Leading fund manager comments on KiwiSaver
In September, a Financial Services Council White Paper revealed that of the 3 million members in KiwiSaver, 1.2 million of them have stopped contributing to the scheme. Milford Asset Management Head of KiwiSaver and Distribution Murray Harris sees this as a major issue and says the solution could be to get employers to keep paying in even when their workers aren’t.
“We’re not supporters of compulsory KiwiSaver. The problem with compulsion is that you are forcing people that really can’t afford it to forgo much needed income. But we think the employer contribution warrants looking at further. Because even if you can’t afford to contribute to KiwiSaver yourself, if your employer has put in, say, 2% and if you take the average wage in New Zealand (approx. $50,000), that’s $1,000 a year your boss is putting into your KiwiSaver account. Now, if they’re putting in $1,000, the Government’s going to give you $500 as part of their contribution. At $1,500 a year over a 30 or 40 year working life, plus some investment return, that’s going to be at least $100,000 at age 65 – for people who would otherwise not have saved anything! I think 2% continuing employer contribution is a good starting point but that would need to be worked out with the help of employers and central government and it might need some tax relief if they’re going to be doing that. It would need a lot of work and it may end up being for people earning under a certain level. But we think it could be good social investment.”
Milford Asset Management can claim to be one of New Zealand’s KiwiSaver leaders and is certainly one of the most awarded providers. Murray Harris says the key to Milford’s success is its ‘active investment’ approach.
“We’re looking for winners and we’re looking to pick those winners before the rest of the market does. Look at a2 Milk – we invested in a2 back in 2012 at 28.5 cents a share. It now trades at around $13. The thing is, we don’t invest in markets, we invest in companies. So, we’re trying to pick good quality companies that will do well in all markets whether they’re going up or down. The alternative to this is ‘passive investment’, or index investing, and we say that’s more risky because you’re not doing the research, you’re simply allocating capital to every company in the market and that’s essentially done by a computer programme. So long as the market is doing well, both active and passive managers will flourish. But when markets get more rocky – and during the Global Financial Crisis we saw markets falling 30 or 40% - a passive manager will be holding all the companies in a plunging market, whereas an active manager has more levers to pull. We’re into good quality businesses that might ride out the storm better – and we’re avoiding the businesses that would be more at risk.”
You can also view Murray’s interview discussing these and related KiwiSaver issues if you click here.