Investment Selection Principle
All KiwiSaver scheme providers must comply with their obligations under the KiwiSaver Act 2006 (the Act) until they transition to the new regime. KiwiSaver providers must also comply with any obligations they have as issuers.
Participants involved in KiwiSaver management and oversight must ensure they meet regulatory standards and act with customer interests in mind.
Additionally, KiwiSaver Scheme Trustees also have a responsibility as front-line supervisors for monitoring the management and administration of these schemes. KiwiSaver Scheme Managers must exercise care, diligence and skill in the investment of scheme assets, and act in accordance with the stated investment policy and objectives. The FMA monitors that KiwiSaver Schemes are compliant with their obligations.
As KiwiSaver is a highly regulated product, National Capital bases its KiwiSaver Fund selection on Quantitative measures, rather than going into in depth research of the processes and administration of the Schemes. We believe our time and resources are better spent working with the clients to ensure they choose a scheme with the correct asset allocation and educating them on the tenets of long term investing.
We use the KiwiSaver Investment research published by Research agencies like Morningstar and FundSource to aid in our Investment Selection process. National Capital's Investment Selection Process is detailed below.
The Selection Process
Step 1 : Risk Adjusted Performance
The first step is to shortlist funds using the FundSource Performance tables and FundSource Star Ratings.
FundSource star ratings are a comparison between funds investing in assets with similar characteristics using a return measure that has been adjusted for risk. The star ratings are purely quantitative and use the most recent 36 months of performance data. The funds in a sector are ranked according to their risk-adjusted return. The top and bottom 15% earn 5 stars and 1 star respectively, the next top and bottom 20% earn 4 stars and 2 stars, and the middle 30% earn 3 stars. In this way the variability of performance return is considered. So where two funds in the same sector earn similar returns, but one is more volatile than the other, the more volatile fund is likely to get a lower star rating than the other. Alternatively, where two funds have similar volatility but one earns higher returns than the other, the fund with the higher return is likely to get a higher star rating.
Step 2: Fees
Use the Morningstar Quarterly KiwiSaver survey to determine if the fees charged are reasonable. We compare the shortlisted funds to the entire KiwiSaver universe to ensure the fees charged are reasonable and will not detract from Investment returns.
Step 3 : Final Recommendation
We will recommend the Fund which has the highest rating. If two funds have the same rating, we will recommend the Fund with the highest last 5 year performance.
Selection of Providers
We only take into consideration KiwiSaver schemes that we have an agency agreement with. An agency agreement allows us to recommend, setup and monitor our clients funds with a KiwiSaver scheme provider. From time to time however, we might take into consideration funds from KiwiSaver scheme providers whom we do not have an agreement with if we believe it is in our clients best interests to do so.
We started off with the intention of using as many or even all of the KiwiSaver providers in our universe of funds taken into consideration.
However, as we progressed on evolving the business model, we realised that it would not be feasible for us to monitor all 217 KIwiSaver funds. We then decided it would make more sense both from our and the clients perspective if we were to focus on a select group of providers that we were happy would be able to provide us with a good range of options from which to select appropriate funds for our clients from.
We initially made contact with all the retail KiwiSaver scheme providers. We shortlisted those who had business policies that allowed and encouraged them to work with external financial advisers. We then had a series of meetings with representatives from all those schemes. We select the providers we would work with based on the following criteria
- Client Services & Education tools
- Quantitative Performance metrics
- Investment Philosophy and Goals
- Their focus on KiwiSaver as a part of their total business interests
Active vs Passive Management
Our provider and fund selection will be biased towards active management of Investment funds. We believe that clients having access to a Financial Adviser will be better served by active managers, than investing in passive funds. This article explains the reasoning behind our choice very well. We will ensure adequate disclosure will be made to clients about which providers we work with and how we have selected them, so that they can make an informed decision both whether to use our service and to follow our recommendations once they do.
We currently research and recommend funds from within the following providers.
- Aon Saver Limited
- ANZ Investments Limited
- Fisher Funds Limited
- Generate Investment Management
- Booster Investment Management Limited
Are we independent?
Since we plan on working with a select group of providers, most of whom we will receive a commission from, we will not be marketing ourselves as 'Independent'. However, we are legislated to follow a code of conduct in which we must put the interests of our clients before our own. We intend doing that anyways, since its just good practice and the right thing to do. Our ethics policy and values can be found below.