Simplicity Investment Funds Review
Unknown to most investors, the Simplicity Investment Funds offering delivers low-fee index funds to those willing to invest a minimum of $1,000 - we review the pros and cons of the fund offering
Updated 16 June 2021
Summary of Simplicity Investment Funds
- Funds: Simplicity Investment Funds offer five funds, with annual fees set at 0.10% (NZ Shares fund and NZ Bond fund) and 0.31% (Growth fund, Balanced fund and Conservative fund), plus a $20 membership fee.
- Fees: The investment funds are managed by Simplicity NZ Ltd, which is owned by the Simplicity Charitable Trust 15% of all management fees charged are redistributed to charities. Any surplus made is reinvested into the business with the long-term aim of lowering fees. To attract younger investors (and their parents), there are no membership fees for children under 18.
- Assets: Funds invest in cash, bonds and the share market; the mix depends on the risk profile of the fund.
- Performance: Simplicity publishes up to date performance here.
- Our view: We believe that the investment funds represent an excellent option for anyone looking to save outside of their KiwiSaver. The funds are largely low-risk, index fund trackers with low fees.
Know this first:
- Think Simplicity is only a KiwiSaver platform? You're not alone. The Simplicity Investor Funds are mostly unknown by household investors, but their awareness is growing.
- As at January 2021, over $1 billion was invested across the five investment funds. Based on the number of investors, there are significantly large balances which may suggest certain New Zealand 'rich' are choosing Simplicity to grow their wealth.
Our Review
In this guide, we outline what the Simplicity Investment Funds are, the alternatives and must-know facts. We cover:
Please note: MoneyHub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of the Simplicity Investment Funds as an option for managing money.
In this guide, we outline what the Simplicity Investment Funds are, the alternatives and must-know facts. We cover:
- The Funds
- FAQs
- The Competition - Simplicity Investment Funds and the alternatives
- The Bottom Line and Limitations
- Five Must-Know Facts about Simplicity
- How Safe is My Money?
- Conclusion
Please note: MoneyHub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of the Simplicity Investment Funds as an option for managing money.
The Specs of the Simplicity Investment Funds
Simplicity offers five investment funds which operate in two groups. The 'diversified' funds comprise of the Conservative, Balanced and Growth funds. The 'NZ' funds comprise of the NZ Bond and NZ Share funds. We outline the composition of these five funds in detail:
1. Conservative Fund
The fund comprises of:
2. Balanced Fund
The fund comprises of:
3. Growth Fund
The fund comprises of:
4. NZ Bond Fund
5. NZ Share Fund
1. Conservative Fund
- Fees: 0.310% p.a. plus a $20/year membership fee
- This fund invests largely in fixed-income (78%) and cash (2%), leaving exposure to the sharemarket of 20% of funds invested, with most of the risk in overseas shares.
- Based on the investment mix, the fund is the least aggressive Simplicity investment fund (along with the NZ Bond fund) offered.
The fund comprises of:
- Intl Fixed Income 39%
- NZ Fixed Interest 39%
- Intl Shares 12%
- NZ Shares 4%
- Australian Shares 4%
- Cash 2%
2. Balanced Fund
- Fees: 0.310% p.a. plus a $20/year membership fee
- This fund is a bridge between the Conservative fund above and the Growth fund below, offering a midway point for someone looking for higher returns without high risk. As such, the fund is 56% shares and 44% fixed income.
The fund comprises of:
- Intl Shares 36%
- Intl Fixed Income 21%
- NZ Fixed Interest 21%
- NZ Shares 10%
- Australian Shares 10%
- Cash 2%
3. Growth Fund
- Fees: 0.310% p.a. plus a $20/year membership fee
- The most aggressive fund Simplicity offers, with 86% tied up in shares in New Zealand and around the world. The return and value of this fund will depend heavily on how international sharemarkets are performing.
The fund comprises of:
- Intl Shares 58%
- NZ Shares 14%
- Australian Shares 14%
- Intl Fixed Income 6%
- NZ Fixed Interest 6%
- Cash 2%
4. NZ Bond Fund
- Fees: 0.10% p.a. plus a $20/year membership fee
- The NZ Bond Fund invests in New Zealand Government bonds and investment grade, liquid bonds issued in New Zealand dollars, designed to be the New Zealand bond component of a diversified investment portfolio. In the last fund update, the investments were primarily NZ Government bonds, maturing between 2021 and 2037 and rated AA+.
5. NZ Share Fund
- Fees: 0.10% p.a. plus a $20/year membership fee
- The NZ Share Fund invests in the largest and most ethical 36 companies listed in the New Zealand stock exchange (NZX). The fund covers 97% of the market capitalisation of the NZX; ESG screens and this remove certain companies (i.e. SkyCity). Companies included in the fund include:
- Air New Zealand
- Auckland International Airport
- Contact Energy
- Westpac
Simplicity Investment Funds FAQs
What is the investment process and why are the management fees lower than other investment companies?
The five funds use two investment managers int total:
- The Simplicity team manage the New Zealand assets and are responsible for charging the lowest fee that's economically viable.
- The manager of offshore investments is Vanguard Asset Management Limited (Vanguard), the world’s second-largest fund manager. As Vanguard looks after $6 trillion in assets already around the world, Simplicity investments in Vanguard’s own funds to establish the specific portfolio diversification. This, again, keeps costs low for Simplicity Investment Fund investors. All investment is index-based; there are no fund managers and investment analysts to pay. This allows the savings to be passed on to investors, hence the low 0.31% and 0.10% annual fees.
Simplicity started in 2016 – can I trust it and is it safe for me to invest?
- On the issue of trust, the answer is yes. Simplicity appoints government-owned Public Trust as their independent supervisor and custodian of its investment funds. Public Trust has been around for almost 150 years and is ‘guaranteed independent’ under the Public Trust Act 2001.
- Simplicity manages the New Zealand bonds and shares that they buy for the funds, while the international shares and bonds are managed by Vanguard. The investments are owned by Public Trust on behalf of the funds, not by Simplicity or Vanguard.
- Should Simplicity close down, your funds would be accessible given they are held in trust.
- With regards to whether it’s safe to invest, no fund is guaranteed, but the risk profile indicates where your money will be invested. This is the case with any managed fund, and not unique to Simplicity. If a Simplicity fund went ‘bad’, then you could see similar negative results in other funds given Simplicity heavily diversifies its investment in New Zealand and around the world.
The Competition - Alternative Index Funds Available to New Zealand Investors
Simplicity's NZ Share and NZ Bond funds are unrivalled by their fees, but alternative index funds and diversified funds are popular with other fund managers and platforms. We have reviewed the following, which should be considered alongside Simplicity's Investment Funds.
Beyond the above 'challenger' investment platforms, there are hundreds of funds offered by investment managers such as Fisher Funds, Milford Asset Management, Pie Funds and Harbour Asset Management, among others. While we've not completed extensive reviews of these options, we understand that none of the above options offer fees lower than the Simplicity funds, nor do they specialise in index funds.
- InvestNow - offers 100+ fund choices both New Zealand and overseas focused.
- Hatch - offers overseas exchange-traded funds, such as Vanguard, BlackRock, Invesco, State Street and 400+ others.
- Sharesies - offers New Zealand exchange-traded funds, socially responsible funds and other investment options.
- Kernel - offers three funds investing in the NZX20 (top 20 companies), listed property and mid-cap companies.
Beyond the above 'challenger' investment platforms, there are hundreds of funds offered by investment managers such as Fisher Funds, Milford Asset Management, Pie Funds and Harbour Asset Management, among others. While we've not completed extensive reviews of these options, we understand that none of the above options offer fees lower than the Simplicity funds, nor do they specialise in index funds.
What Others Are Saying:
The New Zealand Herald published an article looking at the fees and how a Kiwi with $50,000 invested in the Simplicity growth fund over 10 years could be $13,000 better off than if an investment was made in an average fund. The 0.31% annual fee compared favourably to other provider conservative fund fees which range between 0.97 per cent and 2.38 per cent, balanced fund fees which range between 1.16 per cent and 2.75 per cent and growth fees which range from 1.25 per cent to 2.93 per cent.
The National Business Review published a piece looking at the ambitions of Simplicity, citing managed investment schemes as a $40 billion market and with an average management fee of about 1.6%, Kiwis are paying $640 million taken out in fees per year. Simplicity “hoped to get 10% of that market in five years.”
The New Zealand Herald published an article looking at the fees and how a Kiwi with $50,000 invested in the Simplicity growth fund over 10 years could be $13,000 better off than if an investment was made in an average fund. The 0.31% annual fee compared favourably to other provider conservative fund fees which range between 0.97 per cent and 2.38 per cent, balanced fund fees which range between 1.16 per cent and 2.75 per cent and growth fees which range from 1.25 per cent to 2.93 per cent.
The National Business Review published a piece looking at the ambitions of Simplicity, citing managed investment schemes as a $40 billion market and with an average management fee of about 1.6%, Kiwis are paying $640 million taken out in fees per year. Simplicity “hoped to get 10% of that market in five years.”
Who are the Simplicity Investment Funds Suited to?
- Best For:
- Long-term investors looking for stability and growth in index-tracking funds.
- Short and medium term investments - the ease of investing makes them an option for anyone hoping to beat the returns of a term deposit. The funds accept automatic payments and there are no fees for making withdrawals.
- Any parent saving for their child. Long-term index funds are proven to be popular for those setting up a university fund when child is born.
- Also suitable for: Family trusts and companies wishing to invest cash for the long term.
- Not suitable for: Investors looking for aggressive, active funds that aim to beat the markets year on year.
The Bottom Line
- Unlike the slew of fund management companies in New Zealand, Simplicity's investment funds offer a 'set and forget' approach with its passive funds.
- The underlying rationale is that market investments always beat a fund manager in the long term, and as investing has a long-term focus, the risks are low and the return is seen to be reliable.
- Funds are updated daily so investors can see their portfolio value by logging in to the Simplicity website. However, there is a two day lag due to international prices which need to be finalised.
- There is also projected returns, a feel-good graph showing projected totals until you reach 65 years of age based on your previous contributions.
- The NZ Share Fund and Bond Fund are both structured as Portfolio Investment Entities (PIEs), meaning the top tax rate applied to returns is 28%.
- There are no entry or exit fees, and if you top up or withdraw any amount, there is no administration fee. The management fee charged will adjust accordingly based on the total amount invested.
- Relative to Simplicity's competition, its fund fees are 50-80% cheaper and routinely rank extremely high on fund performance tables published by Morningstar.
- Simplicity, unlike other fund managers, do not pay commissions or trail fees to financial advisors. This makes the funds more them attractive to investors who retain more of what’s theirs.
Simplicity Investment Funds Limitations
- If you’re looking for funds investing in specific industries, such as oil and gas, agriculture or mining, Simplicity is not for you.
- If you have less than $1,000 to invest, you'll need to save more or look at an alternative such as InvestNow, Sharesies, Kernel or Hatch.
- Simplicity's ideology is to invest in index funds and deliver investors market returns. If you're wanting a fund manager who actively invests anticipating to beat the market, Simplicity is not for you.
5 Things to Know About the Simplicity Investment Funds
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The performance of most of the investment funds will largely depend on the movements of sharemarketsWith the exception of the NZ Bond fund, all the investment funds follow the New Zealand, Australian and/or overseas sharemarkets. Because of this, the day-to-day is not important, but rather the year-on-year return. New Zealand markets may not be volatile, but that's not the story overseas. Because the funds follow an index, the companies invested in are profit-orientated.
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The Simplicity investor fund fees are the lowest in the managed funds marketMany fund managers charge annual fees amounting to 1%, 1.5% or even 2%+ of your investment. With the NZ Share and NZ Bond funds, you'll pay 0.10% p.a. This works out to be $1 per year for every $1,000 invested.
The diversified funds (Conservative, Balanced and Growth) charge 0.31%, or $3.10 per $1,000 invested. Again, this is lower than the fees charged by index-fund investment options like Smartshares and Kernel (0.29% p.a. if you invest over $25,000). Low management fees make a significant difference to your overall fund performance in the long term, given the compounding effect of money. For example, $10 saved in fees on a fund returning 10% p.a. would be worth $174.49 after 30 years. Many fund managers like to charge serious investors more than $10 per year in management fees. |
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Simplicity Investment Funds follow a proven investment model by investing in index fundsIndex funds historically outperform managed funds. According to Fortune Magazine, the S&P 500 (an American sharemarket index) outperformed more than 82% of all active funds over a 15-year period. Given the low fees an index fund charges and the reliability in outperforming active funds, it's a relatively conservative approach to investment for your retirement.
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Your support is online and by phoneLow fees can mean no-frills and email-only, but Simplicity offers phone support and email support. The self-management style of the website shows you the balance of your investment, net of fees and tax - an example of the interface is presented below:
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Simplicity operates as a non-profit enterprise, meaning it returns excess fees back to its investors (i.e. you)Simplicity is profit-orientated when it comes to investments, but Simplicity's management company is a not-for-profit owned by a registered charity. This means that the $20 annual fee and 0.10% and 0.31% annual management fees on your investment funds may exceed what's required to operate the fund. In such cases, Simplicity pledges to return the excess to every investor. This is very different from almost all other fund managers who distribute the profits, driven by management fees, to themselves.
Know this: 15% of management fees go to charity
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How Safe is my Money with Simplicity?
- Simplicity is a licensed Fund Manager regulated by the Financial Markets Authority. When you invest in any Managed Investment Scheme, the manager does not get any of the money (apart from any fees it charges you).
- The money goes into the Scheme’s bank account controlled by the Scheme’s Supervisor. In Simplicity's case, that is Public Trust. Your money is then invested in shares and bonds that are owned by the Scheme, and you become a member of the Scheme.
- Simplicity manages the Scheme for you, and Public Trust makes sure they are managing the Scheme’s investments in line with the rules and regulations set out in the Scheme’s documents.
- If for any reason Simplicity was to run into difficulties, your investments would not be affected. The Scheme’s investments would be transferred to another manager.
- Simplicity manages the New Zealand bonds and shares, while the international shares and bonds are managed by Vanguard, but the investments are owned by the Scheme, not by Simplicity or Vanguard.
- Simplicity is not a Government guaranteed investment; therefore, it is no different from other investments, including bank deposits.
- A market downturn will not impact your ability to withdraw funds from your account. Your funds are invested in liquid securities that can be realised at 2 days’ notice if necessary. If there was a significant financial crisis, it is possible there could be some kind of impact on your ability to access your funds for a few days. There were instances of this in 2008, although that generally related to structured products of some kind, and Simplicity does not hold that type of investment.
- Simplicity's funds are very widely diversified across asset classes. This means that market movements tend to be smoothed out to a degree as different markets and countries do not have exactly the same performance.
Simplicity and Cyber Security:
- As an online business, Simplicity takes the security of member personal data seriously, and they are confident any client data stored (as required by various regulations) is secure.
- Once the application to join the scheme is submitted, the transmission of this information is encrypted and can not be intercepted.
- Simplicity also has other internal controls and measures in place to ensure that member data is held in a secure manner. They do not hold member information on any devices and utilise cloud-based services offered by Amazon Web Services (AWS) to hold their data.
Our Conclusion
- We think the Simplicity Investment Funds are one of the most attractive passive investing options available to everyday New Zealanders. While the $1,000 minimum investment is on the higher side, Simplicity's commitment to low fees suggests it is focused on creating wealth for investors.
- With investments funnelled into New Zealand, Australian and international bank deposits, bonds and shares, Simplicity brings a number of passive funds to Kiwis looking for a steady return in the long term without active management.
- The funds are transparent, honest and ethical. As an example, the NZ Share fund (which invests in New Zealand's largest companies on the NZX50) purposefully excludes Sky City.
