In our recent discussion with Murray Harris, Head of KiwiSaver at Milford, we explored the ongoing debate between active KiwiSaver vs. passive KiwiSaver funds.
In our recent discussion with Murray Harris, Head of KiwiSaver at Milford, we explored the ongoing debate between active kiwisaver vs. passive kiwisaver funds. With the KiwiSaver pot continuing to grow, understanding the performance of these two approaches has never been more crucial. In this episode, Murray shared why active management continues to outperform in New Zealand and how Milford’s investment strategies are helping drive those results.
Active KiwiSaver managers, such as Milford, rely on a research-driven approach to select individual companies and adjust portfolios based on market conditions. In contrast, passive funds track a market index, often resulting in less flexibility and fewer opportunities for higher returns. But how do these strategies perform in practice?
Murray explains that in less efficient markets like New Zealand and Australia, active managers often outperform passive funds. Research from Melville, a prominent research firm, backs up this claim, showing that active management in these markets consistently beats the index. However, Murray points out that not all active managers are successful. The key lies in having a robust, repeatable process for selecting companies and managing risk. Milford’s track record, especially since 2007, highlights this approach, with top-performing active funds outpacing their passive counterparts over both five- and ten-year periods.
When asked what sets Milford apart, Murray attributes much of their success to a disciplined, repeatable investment process. This process not only focuses on picking the right companies but also managing risk, especially during market downturns. He notes that passive funds tend to perform well during market upturns, as a rising tide lifts all boats. However, active managers like Milford thrive during market declines, when careful selection and risk management can lead to more substantial returns.
An additional factor that sets Milford apart is their structure: the entire investment team is fully invested in the same funds they manage. This means the team’s interests are directly aligned with their clients, ensuring a focus on long-term success. It’s not just about performance—it’s about building trust with clients, including their own families and friends, who are also invested.
As Milford continues to grow, managing a larger portfolio becomes increasingly challenging, especially in smaller markets like New Zealand equities. When managing billions in assets, the capacity to remain fully active can be constrained by the size of the market. To address this, Milford has expanded its focus, investing more offshore and in global markets where capacity is less of an issue.
This strategic shift has led to a deeper and more experienced investment team, allowing Milford to maintain its active approach even as it manages larger sums of money. In fact, Murray highlights that the growth of KiwiSaver funds overall has pushed many managers to diversify their portfolios, investing more in global equities and fixed interest as the domestic market can no longer fully absorb large inflows.
KiwiSaver, a cornerstone of New Zealand’s retirement savings system, could also play a significant role in funding the country’s infrastructure. While much of the focus is on delivering strong returns to investors, there is growing recognition that KiwiSaver funds could help finance critical infrastructure projects, benefiting both investors and the country. Milford is actively engaged in conversations with the government about how KiwiSaver capital could be used to fund infrastructure projects like roads, tunnels, and bridges—similar to how Australian superannuation funds support their nation’s growth.
If you’re considering your KiwiSaver options, Murray encourages you to start with research. Tools like the Morningstar report, which evaluates after-fee returns, are excellent resources for comparing fund performance. It’s also important to look at the fees associated with active versus passive funds. While active management may have higher fees, the potential for higher returns can make up for it in the long run.
Murray also advises speaking to financial advisers and considering word-of-mouth recommendations from friends and family who have had positive experiences with their providers. KiwiSaver is an essential tool for building long-term wealth, and the right investment strategy can make all the difference.
The debate between active and passive KiwiSaver funds is an ongoing one, but as Murray Harris explains, active management has a clear advantage, particularly in less efficient markets like New Zealand. By staying disciplined, focusing on long-term growth, and adapting to the needs of the market, Milford continues to provide strong returns for its clients. As KiwiSaver grows, so too does its potential to support New Zealand’s infrastructure and future development.
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The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
