Sharesies takes aim at low-fee fund market

By Susan Edmunds of RNZ

New investment funds from Sharesies are a sign of an industry trend towards lower-fee options, commentators say.

Sharesies has launched funds it says are designed to give broad market exposure at a low cost. It is charging 0.1% per annum. The funds are portfolio investment entities, so tax is capped at 28%.

It has launched a global share fund, and plans a global bond fund, NZ cash fund and a NZ-dollar hedged global shares fund.

Competing providers, such as Kernel, have been growing quickly, offering low-fee investment funds, and some investors have said Sharesies’ fee structure compared unfavourably.

Kernel founder Dean Anderson said he expected to see others try to “share in Kernel’s success” due to its growth.

“Competition is good for NZ, and good for us.”

Gertjan Verdickt, a former senior lecturer in finance at the University of Auckland, said there was a global awareness of fees eroding profits.

“Given the large number of managers that underperform, this is one way of attracting more money: you mechanically increase performance by lowering costs and you can distinguish yourself from competitors by offering lower fees.”

Generate investment specialist Greg Smith said the Sharesies move was an industry trend rather than a direct shot at a competitor.

“Broad market exposure is increasingly becoming a commodity product, and when that happens providers tend to compete aggressively on price.

“The risk is that investors focus solely on fees. Low fees are a very good thing and 0.1% is certainly competitive, but investors should remember that portfolio construction, diversification and staying invested over the long term will usually have a much bigger impact on outcomes than a few basis points of fees.

“Investors don’t spend fees in retirement, they spend returns. Ultimately, what matters is the return achieved after fees, and that’s influenced by investment strategy and risk as much as cost.”

He said there was a risk that fee comparisons did not tell the whole story.

“A global index fund gives investors broad market exposure, but it can also result in very concentrated exposure to a handful of the largest companies.

“Today, a significant portion of many global index returns comes from a small group of large US technology stocks. That’s not necessarily a problem, but investors should understand what they own and ensure their portfolio is appropriately diversified rather than focusing exclusively on the headline fee.

“Fees matter, but so does diversification. Many investors can tell you the fee they’re paying, but fewer can tell you how concentrated their portfolio is. The real objective isn’t simply finding the cheapest fund.

It’s building a portfolio that delivers strong risk-adjusted returns over the long term."

This story was first published on rnz.co.nz