Shares double up with Multi PIED KiwiSaver

Almost six months after filing the beta-grade KiwiSaver scheme documents, Sharesies opened a folder of actual deals on the market’s first multi-rate PIE self-selected stock offering.

As widely expectedthe second phase of the new KiwiSaver scheme launch will utilize Sharesies, a stock trading game that has attracted nearly 500,000 players since its launch in 2017.

Under the self-selection option, Shares KiwiSaver members can direct up to half of their contributions directly to listed stocks (including exchange traded funds). Starting with NZX and eventually expanding to the Australian and US markets. The remaining 50 he is 50 per person. Contribution cents must be allocated to one of Pie Funds, Pathfinder, or a decentralized fund within the Sharesies catalog operated by Smartshares.

Two other KiwiSaver funds, the Craigs Select and Consilium KiwiWRAP schemes, already offer members the ability to invest directly in equities, but Sharesies’ structure is unique.

Both Craigs and Kiwilap solved the administrative problem of managing KiwiSaver’s individual shares by including their respective schemes in a retirement trust structure that applies a flat 28 percent tax rate to members’ investment returns.

This superstructure makes the two schemes inefficient for KiwiSaver members taking advantage of the low prescribed investor interest rates of 10.5% and 17.5%. This is probably the target market for his Sharesies rather than the high-end customers Craigs and Consilium are courting.

But Sharesease is powered by a multi-rate Portfolio Investment Entity (PIE) engine with different controls, said Matt McPherson, who heads KiwiSaver at the firm.

McPherson said Sharesies has created about 500 underlying single-asset PIEs that represent KiwiSaver’s menu of direct stocks (and ETFs), with members owning portions of the stock PIEs rather than the actual securities. said.

“PIE didn’t exist yet, so we had to develop it ourselves,” he said. “But it’s not that complicated to do.”

However, even if the technical infrastructure was relatively easy to build, more energy may have been expended in setting the right risk parameters.

Since the scheme’s launch in 2007, regulators have disliked KiwiSaver’s direct speculation in securities on a large scale, preferring schemes that outsource most of the risk-taking to professional fund managers.

Craigs and KiwiWRAP allayed these concerns by limiting participation in the scheme to professionally advised clients. In the spirit of its democratization, equities are open to everyone, with only pre-established “guardrails” of contribution limits (maximum 50/50 cash-to-equity ratio, 5 percent per share top portfolio allocation). is open to .

McPherson said Shareseed also uses a risk score (1-7 mandatory risk scale used by licensed managed funds) for its members’ investment plans based on a “performance variance calculation” against the backdrop of “a lot of mathematics.” scale) are also offered.

“Members can review their investments before they actually make them,” he said, adding that quarterly performance reports and annual reports will be provided on a regular basis.

However, the Sharesies scheme does not automatically rebalance members’ portfolios to maintain asset allocation limits, which can lead to the formation of risk bubbles.

McPherson said that if single-stock holdings “increase well beyond the guardrail, we can suspend contributions,” but said that was unlikely.

Neither Craigs nor KiwiWRAP rebalance automatically, but it is part of the advisory process.

In any case, the release of the details of the Part 2 scheme has been postponed until now as Sharesies KiwiSaver’s direct equity risk model has finally been approved by the regulator (the live version of Friends and Family only includes diversified funds). are included).

Similar to diversified fund fees (most of which are slightly higher than the original version offered by other managers), Shares KiwiSaber members will be charged a 1% fee on transactions under $1,000, a $0.15 fee, etc. , collects other fees for self-select components. percent control. The scheme imposes a 0.1% fee on transactions over $1,000, aimed at reducing the cost of remittances and switching between internal investments. Virtually all regular donations are subject to a 1 percent transaction fee.

McPherson said about 19,000 people have expressed interest in participating in the Sharesies KiwiSaver project so far, and the final launch is still months away.

Craigs, which pioneered the KiwiSaver self-select model in 2007, reported that the scheme had about 7,000 members and $480 million under management as of the end of March last year.