Seminar Series: KiwiSaver Disrupter - Simplicity's ethical low-fees model
23rd April 2020
Featuring Andrew Lance,Chief Investment Officer for Simplicity, discussing its ethical low fees model.
The ethical low fees Simplicity approach
Barry Coates, CEO of Mindful Money, was in discussion with Andrew Lance, Chief Investment Officer for Simplicity.
Andrew traced the genesis of Simplicity as a not-for-profit fund that invests in passive funds – these are typically large funds that track the share market. There is a debate in the investment world about active vs passive fund management. The founder of Simplicity, Sam Stubbs, has taken the approach that passive funds earn higher returns over the long term (such as for superannuation funds) at lower cost.
Passive funds take an ethical approach through screening out sectors that cause harm. The exclusions used by Simplicity now include fossil fuels, weapons, tobacco, alcohol, gambling and pornography.
Barry referred to analysis showing that the Mindful funds on Mindful Money’s website, including Simplicity, outperformed the average for KiwiSaver funds over the last quarter. Andrew Lance gave the Simplicity example. When they planned to introduce a more ethical approach in 2018, their modelling showed it would have higher returns. But the outcome has been even stronger. The outperformance in moving to exclude sectors like fossil fuels has increased the returns by over 2 per annum for international share investments, and even higher in the last quarter.
Barry asked about how Simplicity is able to influence huge passive funds like Vanguard to offer the ethical exclusions that fit with Simplicity’s approach. Andrew explained there are a number of funds that are looking to go ethical and Simplicity has benefitted from a wider move towards ethical investing. The difficulty has been with getting an Australian fund that is fully screened, but this will be implemented soon. Barry explained that is why the analysis of Simplicity’s portfolio on the Mindful Money website shows some remaining fossil fuel companies.
For the future development of their ethical approach, Simplicity is working with Vanguard on excluding a wider range of companies for violations of human rights, environmental damage and a lack of diversity. Andrew noted they want to reflect the main ethical concerns of their members, so there will be some sectors and issues that they don’t exclude.
In future, Simplicity will continue to drive down the fees on funds and support charities with 15% of their fee revenue. They have also joined with a venture capital network, Icehouse Ventures, to support New Zealand start-up companies, although this is likely to remain a small part of their portfolio.
Barry and Andrew discussed some of New Zealand’s challenges for our post-COVID recovery. This is a time to be innovative and address the sustainability and climate change issues for the future. Barry noted there will be seminars later in the series focused on these issues.
Simplicity has four funds, which are all featured as Mindful funds on the Mindful Money website. Click on the links below to see details on their funds, or click here to see what your current fund is investing in.
Simplicity Guaranteed Income Fund
With thanks to our principal sponsors - Generate KiwiSaver, Harbour Asset Management, Booster Asset Management, and Sustainalytics; contributing sponsors - AMP Capital, Harbour Asset Management, Mercer and Milford Asset Management; and supporting sponsor - Devon Funds Management.