Battle of the index funds: New Zealand Top 50 fund

Welcome to round 1 of the battle between the heavyweights. If you haven’t done so already, check out the introduction that sets the tone to this heavyweight battle.

Today we are comparing the costs of investing in a NZ Top 50 stock fund between 5 of the lowest cost fund providers that can be summarised in the table below.

Current as at November 2018

Current as at November 2018

The NZ Top 50 fund is a stock market index fund and is ideal for investors buying for the long term (10 years plus), that want to invest in local companies and are able to accept some market volatility. This fund should ideally make up a relatively small percentage of someones portfolio. More international exposure is needed for a more balanced portfolio.

All funds are identical in the sense that they track the biggest 50 companies in the NZ stock market index. There are small differences in how they track them though. Simplicity and InvestNow AMP fund do not place a maximum weighting on any one company. Sharesies, Superlife and Smartshares put a 5% cap on any one company.


The data

For the data I have assumed investor annual contributions of $600 to meet Smartshares and InvestNow minimum requirements for a level playing field.

For this fund I am assuming a 6% return after costs for all funds. In reality, because of the different cap weightings, I would expect the Sharesies, Superlife, and Smartshare funds to perform slightly differently to the Simplicity and AMP funds.

For the brokerage selling fees I have used ASB Securities rates and fees. Only Smartshare and InvestNow customers incur selling fees for this fund.

The numbers on the following tables is the price of the fund if it were to be sold at that period in time.

With that out the way, lets have a look at how the fees stack up for an investor who has an investment worth $100, $1,000, $10,000, or $100,000.

Investing $100

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Smartshares, Simplicity and InvestNow are not an option for the $100 investor due to their minimum start up requirements of $500, $5,000, and $250 respectively.

That leaves just Sharesies and Superlife as available fund providers.

Superlife comes out slightly ahead, thanks to a lower annual administration fee of $12, compared to $18 for Sharesies. The Superlife management fees of 0.49% are also 0.01 percentage points cheaper than Sharesies 0.5% management fee.

At this level of investing we are only looking at a $500 difference over 30 years. Not that significant, which makes the decision more about non-cost factors such as ease of website use, access to reports, etc.

The other key difference between these two companies is if your income is less than $48,000 you will need to do a tax return for your Sharesies fund. You do not need to do this for the Superlife fund.

Also note that both these companies use a flat administration fee as part of their charges. For a $100 investor, this can make up a huge chunk of your contributions. It is not until year 14 that your fees become a more reasonable 0.6% with Superlife, and year 25 with Sharesies. If you sell in year 1 your fees will be more than 2%.

Winner Superlife

Investing $1,000

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Simplicity is still not an option at this level of investing due to their $5,000 minimum requirement. Smartshares and InvestNow are now able to enter the championship ring though.

Sharesies is again the highest cost provider across all time ranges. Over 30 years, there is a difference in costs of $2,000 between Sharesies and InvestNow Smartshare funds. Almost a $4,000 difference if you compare it to the lowest cost NZ fund, Investnow’s AMP Capital NZ share fund. Remember that the AMP fund tracks the index without a cap, so bear that in mind if you go with that fund.

Superlife and Sharesies funds, with their admin fees, take 8 years and 17 years respectively to get to an annual cost of investing of below 0.6%. It’s a long time, and explains their poorer performance.

Smarthsares sits in the middle of the 5 providers in terms of fund costs.

The other interesting realisations are that the Investnow Smartshare fund is slightly lower cost than the Investnow AMP fund during the first year. This is because the AMP fund incurs a 0.1% brokerage fee for selling, which eats into the returns. This difference is eroded by the second year where the AMP fund takes the lead and doesn’t look back. With the AMP fund incurring a selling cost of 0.1% each time you sell, it is important to buy and hold if you are to use this fund. If you want to frequently sell, then this fund will not be right for you. The cost setup encourages holding your investment for the long term and discourages frequent selling.

Interestingly, the Smartshares fund does worse than the Superlife fund for the first 3 years, before taking the lead. This is due to Smartshares initial $30 fee and brokerage selling costs. After a few years though with no Smartshares administration fees, it starts to perform better than the Superlife fund that has a $12 admin fee.

Winner InvestNow AMP fund (as long as you don’t sell frequently)

Investing $10,000

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Similar results to the $1,000 investor except with the higher starting amount, the results are a bit more pronounced. There is now a $6,000 30 year difference between the Sharesies and AMP funds.

We also have a new contender to the arena. Simplicity is now in the mix since we have met the $5,000 minimum start up level. How did they get on? A clear winner for all periods. Almost $10,000 less in fees than a Sharesies investor and $4,000 less than its nearest competitor AMP. Remember that the Simplicity and AMP funds track the index without a company cap, so bear that in mind if you go with those funds.

With the higher investment value, the Smartshares fund takes longer to overtake the Superlife fund. 6 years, instead of the 3 years it took the $1,000 investor. This is because of Smartshares brokerage selling costs. Because the fund value is higher, so to are the brokerage costs. Meaning the fund takes longer to get ahead.

Winner Simplicity

Investing $100,000

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Smartshares has suffered from this increase in investments, taking 8 years to overtake Sharesies. The reason for Smartshares poor performance with higher investing values is the high brokerage (selling) fees of 0.3% having a big impact on higher values. It slowly overtakes Sharesies though thanks to no annual admin fees. The difference is barely worth worrying about.

Simplicity is almost $40,000 cheaper than its nearest rival AMP over 30 years and $4,000 over 10 years.

Superlife performs better with higher values, jumping from 5th to 3rd. Effectively Superlife and Smartshares trade places at this level. This is thanks to Superlifes no selling costs and slightly better management fee. The $12 administration fee does not have as big an impact when investing in higher dollar amounts too.

There is no recovering from Sharesies $30 administraton fee to be competitive though. Simplicity also has the same admin fee but their fund costs just 0.1% to manage. Sharesies is 0.5%.

Winner Simplicity

Final Thoughts

Simplicity is the clear winner for all time periods where the investing amount is greater than $6,000.

If you have between $250 and $6,000 then you will most likely be better off with either of the InvestNow funds. The AMP fund if you are a buy and hold investor. The Smartshares fund if you think you may sell more frequently than once every 5 - 10 years.

If you have less than $250 to invest then either fund is fine. There is no significant difference. Sharesies and Superlife can not be considered low cost providers at the $100 and $1,000 levels. Their annual administration fee structure takes up a large percentage of investor contributions. If you meet the minimum contribution levels, the other funds are so much more cost effective for essentially the same product. To be fair to Superlife though, it performs much better once your investment portfolio increases in size to greater than $20,000. Sharesies never really recovers from its relatively higher administration fee.

By winner, I mean the fund with the lowest fees. Lowest fees does not always mean the best fund for you, so please carefully consider the other features of the different funds highlighted in the introductory article of this 12 part series and make sure that in addition to low fees, the fund also matches your portfolio strategy and is easy to understand.

Next up we will compare the costs of the Australian top 20 fund.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here