When it comes to your KiwiSaver fund, do you get what you pay for?
That is a question Simplicity chief economist Shamubeel Eaqub has set out to answer with new research.
Eaqub said that after looking at the past 10 years, paying a higher fee did not meant that investors received a higher after-fee return.
“At best, expensive funds beat their segment by the fee amount before fees, so members ended level.”
Paying a lower fee also did not guarantee a better after-fee return.
KiwiSaver: Do you get what you pay for?
“I don’t think you can say anything about fees being a predictor… the question is really around what are you paying for?
“Some fund managers clearly have skill because they have been performing well on a gross basis. But once you take away the fees, the punters are no better off. So if you’re the punter, what’s the point? What are you buying?”
He referred to S&P SPIVA data that showed 74 percent of active global share funds underperformed their market benchmark, after fees, in 2025.
For New Zealand share funds, it was 65 percent and for bond funds, 79 percent.
Over 15 years, every global share fund fell short, along with 85 percent of New Zealand share funds and 76 percent of bond funds.
Eaqub compared KiwiSaver funds to other funds of the same type, rather than against an index.
He said on average, whether the fund was an active manager charging more than 1 percent a year or a passive lower-fee provider charging 25 basis points, the outcome for investors was the same.
“You cannot know your future return, but you do know the fee you pay. On the median full-time earner’s wages, over a 40-year working life at the default contribution rates, a fund charging 1.05 percent a year (about the median for a growth fund) collects about $53,000 more than one charging 0.25 percent, in today’s dollars. The return that fee is supposed to buy is uncertain, and we cannot see it in the decade of data we have to hand.”
Eaqub said it was surprising that fee revenue had not declined more, given how much the market had grown over time.
Morningstar data director Greg Bunkall said fees were one of the few variables that KiwiSaver investors could control and it was hard to argue that higher fees had consistently translated into higher returns.
“While some higher-cost managers have delivered strong results and justified their fees, others have not.
“Lower fees are often associated with passive strategies, which have benefited from market conditions that have generally favoured broad market exposure over much of the period. At the same time, there have been periods when active managers have added value, particularly when markets have been less forgiving and index-aware approaches have been less effective.
“So the evidence would suggest that paying higher fees has not guaranteed higher returns. However, it would be equally difficult to conclude that higher-fee managers have been unable to outperform. The reality is that outcomes vary considerably between managers, and time periods you assess and while fees matter a lot, they are only one factor in determining long-term investor results.”
Koura founder Rupert Carlyon said the research showed the relationship between fees and returns was “tenuous”.
“The trick to delivering great outcomes for our clients is amazing asset allocation.
“In hindsight, the best answer for all of our clients would have been, in the last 10 years, just go 100 percent US equities. Would that have been the best risk decision? No, but it would have kind of worked out the best for everyone.
“A passive fund on a single exposure will always outperform. Over a 10-year basis, there’s very, very few examples where that is not the case…I’m not 100 percent convinced you can prove that that works on a multi-asset fund.”
Generate investment specialist Greg Smith said the challenge for investors was to identify managers who consistently delivered value after costs.
He said while the averages might not show an overall benefit from higher-fee active managers, some had been able to deliver.
What would suit an investor would depend on the type of investment strategy they preferred, he said.
Recent years had been unusual for the market.
“There was Covid, the market fell heavily, then bounced back strongly. Ukraine, likewise, and with the trade situation last year in March, the market took quite a heavy dip.
“When Trump held up his tariff war this year, with the conflict in Iran, March was a down move in markets.
“So, passive strategies are going with the flow, whereas active managers have the ability or opportunity to potentially take advantage of falls where they believe they are knee jerk.”
So how do you choose the right fund?
The most important predictor of returns over the past 10 years has been the level of risk they take.
“The higher risk ones had, on average, higher returns in the last 10 years… What was also interesting within that was it truly was a scatter when you ranked it by fund fee,” Eaqub said. . “It didn’t matter as long as you were in the same kind of class of assets your returns were in or around that median.”
He said that meant making sure that investors were in the right type of fund for their risk profile was important.
They could also think about whether it matched their values and would deliver what they wanted. “Look for one that’s reasonably priced and has a good track record.”
Eaqub said it was worrying to see the number of people who seemed to be moving to funds on the basis of good recent performance.
“There’s a lot of switching that’s happening and people are chasing past returns, even though all the disclosures say that past returns are not a good indicator of future returns.
“The best performance in the next couple of years might be the ones that were the worst in the last couple of years.”
He said, over the decade, of the top quarter of funds in one year, only a third were still in the top quarter five years later.
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