5 things you need to know when choosing a socially responsible KiwiSaver fund
10 September 2018
There’s been a lot of noise around socially responsible investing (SRI) - what it means and the reasons why you should or shouldn’t consider socially responsible investments. The choice of what to invest in is as individual as you are. What might be right for one person is not right for the next.
Before you start looking at investment options you need to have a clear view of what your goals are, your timeframe and your moral values. If you don’t believe in questionable practices such as weapons manufacturing, nuclear power, tobacco or gambling, why would you put your retirement savings into these industries?
Here are five things you need to consider when choosing a socially responsible investment fund:
1. Know how the investments are chosen
There is a broad range of processes used to determine whether investments selected are socially responsible. Many KiwiSaver providers filter out “sin stocks”, those involved in gambling, tobacco or alcohol, but then the line starts to get blurry. Read more
Some KiwiSaver providers, such as QuayStreet Asset Management, use a negative screen, to exclude “bad” companies and also a positive screen, looking at the positive impact companies are making and how this could impact their performance long-term.
This second screen is not widely used because it is time consuming and hard to measure but adds an additional dimension to the investment selection.
QuayStreet’s Socially Responsible Investment Screening Process
Know the underlying risk – does it match your appetite?
You need to understand what the fund is made up of as the split between growth assets (e.g shares) and income assets (e.g. bonds and cash) will determine the risk and the potential returns.
A lower risk fund, with more income assets will give you less fluctuations (volatility), but likely also lower returns over the long-term. On the flipside, with more growth assets you will aim for higher returns but will need to take on more risk to achieve these.
Example of Lower Risk Fund
Example of Higher Risk Fund
This chart is for illustrative purposes only and should not be regarded as investment advice.
The QuayStreet Socially Responsible Investment Fund is made up of more growth investments than income investments, to aim for higher returns than the fund market benchmark. However, when market conditions change, the Fund’s assets can be moved into more income investments to control risk with the aim to keep returns as consistent as possible. Find out more about the Socially Responsible Investment Fund >
3. Can the fund deliver on performance?
Performance is obviously a key objective when investing. There’s various research and evidence* that support the view that you don’t need to sacrifice returns by choosing socially responsible investments.
At QuayStreet we believe that long-term holdings of companies that operate responsibly should at least match or outperform conventional funds, and be at less risk of price declines. These companies also tend to be more competitive, operate more efficiently, have higher levels of profitability, and their cost of capital tends to be lower.
View Socially Responsible Investment Fund performance >
When you choose an socially responsible investment fund you also need to be able to access your reports easily to check your investment performance.
4. Who is involved in the investment decisions?
5. What will it cost me?
KiwiSaver schemes include a range of fees, such as administration, management fee and, in some cases, performance-related fees. It’s important to understand these and what you will be charged.
In May, QuayStreet announced a reduction of the management fee for our Socially Responsible Investment Fund from 1.25% to 1.00% per annum.
With this change QuayStreet aims to maximise the benefit for investors and continue our focus on providing a market leading socially responsible investment fund.
Our team is here to help
Although the above is not in any way an exhaustive list of what you need to consider when investing, it can help you when comparing socially responsible investment options available.