Mindful Ethical KiwiSaver funds outperform all KiwiSaver funds

Headlines

•  The funds that meet Mindful Money’s ethical criteria, ‘Mindful Funds,’ had financial returns that were significantly higher than the overall KiwiSaver market over the year to September 2024

• KiwiSaver providers are making progress in reducing investment in harmful companies, the proportion fell to 7.6% of the total:
• there were declines in investment in alcohol, human rights violations, gambling and animal cruelty
• however, there were increases to investment in fossil fuel and weapons

•  Annual surveys show that Kiwis care more than ever before about avoiding investments in harm; 77% of the public want their KiwiSaver funds to be managed ethically.

What companies New Zealanders invest in

The latest analysis of KiwiSaver data by Mindful Money shows that New Zealanders invested $124 billion KiwiSaver at 30 September 2024, an increase of 7% from March 2024. There were continued increases to investments into KiwiSaver accounts, but hardship withdrawals increased by around 47% over the year.

The total for KiwiSaver funds at 30 September 2024 was up by 7% over the six months since March 2024. Over a five year period, KiwiSaver investment has almost doubled.

During that period, there has been a gradual decline in the proportion of KiwiSaver investment in the issues of highest concern to the New Zealand public. This continued in the six months to September 2024, with decreased KiwiSaver investment in the following categories:

• Alcohol 41%

• Human Rights violations 14%

• Gambling 13%

• Animal Cruelty 5%

These were significant falls in harmful investment. 

The following chart represents the total of individual portfolios for all 398 KiwiSaver funds. It shows $4.42 billion in fossil fuel companies, representing 3.56% of all KiwiSaver funds. The next highest category is companies committing Human Rights violations with $1.96 billion and then companies practising Animal Cruelty with $1.58 billion. The total investment across all issues of concern to the New Zealand public was $9.5 billion.

However, these declines were partially offset by a big increase of 17% in investment in fossil fuel companies – producers of thermal coal, oil and gas, and electricity generators using fossil fuels. Mindful Money analysis shows that the investment was primarily in the large global companies that are still expanding their production. This is of deep concern given the climate crisis. It is also surprising in terms of financial returns, given the poor financial performance of these companies over the past ten years, far below the average investment returns.

It appears that many investment providers were anticipating a Trump presidency and a change of policy to favour fossil fuel companies – many of the largest fossil fuel companies provided campaign donations and public support to the Trump campaign.

There was also an increase in investment in weapons of 9% over the past 6 months, and by 39% over the year from September 2023. This is inconsistent with the preferences of New Zealanders - 80% want to avoid weapons companies in their investments.

Growth in Ethical Funds

In September 2024, there were 398 KiwiSaver funds, continuing the growth in the number of funds offered over the past five years. The largest funds were ANZ, ASB, Fisher Funds, Westpac and Milford. These five fund providers account for around two thirds of the KiwiSaver market.

However, the market is changing and there has been rapid growth in KiwiSaver investment into leading Mindful Funds, including increases for 2024 of:

• Pathfinder 52%

• Generate 41%

• Simplicity 35%

Over 2024, the market increased by 25% and the above fund providers are amongst the fastest growing in New Zealand.

Mindful Funds earn good returns

A comparison of returns between the Mindful Funds and the overall KiwiSaver funds over a one year period shows outperformance by Mindful Funds in all risk categories other than conservative funds.

Comparative Returns for 1 year to September 2024

Category	Mindful Funds	All KiwiSaver funds	Outperformance
Aggressive	18.74%	16.02%	2.72%  ✅
Growth	14.66%	14.07%	0.59%  ✅
Balanced	10.71%	10.44%	0.27%  ✅
Conservative	6.13%	6.43%	-0.30%
Defensive	3.92%	3.50%	0.42%  ✅
All risk categories	13.36%	12.06%	0.30%  ✅

A comparison over a 3 year period shows an even higher return for Mindful Funds over the average for all KiwiSaver funds.

Category	Mindful Funds	All KiwiSaver funds	Outperformance
Aggressive	5.45%	4.39%	1.06%  ✅
Growth	5.18%	3.70%	1.48%  ✅
Balanced	2.88%	2.49%	0.39%  ✅
Conservative	1.19%	1.19%	0.00%
Defensive	2.11%	0.41%	1.70%  ✅
All risk categories	3.68%	2.77%	0.91%  ✅

This pattern of higher risk-adjusted returns is unlikely to be a surprise to most Kiwis. In the annual survey, respondents are asked whether they think that ethical funds will generate higher returns over the long term. 46% agree and 43% were unsure – only 10% disagree.

A similar pattern of higher returns to ethical funds have been analysed by the Responsible Investment Association of Australasia and international analyses over the past two decades.

In addition to avoiding costs of controversies and liabilities from environmental and safety breaches, the higher returns also reflect the continued drag on returns of funds that include fossil fuels. The Mindful Funds have low or zero investments in coal, oil and gas and have benefited from avoiding exposure to the low returns to fossil fuels over the past year and past 10 years.

Notes:

Each six months, Mindful Money analyses all 398 KiwiSaver funds, tracking financial measures such as annual returns, but also the investments in portfolios. The analysis uses the filings of fund providers into the Disclose Register of the Companies Office, and then undertakes analysis of the external funds in the portfolios, providing a full listing of the companies and other securities. These are then matched with the ‘issues of concern’ that annual surveys of New Zealanders want to avoid in their investments.

The growth in KiwiSaver contributions reflected a period of strong rises in international equities in 2024 (S&P500 up 34%), rises international markets (world index up 25%) and moderate growth in Zealand shares (NZX up 10%).

Mindful Funds are those that meet Mindful Money’s standards for ethical performance: avoiding harm, influencing companies to raise standards, investing for positive outcomes and walking the talk in their ethical practices.

Mindful Money’s analysis of KiwiSaver portfolios commenced in September 2019 and shows trends in ethical investment practices over five years. The information is provided free to users via www.mindfulmoney.nz.

Disclosure:

This communication is for informational and educational purposes only and should not be construed as financial advice. The content provided does not take into account your personal financial situation, objectives, or needs.

Any opinions, analyses, or recommendations expressed herein are general in nature and do not consider your specific circumstances. Before making any financial decisions, you should consult with a qualified financial advisor, accountant, tax professional, or legal counsel who can provide personalised advice tailored to your individual situation.

Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal. 

By accessing and using this information, you acknowledge and agree that you are solely responsible for your financial decisions and their outcomes.

This data is sourced from the Disclosure Register.