Active Investing vs Passive: What it Means for your KiwiSaver

Active vs passive – Canstar explores what KiwiSaver members need to know about the two different styles of investment management.

Is your KiwiSaver fund actively or passively managed? And do you understand the difference between the two investment styles? Canstar looks at the difference between active and passive fund management, and how that can affect fees and returns.

What’s the difference between active investment and passive investment?

All fund mangers judge their performance against market averages, or indexes, for example the Dow Jones Industrial Average, or the NZX 50. These represent a hypothetical portfolio of investments that provide an average picture of a market’s health: whether it’s going up or down, even if individual shares are tracking in the opposite direction.

A passively managed fund uses computers to track an index and to buy and sell corresponding shares automatically, thus, matching the chosen index’s trajectory.

An actively managed fund, on the other hand, is controlled by a fund manager, who implements an investment strategy based on expert research and analysis.

Which performs best: active investment or passive investment?

Passive investment is never going to outperform the market, as it’s designed only to track the market. But as long as the market’s value creeps ever upwards, everybody’s happy. But if the market stagnates or drops, the value of the investments will do the same.

An active fund manager’s intention is to beat the market. They buy and sell proactively and aim to make returns above indexed averages, whichever way the market is headed. But, of course, humans are fallible and nobody can foresee the future.

While active funds can outperform passive funds some years, it’s harder for managed funds to maintain the same performance year-on-year.

What it means for KiwiSaver members

For KiwiSaver members, the main implications of the two different styles of investment are the fees they are charged by their fund providers. Because many of the processes involved with passive investment are automated, the funds are cheaper to administrate and, as a result, the fund providers charge lower fees.

Some passive KiwiSaver providers are very proud of this fact and heavily promote their low-fee accounts, such as Simplicity. But not all passive providers have considerably lower fees. And, just because something is cheap, it doesn’t mean that it’s better.

On the flip side, higher fees don’t necessarily mean higher returns or better service.

In its most recent KiwiSaver report, the Financial Markets Authority was very clear in stating that there’s a difference between cost and value. If an actively managed fund has higher fees than a passively managed fund, but delivers comparatively higher returns, then it’s a good value product.

Active funds vs passive funds: the verdict

Because passive funds can only reflect the ups and downs of the market, if you want to invest in a growth fund that chases returns above the market average, you are going to have to choose an actively managed fund. But, saying that, there are exceptions to every rule, as the below table shows.

Our chart shows the top 10 KiwiSaver growth funds, sorted by past 5-year returns (highest to lowest), currently listed on Canstar’s database (correct as of 01/09/2023) for a KiwiSaver member with a balance of $30,000. And, as you can see, there is one passively managed fund in there, which also has the lowest fees.

KiwiSaver Fund 5-Year Returns Annual Fee Managed
AE Investor 12.57% $980.40 ACTIVE
Milford Active Growth Fund 8.59% $315 ACTIVE
Simplicity Growth Fund 6.84% $93 PASSIVE
Booster Growth Fund 6.66% $408 ACTIVE
Fisher Funds TWO Growth Fund 6.64% $312 ACTIVE
ANZ OneAnswer Growth Fund 6.54% $315 ACTIVE
Generate Focused Growth Fund 6.54% $435 ACTIVE
Kiwi Wealth Growth Fund 6.48% $339 ACTIVE
AMP: ANZ Growth Fund 6.13% $395 ACTIVE
BNZ Growth Fund 6.11% $135 ACTIVE

Ultimately, choosing a KiwiSaver fund is about more than just active vs passive, and fees vs returns. There are many other considerations, too, such as your appetite for risk and a provider’s levels of customer service, communication and support. That’s why it’s essential to thoroughly research your options and to compare providers.

And that’s where Canstar can help. Our KiwiSaver comparison tools list not only fees and returns, but also display Canstar’s expert KiwiSaver Star Ratings, which are an invaluable guide to the best providers in the market.

Compare KiwiSaver Providers with Canstar

If you’re comparing superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for a KiwiSaver member with a balance of $50,000 in a Growth fund, sorted by Star Rating (highest to lowest), followed by company name (alphabetical) some may have links to providers’ websites. Use Canstar’s KiwiSaver comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.

To read more about our Outstanding Value KiwiSaver awards click this link. Or to compare KiwiSaver providers, click on the button below.

Compare KiwiSaver providers for free with Canstar!

About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.

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