NZ Fund Managers

[Snoopy]

This is a representation of information that I have already provided, but in a form that makes it easier to compare the prospective protagonists. I list the top ten holdings of each fund.

Where an entry has two percentage figures attached to it:

a/ The first is the 'coupon rate' of the bond, AND
b/ The second (in brackets) is the percentage of that bond fund that heads the column, which is made up of the holding that is being detailed.

	Kiwiwealth Conservative Fund	Harbour NZ Corporate Bond Fund	Harbour NZ Core Fixed Interest Fund	Fisher NZ Fixed Income Trust	Milford Trans-Tasman Bond Fund
	Westpac NZD Account (Cash & Cash Equivalents) (3.24%)	Bank of New Zealand 07/06/27 4.985% (4.08%)	NZ Government Stock 15/04/37 2.75% (13.16%)	NZ Government Stock 14/04/33 3.5% (6.37%)	NZ Local Gov Fund Agency 15/05/28 2.25% (3.54%)
	NZ Local Gov Fund Agency Bond 3.5% 14/04/33 (2.80%)	Kainga Ora 24/04/30 2.183% (3.68%)	NZ Government Stock 15/05/41 1.75% (7.44%)	NZ Government Stock 20/04/29 3.0% (5.70%)	NZ Local Gov Fund Agency 15/04/26 1.5% (3.15%)
	NZ Local Gov Fund Agency Bond 4.5% 15/04/27 (2.53%)	Westpac NZ Limited 23/03/23 3.72% (3.50%)	NZGS Index Linked Bond 20/09/25 2.00% (6.21%)	NZ Government Stock 15/04/25 2.75% (4.15%)	NZ Local Gov Fund Agency 15/04/24 2.25% (2.92%)
	NZ Local Gov Fund Agency Bond 1.5% 20/04/29 (2.34%)	Westpac NZ Limited 16/02/27 3.696% (3.45%)	NZ Government Stock 15/05/24 0.50% (5.63%)	NZ Government Stock 15/04/37 2.75% (4.08%)	NZ Local Gov Fund Agency 15/04/2027 4.5% (2.21%)
	Kommunalbanken AS 4% 20/08/25 (Norway) (2.22%)	Kainga Ora 05/10/26 2.247% (2.98%)	NZ Government Stock 15/04/25 2.75% (3.63%)	NZ Government Stock 15/04/27 4.5% (3.54%)	NZ Local Gov Fund Agency 15/05/31 2.25% (2.04%)
	Kainga Ora 3.42% 18/10/28 (2.20%)	NZ Government Stock 15/04/23 5.50% (2.95%)	NZ Government Stock 15/05/32 2.00% (2.66%)	NZ Government Stock 15/05/31 1.50% (4.58%)	Monash University 06/04/29 4.05% (1.95%)
	Transpower New Zealand Ltd 1.735% 4/09/25 (2.06%)	NZ Local Gov Fund Agency 15/04/37 2.00% (2.87%)	ANZ NZD Cash (2.48%)	ANZ NZD Cash (2.90%)	Genesis Energy 09/06/27 5.66% (1.72%)
	International Bank for Reconstruction & Development 1.625% 10/05/28 (USA) (2.00%)	NZGS Index Linked Bond 20/09/25 2.00% (2.77%)	NZ Government Stock 14/04/2033 3.50% (2.38%)	NZ Government Stock 15/05/26 0.5% (2.86%)	Kainga Ora. 3.36% 12/06/25 (1.56%)
	Kommunalbanken AS 1.25% 02/07/30 (Norway) (1.96%)	Westpac NZ Limited 29/07/24 2.22% (2.76%)	NZ Government Stock 15/04/2023 5.50% (2.29%)	Kainga Ora. 3.36% 12/06/25 (2.84%)	NZ Local Gov Fund Agency 20/04/29 1.5% (1.45%)
	Asian Development Bank 2.125% 19/05/31 (Philippines) (1.94%)	Kommunalbanken AS 12/06/25 0.75% (2.72%)	NZ Government Stock 15/05/28 0.25% (2.28%)	ANZ NZ Ltd. 3.03% 20/03/24 (2.80%)	Spark 29/09/28 4.37% (1.45%)
Total Top Ten Holdings	(23.09%)	(31.76%)	(48.16%)	(38.32%)	(21.99%)
Top Ten Bond Time to Maturity (Average)	6.4 years	4.7 years	7.8 years	6.2 years	5.4 years
Top Ten Bond Coupon Yield (Average)	2.63%	2.93%	2.33%	2.77%	3.17%
Annual Fund Management Fee	0.71%	0.46%	0.65%	0.96%	0.65%

Notes

1/ 'Kainga Ora' is the agency formerly known as 'Housing New Zealand'.

SNOOPY

[Snoopy]

Bond Funds are suitable for a 'medium term' investment time line. That generally translates to a time frame of 3 to 5 years. The average performance of our five protagonist funds - over the study period ended 31st March 2022 - was around 1% per year after tax. Furthermore, the best performer - KiwiWealth Conservative Fund - at 1.33% per year - gained their edge by having a targeted 15% 'equity investment' contained within their 'Conservative fund'. I guess one learning from this is that -if you are investing for the medium to long term-, it pays to have an 'equity component' in your investment portfolio. And this is true even if one year in five, your equity component experiences a significant correction. But we are talking about 'pure fixed interest and bond funds' today as the topic of interest. So I am setting aside the KiwiWealth Conservative Fund from our comparison at this point.

For someone used to investing in shares, rather than bonds, the biggest surprise for me was that the difference between the best and worst of the remaining 'bond funds' was a mere 1.29% - 0.64% = 0.65% percentage points per year. In the grand scheme of investment fund returns, this isn't a lot. This suggests to me that as part of a 'balanced fund investment strategy', perhaps investor research should be directed towards how good the manager is at managing shares, while investor clients just accept whatever bond return goes along with that.

The short term (one year) return on the bond funds under consideration I can only describe as dismal, with investors losing at least 5.17% of their funds over the year if they selected the best manager, or 7.13% if they selected the worst. But this was a particularly trying year as explained in the introduction to this series of posts (Post No. 45). It is often said that "past performance may not be a good predictor of future performance." I am fairly sure that motto will apply here.

For a bond fund to perform at its best, it will do so in a climate of falling interest rates. The higher the average constituent interest rate of each bond fund today, the more room the interest rate has to fall. So I am going to pick that the best performer of the current year going forwards will be the 'Harbour NZ Corporate Bond Fund'. That this fund also has the lowest management fees of all the protagonists strengthens my view that this one is the 'best bet'.

For some sensible diversification into different classes of bonds (from choosing NZ government binds , to adding some exposure from across the Tasman), I like the Milford Trans Tasman bond fund. The Milford fund has the best five year earnings record too.

Unlike share funds, where a boutique fund can operate at a significant advantage, it looks like the more funds a bond investment vehicle has available to deploy, the better it will do - as a rule. I expect this is something to do with 'economies of scale' allowing lower fund management fees.

Of the others, the Harbour 'Fixed Interest Fund' looks likely to deliver the least surprises, because it is stacked with government stock. Fisher's 'Fixed Income Trust' have a stack of government stock too, and -as far as I can tell- they have recovered from a not so satisfactory position a year ago to position themselves much better for when interest rates eventually fall again.

Thus ends my little exercise on 'evaluation of NZ managed bond funds'.

SNOOPY

[Snoopy]

Are these fund figure returns net of all taxes and mgt / administration fees?

This is a really good question.

You go to the 'Annual Return Graph' (based on a year ended 31st March), with the comparison of fund returns verses an index, we find there is the following disclaimer:

"The Fund returns in this update are after tax at the highest prescribed investor rate (PIR) of tax for an individual New Zealand resident. Your tax may be lower."

"The market index return is before tax and fees."

This may indicate that the 'Annual Returns Graph' comparison graph is not an apples with apples comparison! I find that very odd, if the whole purpose of requiring a 'comparative index return' is to figure out if your manager is doing a good job or not.

I took the initiative to ring up one of these 'bond fund providers' to answer these outstanding questions. The requirement to list your fund return in comparison to an index is a legal one. However, the way in which this must be done is closely prescribed. In this instance 'prescribed' ends up comparing an 'after tax' return for the managed fund with a 'before tax' return for an index. In other words the officially sanctioned comparison is guaranteed to mislead! How silly is that?

The fund manager I talked to agreed it was an anomaly, and that there was work going on behind the scenes to fix it. But reform seems to be stalled in the government bureaucratic processes.

Let's unpick this a bit further. As a New Zealand based PIE investment, when they are talking about the maximum PIR tax rate, they mean 28%, (not 39% - the maximum individual tax rate). But is tax just taken off the coupon interest paid by the bond? Or does tax reflect tax on capital gains and losses on trading those bonds as well? If this was an NZ based share fund, then the answer to that last question would be 'no'. But for an individual investor (who is not a trader) then investing in NZ bonds comes under the 'scheme of arrangement' income tax rules. This means an individual investor is in effect liable for a capital gains tax on bond profits, regardless of whether they are a 'share trader' or not. So do funds pay 'income tax' on any capital trading profits they make from bond trading? I do not know the answer to that question. Yet the answer to that question has a very material effect on what an 'after tax' profit figure is for these funds.

A bond fund pays tax on any bond held, in relation to both of:

1/ The interest coupon payment AND
2/ On any capital gain made on a bond that is sold before maturity OR is bought on the market after the issue date but sold at maturity.

IOW the bond funds are subject to the same tax rules as a natural person. The one difference being that because these bond funds are 'PIEs', the maximum tax rate charged on all profits is 28%.

My gut feeling is that a fund paying tax on 'bond trading profits' would be wholly unfair for a unit holder, because different unit holders would have different PIE tax rates. But this would go against the 'set and forget' PIE income doctrine, that is meant to make filling out tax returns for PIE investors so much easier. To me it would still make more sense to treat 'capital gain treated as income' at the investor level rather than at the fund level. But the intersection path between 'making more sense' and 'IRD tax rulings' is not a guaranteed one. If anyone does know what tax rules these NZ based PIE bond funds operate under, I would love to know!

I was very surprised to learn the answer to this question. The fund takes careful note of each customer's PIE prescribed tax rate. Then all transactions that relate to that particular customer are taxed at that individual PIE rate. So 'capital gain treated as income' is taxed at the individual level. But it is all sorted out behind the scenes for you by your PIE provider! Kudos to the PIE providers for doing this. It sounds like a huge amount of background effort to keep track of individual customer detail of all transactions at the tax level. Furthermore, because funds don't know 'how many of their customers' are going to 'withdraw how much money' and 'when', I imagine sorting out the fund's own tax bill is a nightmare. But I didn't ask about that!

SNOOPY

[GTM 3442]

Snoopy, thank you very much for this series of posts. They have been extremely useful to this bond investor - even though I'm invested in individual bonds bought at time of issue and held to maturity.

[Snoopy]

Hi Snoopy, you seem to spend a lot of time creating very detailed analysis and reports. It might be a good idea for you to start your own website and post them all there, where they can be more readily accessed, archived, search, found by Google, and read. I would if I were you. You could also keep posting them here at the same time. Just a suggestion. Cheers

Glad you are finding my posting worthy of reference Entrep! If I had my own website I would have to be doubly sure I wasn't posting articles riddled with spelling, punctuation and grammatical errors. Plus my 'writing on the fly' would have to stop, or I would pigeon holed as owning an unprofessional website full of misinformation. So I think right now, 'sharetrader' suits me fine.

In terms of searching this website, the 'Search forum' and 'Search thread' tools within the website are useful. If you want to search for my posts, use the 'advanced search' tag which allows you to filter a search by author and put in a key word. If you want to look at my research on individual companies, go to that individual company thread, then use 'Advanced Search' with 'Snoopy' as the author and the tag phrase 'BT1/'. That will bring you to any 'Buffett style analysis' that I have done on that company, (as BT1 is a tag headline I use that stands for 'Buffett Test 1'). Alternatively, to seek out a 'Capitalised Dividend valuation' that I have done use, the key word 'capitalised'.

This is how I find my own posts!

Snoopy, thank you very much for this series of posts. They have been extremely useful to this bond investor - even though I'm invested in individual bonds bought at time of issue and held to maturity.

Glad the posts have been helpful GTM. I must say that I have learned a lot from the background research needed to post on the topic of 'bond fund managers' myself. That included the realisation that the officially sanctioned way of evaluating a bond fund against an un-taxed index of bond returns was inappropriate. As a result I have had to edit all my posts on bonds on this thread to even up that comparative misalignment over the last couple of days! Those adjustments didn't change any of my overall conclusions. But I had to do it to ensure that my text was true to the figures.

I think that bonds are probably an under posted about topic in financial journalism generally. That they are a bit harder to understand than shares, when most people think they are easier to deal with, probably doesn't help. However, since this is a 'sharetrader' site, I guess we can forgive this website for its bias towards shares.

SNOOPY

[SBQ]

@Snoopy:

I applaud you for the amount of work done, especially picking up the phone and calling up a fund manager (as it's unlikely a fund manager would be hanging out in this forum and do a proper reply). This shows your dedication to getting down to the finer details of investing. Virtually most people just don't care and go on the basis of "assuming".

In this instance 'prescribed' ends up comparing an 'after tax' return for the managed fund with a 'before tax' return for an index. In other words the officially sanctioned comparison is guaranteed to mislead! How silly is that?

This still leaves me scratching my head. There does not seem to be a standardise disclosure of the % returns various bond funds and equity funds show in their prospectus. After tax? What about after mgt fees? Do the fees vary from year to year? As I mentioned before, over in N. America, they've basically eliminated the problem of taxation with full intent of 'tax free compound returns'. The tax is deal at the individual level and the 401k/RRSP etc funds themselves do not pay any taxes. This just leaves only the management fees they charge which over the decades, have been screwed down to minimal % per year.

Funds under the PIE scheme don't appear to be that complicated in regards to taxation at the individual tax bracket. The PIE funds would operate tax free and conduct all the trading that is required on balance. Then at tax time, the portfolio funds pay a lump sum tax which becomes an aggregate of the total tax every individual has to pay. However, my beef is this paper gain tax robs valuable compound returns over many decades, not to mention a taxing of return during years when the individual is most productive on higher income and can contribute the most. It's not an 'evening' out of tax to pay through deferment.

[Snoopy]

Funds under the PIE scheme don't appear to be that complicated in regards to taxation at the individual tax bracket. The PIE funds would operate tax free and conduct all the trading that is required on balance. Then at tax time, the portfolio funds pay a lump sum tax which becomes an aggregate of the total tax every individual has to pay. However, my beef is this paper gain tax robs valuable compound returns over many decades, not to mention a taxing of return during years when the individual is most productive on higher income and can contribute the most. It's not an 'evening' out of tax to pay through deferment.

I can't disagree with the first bit of what you are saying. You are merely reflecting on the Canadian position and noticing that by contrast here in NZ: Pay as you go management fees have a negative compounding effect on returns.

However, I am not sure you are right about the 'evening out' bit.

a/ A PIE fund is taxed at 10.5% if you have an income of $48k or less.
b/ In New Zealand the incremental tax threshold rate of tax changes from 17.5% to 30% once your income exceeds $48k.
c/ The gross weekly pension rate for someone living alone is $538.24 per week (@1st April 2022). Over 52 weeks that adds up to $29,988.48.

So it would take a supplementary income stream of $18k to get a pensioner to exceed that $48k tax threshold. This in the context of an NZ minimum wage employee now earning $44k for a 40hour week job.

My summation,from all the above figures, is that if:

a/ You are a single retired person on the NZ pension, AND
b/ You have a supplementary income of up to $18k

then you are getting a considerable tax benefit from the PIE income you can derive in your senior years to lift your income to $48k. The mere fact your supplementary income stream is a PIE has reduced the amount of tax you pay on that income by (17.5-10.5)/17.5 = 40%.

No-one calls that deferment. It is a straight out cut to your personal tax bill. But it has the same effect (taxing you at a lower rate in retirement).

Below SBQ is what you said on the 'How much do I need to retire on thread'.

The idea of the national superannuation pension is it should be enough to pay for one's living cost on reasonable means. The house should be mortgage free, perhaps live down to a smaller size unit, which keeps costs lower. It should also be income tested so if the pensioner has a 6 figure income, well they don't need it. In Canada where I grew up, there's basically 3 pensions. For most annuitants, they collect both CPP and OAS. The latter being everyone gets it after age 65 and is funded and operated like NZ's superannuation. The former being you pay into it BUT is clawed back if your income at pension age is too high. Then there's the 3rd pension which resembles NZ's KS called RRSP.

So you are saying that in Canada, if you are 'too successful' in your saving, then some of your savings will be clawed back by partially removing your pension payments. That doesn't happen in NZ.

Also the maximum tax if you are on higher income in NZ that applies to your PIE investments is 28%. If you earn just more than $70k per year, probably not a 'higher income' these days, your incremental savings PIE tax is capped at 28%, verses the personal incremental tax rate of 33%. And if are lucky/skilled enough to earn over $180k per year, then your PIE gives you an 11% percentage point discount on your 39% incremental tax rate. That is quite an incentive for NZ's high income earners to save via the PIE route right there.

SNOOPY

[Snoopy]

There does not seem to be a standardise disclosure of the % returns various bond funds and equity funds show in their prospectus. After tax? What about after mgt fees? Do the fees vary from year to year? As I mentioned before, over in N. America, they've basically eliminated the problem of taxation with full intent of 'tax free compound returns'. The tax is dealt at the individual level and the 401k/RRSP etc funds themselves do not pay any taxes. This just leaves only the management fees they charge which over the decades, have been screwed down to minimal % per year.

I think you might have used the wrong word here. You can't possibly expect a fund to list their returns in a 'prospectus', because that is, by definition, before any investing has happened. But if you mean 'report' (after the event), or a 'fund update', then all of those individual funds that I have looked at are quite clear in their declared returns. The returns are listed :

a/ 'Annual Return' (after deductions for charges but before tax) AND
b/ 'Annual Return' ('after deductions for charges and tax')

I am picking these two methods of reporting on NZ PIE funds are standardised by law.

The management fees for all of the bond funds I looked at do not contain a bonus element. So I am thinking in the 'bond realm', these fees are consistent from year to year, and charged at a fixed percentage of fund value. But perhaps it is just the fact that the deemed index for comparison is 'before tax', but the fund is measured 'after tax'? IOW the bond fund would have to earn 28% more than the index just to stay even with the index, let alone earn a bonus fee (if such a fee exists).

SNOOPY

[SBQ]

However, I am not sure you are right about the 'evening out' bit.

a/ A PIE fund is taxed at 10.5% if you have an income of $48k or less.
b/ In New Zealand the incremental tax threshold rate of tax changes from 17.5% to 30% once your income exceeds $48k.
c/ The gross weekly pension rate for someone living alone is $538.24 per week (@1st April 2022). Over 52 weeks that adds up to $29,988.48.

So it would take a supplementary income stream of $18k to get a pensioner to exceed that $48k tax threshold. This in the context of an NZ minimum wage employee now earning $44k for a 40hour week job.

My summation,from all the above figures, is that if:

a/ You are a single retired person on the NZ pension, AND
b/ You have a supplementary income of up to $18k

then you are getting a considerable tax benefit from the PIE income you can derive in your senior years to lift your income to $48k. The mere fact your supplementary income stream is a PIE has reduced the amount of tax you pay on that income by (17.5-10.5)/17.5 = 40%.

No-one calls that deferment. It is a straight out cut to your personal tax bill. But it has the same effect (taxing you at a lower rate in retirement).

The PIE funds clearly benefit those on high income that are in a tax bracket higher than 28%. No need to show the example of $18K over amount to be in the higher tax bracket. The deferment I was explaining pertains only in Canada's RRSP scheme where funds compound over the long term without taxes until at time of withdrawal.

Perhaps the biggest flaw about the whole Kiwi Saver / PIE fund scheme is around inflation. As I said before, those who get the most benefit from KS are high income earners in the high tax brackets; they are also in age groups that are most productive - so between 25 - 45? The most they contribute at an early age, the more they lose in compound returns as IRD takes the lion share of the portfolio gains. Recall my post about John Bogle's math where even a 2% take from a portfolio that had 7% return = 5%. This 5% return only sees 1/3rd of the gain of the 7% portfolio over a 50 year time frame. The 2/3rds was robbed by IRD + mgt admin fund fees. You can't dispute the impact this has on KS funds at the individual level. Now imagine the effects inflation has in say 40 or 50 years time? This was one of the leading arguments against the KS scheme where to the average person contributing, the level of inflation would outstrip the buying power KS funds would have at the end. A person on $100K/year income that contributes $6K every year into KS, will find out that they won't have a lot left to spend after 40 or 50 years inflation eats away the returns of KS funds.

Then you have the issue of changing tax policies. What if the NZ gov't imposes some new tax scheme like they tried to do recently with GST? If the potential compound gains were not already ruined enough, the gov't does not seem to have any regard on creating incentives for retirement planning.

Now hop on over to Canada where you have deferred taxation. The effects are naturally going to be a lot less and introducing any policy to change the deferred taxation scheme is extremely unlikely.

Below SBQ is what you said on the 'How much do I need to retire on thread'.

So you are saying that in Canada, if you are 'too successful' in your saving, then some of your savings will be clawed back by partially removing your pension payments. That doesn't happen in NZ.

Also the maximum tax if you are on higher income in NZ that applies to your PIE investments is 28%. If you earn just more than $70k per year, probably not a 'higher income' these days, your incremental savings PIE tax is capped at 28%, verses the personal incremental tax rate of 33%. And if are lucky/skilled enough to earn over $180k per year, then your PIE gives you an 11% percentage point discount on your 39% incremental tax rate. That is quite an incentive for NZ's high income earners to save via the PIE route right there.

SNOOPY

Yes clawback applies when you exceed the income at retirement. Keep in mind the clawback only applies on CPP (Canada Pension Plan) scheme and the OAS (Old Age Security) pension you don't lose. The CPP is a deduction off the wage / salary pay and is mandatory. However, there's a key distinction about OAS and CPP and that is around the issue of 'safety nets' for individuals. Everyone is entitled to OAS like your NZ superannuation pension. Where CPP stops is for some reason at retirement if the income is way way too high, then portions of the CPP is clawed back. Why? Because it's around the issue of 'equity' which I find there's not much of in NZ among say the 1%. So you have the wrong incentives where the rich just keep piling on more and more wealth.

Then you have the RRSP (Registered Retirement Savings Plan) which is the deferred taxation I have spoke about. It's entirely voluntary. If the odds are that at retirement if the pensioner makes too much $$ from withdrawing their RRSP, then it's only fair their CPP is clawed back. All in all, the RRSP has been so successful that the gov't introduced other savings plans. RDSP (reg Disability SP) and RESP (reg Education SP) offer greater perks in that they can be entirely 100% tax free even at withdrawal stage. Something the Jacinda gov't could have considered in addressing the high cost of uni education ; instead of offering 1st year uni free. Parents would make contributions to nearly any investment assets (shares, ETFs, managed funds etc) and over the 18 years since their child was born, it would grow tax free, and all those funds if used for the purpose of education, is withdrawn tax free.

I should also add that in RRSPs, there is a maximum time limit (if I recall correctly) after age 80 all the funds have to be withdrawn and the tax has to be paid. Or upon death, tax is paid. The notice our tax prof at uni told us was the gov't didn't want funds to grow without serving the purpose to "fund retirement". So the incentive is there at retirement 65 to tap in the RRSP funds.

Then you have the TFSA (Tax Free SA) which anyone over 18 can start. Annual contributions limit to $6K now and is indexed to inflation on future years. All gains are 100% tax free, likewise on withdrawals.

To give you an idea how adamant the Cdn gov't is about saving for retirement. Some of these plans (ie RESP and RDSP) the gov't wants to invest their portion into the stock market in the same way as the individual would. Gov't matching contributions but at your choice of where you invest the funds in. Not this $521/year kind of deal in KS but serious amounts of $. Say in an RDSP if a friend or family member puts in $2000, the Cdn gov't will match it and it does not have to be returned. Where are the incentives in NZ for people with disabilities? Those wanting education but can't fund it? It's clear in Canada, the gov't wants to put investment first for the future. Among my friends and family i've been very vocal against the NZ tax scheme and KS. How all the benefits are for the rich to buy multiple houses and just simply hold it for more than 10 years and never pay a dollar in tax on the house price gain. Meanwhile the low income earners struggle to get into a level to own a house. This same logic applies to KS where the PIE funds gives the benefit to the rich so they pay less tax than otherwise. Sure the low income earners are already paying lower taxes, but that doesn't change the fact that setting a ceiling on the amount of tax they will pay is fair.

[SBQ]

I think you might have used the wrong word here. You can't possibly expect a fund to list their returns in a 'prospectus', because that is, by definition, before any investing has happened. But if you mean 'report' (after the event), or a 'fund update', then all of those individual funds that I have looked at are quite clear in their declared returns. The returns are listed :

a/ 'Annual Return' (after deductions for charges but before tax) AND
b/ 'Annual Return' ('after deductions for charges and tax')

I am picking these two methods of reporting on NZ PIE funds are standardised by law.

The management fees for all of the bond funds I looked at do not contain a bonus element. So I am thinking in the 'bond realm', these fees are consistent from year to year, and charged at a fixed percentage of fund value. But perhaps it is just the fact that the deemed index for comparison is 'before tax', but the fund is measured 'after tax'? IOW the bond fund would have to earn 28% more than the index just to stay even with the index, let alone earn a bonus fee (if such a fee exists).

SNOOPY

In Canada the term prospectus is used when individuals look to send their $ to that fund. It may consist of annual reports, fancy graphs of returns they've done over the years, etc. But the main problem is they're grossly window dressed. Lots of excuses for poor year returns, change a bit of here and there, but overall the agenda with the prospectus is to entire new investors as they sit in the office with their financial adviser.

We live in interesting times with inflation out of control. My wife told me today last quarter food prices have gone up 9%. What kind of return does one have to get to beat inflation? The work you've done on various NZ bond funds has been incredible, but at the end of the day, for what means? IMO, the only fighting chance to win against inflation is through owning stocks of companies over the long term. That's because companies can raise prices to keep profits going, but in fixed term incomes are well.. fixed.