NZ Fund Managers

[Snoopy]

Fund Name	Fund Size	Return (1yr to 30-04-2022)	Return (5yr to 30-04-2022)
Harbour NZ Shares Index Fund	$382.4m (@31-03-2022)	-2.92%	10.37%
Smartshares NZ ETF Top 50	$641.4m (@31-03-2022)	-3.40%	10.52%
NZX50	Not Applicable	-6.65%	10.00%

P.S. Discussion to follow

Being a 'share picker' I generally pay very little attention to the index. However, looking at how things stand now:

https://www.interest.co.nz/nzx50

I can see that the 5% rule is having an effect for the index tracker funds that follow it. Take the example of A2 milk (ATM). At the time of writing it makes up 2.9% of the NZX50, with a share price of $4.45. This implies a share price of roughly $7.67 (this trigger figure also depends on the movement of other share values that make up the index of course) would have seen ATM over that 5% threshold. October 2017 on the way up is the likely date that this $7.67 'trigger price' would have come into play. A2 joined the NZX50 in early 2013. That meant that the rise from around 50c per share up until that $7.67 estimated 'crossover date' would have been fully captured by both the Harbour Asset and Smartshares referenced funds. That ATM index inclusion in 2013 was a prelude to a '15 bagger' for index fund investors!

However after that inclusion time, as the ATM share price continued to rise at a rate higher than the market, there would have been a steady selling of ATM shares by the two funds. That would have ensured that the overall value of ATM in those 'index approximating' Harbour and Smartshares funds remained at no higher than that 5% threshold cap. This meant that Harbour/Smartshares would have missed some of the extraordinary gains as the share raced up to $20. But it also meant that they missed out on that excess share of the share price fall as the ATM share price shrunk from $20 down to $4.50 over the last couple of years. That could be one reason that Smartshares/Harbour have outperformed the NZX50 index over the last year. An underweight rating in Fisher & Paykel Healthcare (nominally 10.6% of the index even now), following its sharp decline, would be another.

Tellingly the only reported difference I can find between the two managed funds is that Smartshares charges 0.5% of the value of the fund annually to, ahem, 'manage' this index fund where as Harbour only charges 0.2%. That should mean the Harbour fund produces a superior return - which it does over one year - but not over five. I am struggling to explain that. One theory I have is that in could be a matter of 'fund inflow timing'.

The Harbour Sustainable NZ shares fund, also index based, started two years ago. So suddenly Harbour investors would have had a choice of index hugging fund to select. I would expect the quantum of new money going into the original Harbour NZ Shares Index fund to reduce at that point. The alternative Smartshares index tracker would have had a more even funds inflow that would bias more gains and/or losses, in dollar terms, towards the latter two year part of the total five year period. The NZX50 has been roughly flat for two years. So with relatively less money going in over the last two years, the Harbour fund should have performed relatively better over the five year period (it didn't - I am not entirely convinced by my own argument either. No doubt someone will point out the error in my logic).

Further internet trawling and I may have found the answer:

https://investmentnews.co.nz/investm...over-etf-fans/

It looks like the Harbour Fund was not a full index tracker until two years ago. It used to be called the 'NZ Equity Advanced Beta Fund' and had under-performed.

"Over the five years to the end of December 2019, the Beta fund returned about 14.8 per cent after fees compared to almost 17 per cent for the raw benchmark."

This would explain why the Harbour 'now' index tracker under-performed its higher fee Smartshares alternative over the last five years.

SNOOPY