cheaper brokerage for ASX trading?

I'm not aware of a cheaper broken at this time. If anyone finds one I'd be interested in knowing as well.

The double taxation on dividends is pretty frustrating. As a foreign investor capital growth makes more sense if you are buying Australian shares or ETFs.

Are you solely looking for NZ domiciled brokers, or for overseas ones? I know Australia has SelfWealth and Stake that allow you to buy ASX listed stocks for $9.50 AUD a trade and U.S. stocks brokerage fee free, respectively. You need a TFN for each though, and it would complicate your tax return a bit more.

I'm not investing enough in the ASX for it to be worthwhile for all the extra administrative hassle.

Ah, okay :)

Try ANZ Securities (aka Direct Broking) "Trades for Australian listed securities with a trade value of up to AU$30,000 AU$29.00"

https://www.anzsecurities.co.nz/directtrade/static/ourrates.aspx

As far as I know the cheapest way to buy ASX securities from NZ is:
1) Open an OMCA account with ANZ(Direct Broking)
2) Transfer in AUD via a currency broker like HiFX. Make sure you haggle with them on the phone to get a good deal. Don't pay the chump tourist rates!
3) Buy your shares in large AU$30,000 orders

The catch with ANZ is you can't transfer AUD out of there without first converting it to NZD at their ripoff rate.

Thanks bilbo, i'll have to switch to them if I start looking at $10k+ single trades, might be useful to keep trading and buy and hold on separate brokers for tax reasons too. Another question for the accountant..

I have to agree with the other commenter here. If you're doing <$10k trades you're doing it wrong. It's probably better for you (especially if you're young) to invest in a passive fund every month and focus on your career. Trading is simply not worth the fees and hassle for small parcels.

I'm not sure I agree. I started with $1k, 2k parcels and learned lessons that I wouldn't want to have to learn with $20k trades. Admittedly, the brokerage takes up a significant amount and in financial terms you're right, but there's some benefit from gaining experience with low stakes. It also helps keep your hands in your pockets and prevents excess trading when each transaction takes up 1% or more of your stake.

So you paid in high brokerage for advice through lessons learnt along the way. Alternatively a broker can give you that advice for free.

Firstly, I'd rather learn myself. Secondly, I thought most brokers would only offer advice to customers, and investing through a traditional broker will see you paying significant transaction costs anyway.

Craigs Investment Partners will help you exchange foreign currency pretty much for free, at the market rate. I was able to repatriate some euros I earned overseas and make an order once the exchange rate was suitable (September last year). Secure, friendly and personal service from locals, all you need to do is make an appointment and set up an account and you can do the rest over the phone or by e-mail. Worth a look anyway.

If you've got a UK bank account, degiro offer € 10.00 + 0.05% for Oz, plus vastly better rates for Europe and America.

https://www.degiro.co.uk/data/pdf/uk/UK_Feeschedule.pdf

Why would anybody want to invest passively in the NZX top 50 companies? The top 5 or 6 companies have accounted for some ridiculously high proportion of the total gains since the GFC.
This is not like getting broad exposure across many industries when you invest in a passive S&P 500 fund for example. These considerations are far more important than the fees you are paying.

And Pragmatist, if $30 is a high percentage of your transaction, then you are probably doing it wrong.

Fee is the greater of $30 or 0.3% of the transaction value. At the moment i'm not really willing to throw $10k at each trade of the somewhat speculative smallcaps i'm playing in. I haven't got a spare 6 figures lying about to gamble with. Still, if they keep going up at 13% per week like they have been i'll get there soon :)

FNZ50 has been a good investment. The performance of A2, etc is "lucky", but I agree that I probably wouldn't start investing now.

Yes, large cap stocks distort NXZ50. Having held both I found MidNZ better than FONZ. Even with the fee gouging by SmartShares, MDZ would likely continue to be better than Simplicity NZX50. Sad!

Yes, I have been in FNZ since day 1 and drip feeding. Investing in both MDZ and FNZ would have been better. Simplicity doesn't give you the regular investment functionality of Smartshares, but correct me if I'm wrong.

If you mean the ability to make regular additions to your investment, yes it does. just set up a payment from your bank with the appropriate references in the right fields and it works nicely.

The one limitation that I don't like, is as far as I know you can only be in one of the retail funds at a time, so you can't put $10k in the growth fund and $10k in the bond fund for example. I hope they change this at some point.

Thanks. That would be regular payments after the 10K initial investment. Your point about only be able to be in 1 fund at a time is interesting. I wonder how they explain this.

Pragmatist, while I can't comment on why the platform doesn't allow you to do this, my question to you is why would you want to do this?
Why go into the growth fund, which presumably has say 20% of bonds, and then distort this percentage by putting an equal amount into a bond fund with 100% bonds? The result is an effective fund of 60% bonds and 40% stocks (simply speaking). Do they not offer a fund that has that percentage? It might be called something like a conservatively balanced fund.
The underlying investments will be the same.

I currently have no desire to do it, but for example if I thought NZ shares were going to go gangbusters over the next few years I might want to have more than the 14% the growth fund has in NZ shares, without going to 100% nz shares if I put it all in the NZ shares fund. They only have three diversified funds, plus the 2 new ones, so the granularity is rather coarse. For now i'm happy to have everything in the growth fund and leave it to them while I dabble and learn in the sharemarket.

Because I get a better return. Simplicity NZShare fund has returned 7.95% for the last quarter compare that to their Growth Fund returning 4.35% for the last quarter

Are these new funds available outside of Kiwisaver?

Yes

Yes, they are retail investment funds. Put your money in and take it out at will.

Keep it up Simplicity. At the rate you're going I'll soon be able to drop my SuperLife accounts, and save a bundle in fees.

Same situation .. Seriously thinking of dropping Superlife for Simplicity at this stage (For non kiwisaver investments)

Anyone have thoughts on the comparison with investnow's vanguard offerings?
https://investnow.co.nz/fund-vanguard/

Those vanguard offerings are international equities. These Simplicity offerings are NZ shares, a much smaller market characterised by exceptionally high fees.