Battle of the index funds: NZ mid cap fund

Welcome to round 6 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 mid cap stock fund between 4 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 mid cap 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. The companies in the mid cap index consist of medium sized companies. Because the NZ stock market is relatively small by international standards, a lot of the companies in the mid cap index are also in the NZ top 50 index.

I would not recommend being in this fund and the top 50 fund due to the overlap. If you must, only choose one. Generally, smaller mid cap companies have better returns over the long term. However, they are also more risky. Smaller sized companies have more room to grow, but they also have a greater likelihood of failure. Your decision will be based on your investment strategy, investment timeframe, and your tolerance for risk.

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 same companies in the NZ stock market index. All companies invest via the Smartshares MDZ fund, with the only difference being each companies cost structures and user platforms.

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 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

Smartshares and InvestNow are not an option for the $100 investor due to their minimum start up requirements of $500 and $250 respectively. Simplicity does not offer this fund.

That leaves just Sharesies and Superlife as available fund providers.

Superlife comes out well ahead, thanks to a lower annual administration fee of $12, compared to $18 for Sharesies. The Superlife management fees of 0.49% are also a significant 0.11 percentage points cheaper than Sharesies 0.6% management fee.

At this level of investing we are looking at a $2,000 difference over 30 years for the same fund.

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 8 that your fees become a more reasonable 0.7% 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

Smartshares and InvestNow are now able to enter the championship ring.

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 the rest of the competition.

Sharesies fund takes 24 years to get to an annual cost of investing of below 0.7%. It’s a long time, and explains their poorer performance.

There is little between Superlife, Smartshares, and InvestNow at this stage.

The other interesting realisation is that the Superlife fund is slightly higher cost than the Investnow fund during the first 24 years. This is because the Superlife fund incurs a annual administration fee that takes up a higher percentage on low investment amounts. Superlife begins to overtake InvestNow in year 24 after the investment account has grown to an amount that starts to negate the effect of the administration fee.

Winner Superlife and InvestNow (Draw)

INVESTING $10,000

NZ mid cap $10,000.png

Similar results to the $1,000 investor except with the higher starting amount, the results are a bit more pronounced. There is now almost a $4,000 30 year difference between the Sharesies and Superlife funds

Superlife has really extended it’s lead over the rest of the competition too. The low 0.49% management fee is starting to benefit the Superlife investor at this stage.

Winner Superlife

INVESTING $100,000

Smartshares has suffered from this increase in investments, falling off the pace. 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.

Sharesies still comes in last, but it is gaining on Smartshares. In fact, once we extrapolate out to an investment amount of $175,000 Sharesies will overtake Smartshares.

Sharesies will never catch Superlife or InvestNow. The gap grows as values get higher. There is no recovering from Sharesies $30 administration fee to be competitive though.

Superlife performs better than InvestNow with higher values thanks to Superlifes significantly better management fee. The $12 administration fee does not have as big an impact when investing in higher dollar amounts too.

Winner Superlife

FINAL THOUGHTS

Superlife is the clear winner for all time periods where the investing amount is greater than $5,000.

If you have between $250 and $5,000 then it is a toss up. InvestNow wins if you are investing for less than 20 years. Superlife wins if investing for longer than 20 years.

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 emerging markets 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