The passive index investing movement has taken off in a big way- in New Zealand, we’re just catching up with the rest of the world- especially the US.
The big-name when it comes to Invex funds is Vanguard- founded by the late Jack Bogle- credited for creating the first index fund. There is also iShares (ETF) managed by BlackRock.
We all know what makes passive index funds appealing- they are low cost, expose us to a large number of companies and a huge proportion of the market, and studies have shown they are equivalent to and, more often than not, outperform actively managed funds. So it makes sense to want to invest in index funds.
The problem is that it’s not as easy for us Kiwis to get access to the really low-fee index funds that are on offer overseas- Some of the overseas fees for index funds are as low as 0.03%. Now that’s low!
A quick note on Index fund fees
Index fund fees explained: Index fund fees are shown as a percentage of your investment and charged as an annual fee: So as an example- say you invest in a fund that has a fee of 0.10%, this means that you pay $1 per year for every $1,000 invested. 0.10% of $1000 is $1. So as the amount of money you have invested grows- so does the size of the fee you pay- which is one of the reasons why you want to invest in a low-fee fund.
So what options do we Kiwis have?
Can Kiwis invest in the Vanguard Index Fund?
The short answer is yes- you can invest in the vanguard funds if you are in New Zealand. That’s right- there are multiple Vanguard Index funds- many years ago, when I started investing- I naively thought there was just one mythical Vanguard index fund that you could invest in. In reality, there are many, many Vanguard funds available.
So, there are a few options out there for us Kiwis to buy into Vanguard Index funds that I know about. The first is through platforms like InvestNow, Smartshare or Superlife, and the second is trading platforms such as Hatch, ASB, and ANZ securities.
1. Vanguard through InvestNow
InvestNow is a platform that gives you access to a range of different funds from New Zealand and international fund managers and Banks’ Term deposits. In fact- they have so many funds that sometimes it’s hard to know which funds to invest in.
They have no platform fees and make theirs by charging the fund managers a fee for being available on their platform. You won’t pay anything extra by going through InvestNow compared to going to the fund manager directly.
InvestNow offers two Vanguard funds, with no markup in fee for the underlying fund. They are the;
- Vanguard International Shares Select Exclusions Index Fund
- Vanguard International Shares Select Exclusions Index Fund – NZD Hedged
The Vanguard International Shares Select Exclusions Index Fund has an annual fee of 0.20% and the hedged version has a fee of 0.26%. Which are very competitive fees- and the lowest available on the InvestNow platform.
Both funds are wholesale manage funds that are not accessible to everyday investors like you and me- but by InvestNow pooling together many investors, they have made it accessible to the everyday investor. Otherwise- the minimum investment directly into these funds is $500,000- InvestNow slashes that minimum to $250.
Full disclosure- I invest a large proportion of my funds on the InvestNow platform into the Vanguard International Shares Select Exclusions Index Fund.
There are other Vanguard funds hiding on InvestNow as well- Take one of my other investments, for example- I’ve invested in the US500 Index fund offered by Smartshares. The SmartShares S&P500 fund is 100% invested in the Vanguard S&P 500 ETF. The difference is that the SmartShares S&P 500 charges a fee of 0.34%, while the Vanguard fund charges a 0.03% fee. So in a perfect world, it makes sense to invest directly rather than through Smartshares on the InvestNow platform.
That’s a markup on fees of 0.31% by SmartShares.
Take note- I don’t invest any new money into the SmartShares US500 fund anymore- I have enough exposure to the US market through the other Vanguard fund- I just haven’t got around to selling out of the fund.
2. Vanguard through SuperLife
SuperLife is another investment platform that offers access to a range of funds. SuperLife is a good platform, they have no signup fee, no transfer fee, and no withdrawal fee, but do charge a $12 annual fee ($30 if you invest your KiwiSaver). They offer around 40 different funds ranging in fees starting from 0.39%- some of which are Vanguard funds masquerading as SmartShare funds masquerading as Superlife funds.
Hold on- didn’t I just mention SmartShare offered access to some Vanguard funds on the InvestNow Platform- and aren’t’ SuperLife and SmartShares the same thing? Just look at their logos- one blue and one green- the only difference, right?
Yes- SuperLife and SmartShares are very similar- they are both owned by the NZX, they both have the same logo- and they even both work from the same offices in Auckland. But there are some differences! Put simply- SmartShares is an ETF issuer, and Superlife is a Fund Manager- that’s why only the SmartShares logo is included on the Funds offered by InvestNow, and SuperLife is not.
So because the Vanguard funds on SuperLife are SmartShare Fund containing Vanguard funds, the fees charged by SuperLife are higher than the SmartShare funds, which in turn are higher than the underlying Vanguard funds- that’s what you get when there are middlemen involved.
So why mention SuperLife then? Well- if you want to invest in Vanguard funds using your KiwiSaver, then you can do that through SuperLife. And even though there is a 0.1% extra fee on their funds, the fees charged are much lower than many KiwiSaver fund providers- Simplicity and Juno are basically the only other KiwiSaver providers that charge lower fees.
The funds on SuperLife start from 0.44% for individual investors and 0.54% for KiwiSaver Investors- I don’t understand why there is a 0.1% extra fee on all funds that are associated with KiwiSaver.
- SuperLife US 500 Fund 0.54% for KiwiSaver, 0.44% for an individual. Same fund as on offer through InvestNow SmartShare US500 fund but at a fee of 0.32%- Underling fund is the Vanguard S&P 500 ETF with an annual fee of 0.03%.
- SuperLife Total World Fund 0.60% for KiwiSaver, 0.50% for an individual. Invests in the SmartShares Total World Fund, which is the Vanguard Total World Stock ETF with an annual fee of 0.09%.
- SuperLife US Large Growth 0.57% for KiwiSaver, 0.47% for an individual. Invest in the SmartShares US Large Growth Fund, which is just the Vanguard Value ETF with an annual fee of 0.04%
- SuperLife Europe Fund 0.59% for KiwiSaver, 0.49% for an individual. Invest in the SmartShares Europe Fund, which in turn invests in the Vanguard FTSE Europe ETF with an annual fee of 0.08%
- SuperLife US Large Value Fund 0.57% for KiwiSaver, 0.47% for an individual. Invest in the SmartShares US Large Value Fund, which in turn invests in the Vanguard Value ETF with an annual fee of 0.04%
- SuperLife US Small Cap Fund 0.57% for KiwiSaver, 0.47% for an individual. Invest in the SmartShares US Small Cap Fund, which in turn invests in the Vanguard Small Cap ETF with an annual fee of 0.05%
- Superlife Asia Pacific Fund 0.59% for KiwiSaver, 0.49% for an individual Invest in the SmartShares Asia Pacific Fund, which in turn invests in the Vanguard Mid Cap ETF with an annual fee of 0.04%
- SuperLife US Mid Cap Fund 0.57% for KiwiSaver, 0.47% for an individual. Invest in the SmartShares US Mid Cap Fund, which in turn invests in the Vanguard FTSE Pacific ETF with an annual fee of 0.08%
- Superlife Emerging Market Fund 0.73% for KiwiSaver, 0.63% for an individual. Invest in the SmartShares Emerging Market ETF, which in turn invests in the Vanguard FTSE Emerging Markets ETF with an annual fee of 0.10%
Another disclosure- I have my KiwiSaver in SuperLife invested in some of their Vanguard funds. You can check out a post where I had analysis paralysis trying to decide who to switch my KiwiSaver to.
3. Vanguard through Simplicity
Simplicity is a nonprofit ethical fund manager aimed at helping Kiwis get richer and smarter with money. They offer five funds (Conservative, Balance, Growth, NZ shares, and NZ bonds) and have some of the lowest fees in town. Their growth fund has a fee of 0.31% + a $20 membership fee.
So you can’t directly invest in one of the Vanguard funds, rather, you can invest in one of Simplicity funds, which are largely made up of several Vanguard funds. Their growth fund consists of around 67% Vanguard funds- which contains the following;
- Vanguard Ethically Conscious International Shares Index Fund NZD hedged 0.26% annual fee– consisting of around 38% of the Simplicity Growth fund
- Vanguard Ethically Conscious Internation Share Fund Index Fund AUD 0.26% annual fee– consisting of around 8% of the Simplicity Growth fund
- Vanguard Ethically Conscious Global Bond Index Fund 0.18% annual fee– consisting of around 8% of the Simplicity Growth fund
- Vanguard Australian Share Index Fund 0.35% annual fee– consisting of around 4% of the Simplicity Growth fund
All these funds are wholesale funds not available directly to retail investors- and they also involve a buy-sell spread. Simplicity charges a fee of 0.30%- which is higher than the Vanguard funds above- but the remainder of the fund is not in Vanguard. Since Simplicity is a non-forprofit, they only need to cover operating expenses.
Correction: Simplicity 0.3% management fee is inclusive of the Vanguard costs. There is absolutely no mark up etc as they are a not-for-profit organisation.
The remainder of the Simplicity Growth fund is made up of cash at around 6% and individual NZ companies such as Fisher & Paykel, A2 Milk, Auckland Airport, Spark, and Meridian Energy.
So- you can invest privately or with your KiwiSaver into Vanguard through Simplicity- well, at least a proportion of your money will be invested in Vanguard index funds.
Overall- it’s cheaper to go with Simplicity at 0.31%, compared to Superlife starting at 0.44% – but you have a greater ability to customise your KiwiSaver with Superlife- which can both be seen as a positive or a negative- that depends on you and your investment style.
4. Vanguard through Sharesies
Sharesies is a wellington based platform that offers you access to over 170 companies listed in New Zealand. They also offer more than 35 funds, some of which are Vanguard funds mediated through SmartShares. Sharesies runs a subscription fee to use its platform, starting at $1.50 per month to use its platform for balances over $50.
Sharesies offers several Vanguard funds through Smartshares, with no markup in fee for the SmartShare fund. The fees on the Vanguard funds range from 0.34% to 0.59%. They are the following;
- US 500 Fund: 0.34% -Invests in the SmartShares Total World Fund, which is the Vanguard S&P 500 ETF with an annual fee of 0.03%.
- Total World Fund 0.56% Invests in the SmartShares Total World Fund, which is the Vanguard Total World Stock ETF with an annual fee of 0.08%.
- US Large Growth 0.51% – Invest in the SmartShares US Large Growth Fund, which is just the Vanguard Value ETF with an annual fee of 0.04%
- Europe Fund 0.59% Invest in the SmartShares Europe Fund, which in turn invests in the Vanguard FTSE Europe ETF with an annual fee of 0.08%
- US Large Value Fund 0.51% Invest in the SmartShares US Large Value Fund, which in turn invests in the Vanguard Value ETF with an annual fee of 0.04%
- US Small Cap Fund 0.51% Invest in the SmartShares US Small Cap Fund, which in turn invests in the Vanguard Small Cap ETF with an annual fee of 0.05%
- Asia Pacific Fund 0.55% Invest in the SmartShares Asia Pacific Fund, which in turn invests in the Vanguard Mid Cap ETF with an annual fee of 0.04%
- US Mid Cap Fund 0.51% Invest in the SmartShares US Mid Cap Fund, which in turn invests in the Vanguard FTSE Pacific ETF with an annual fee of 0.08%
- Emerging Market Fund 0.59% Invest in the SmartShares Emerging Market ETF, which in turn invests in the Vanguard FTSE Emerging Markets ETF with an annual fee of 0.10%
All these funds are available through InvestNow, SmartShare, Superlife and directly with Hatch as well. But if you are already using Sharesies, or would like to do some trading on the NZX as well- then Sharesies is a good option.
US Shares through Sharesies
From August 2020, Sharesies now offers US stocks and ETFs. This means that there are now over 60 US Vanguard funds available on their platform.
The fees for these Vanguard ETFs are not as transparent as the Smartshares funds on Sharesies. For one- the management fee is not clearly stated when you search for a Vanguard ETF. Rather it states, “We don’t have data on management fees for some ETFs. We recommend you do your own research before investing.“
The transaction fee for these US-based funds is between 0.5% to 0.1% depending on how much you invest.
- 0.5% for any orders up to $3,000, then
- 0.1% for any amount above $3,000.
5. Vanguard through Hatch
Hatch is a platform that allows you to invest directly into companies and funds listed on both the Nasdaq and New York Stock exchanges in the United States.
Hatch has an incredible number of vanguard funds available-in fact, a total of 64 Vanguard funds! All are available at the true Vanguard annual fees starting from 0.03%- no markup.
Here’s just a taste of some of the 64 Vanguard funds on offer through Hatch;
- Vanguard Total International Stock ETF 0.09% annual fee. Seeks to track the performance of the FTSE Global All Cap, excluding US Index, which measures the investment return of stocks issued by companies located outside the United States. Give you broad exposure across developed and emerging non-U.S. equity markets and follows a passively managed index replication approach.
- Vanguard S&P 500 ETF 0.03% annual fee. this is the same fund as the Smartshares US500 fund but much cheaper. It Invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies, with the goal to closely track the index’s return, which is considered a gauge of overall U.S. stock returns. Offers high potential for investment growth; share value rises and falls more sharply than that of funds holding bonds.
- Vanguard International High Dividend Yield Index Fund ETF Shares 0.32% annual fee. Seeks to track the performance of the FTSE All-World, excluding US High Dividend Yield Index, and provides a convenient way to get exposure to international stocks that are forecasted to have above-average dividend yields and Employs a passively managed sampling strategy.
- Vanguard FTSE Pacific ETF 0.09% annual fee. Seeks to track the performance of the FTSE Developed Asia Pacific All Cap Index, which measures the investment return of stocks issued by companies located in the major markets of the Pacific region. Holds stocks of companies located in Japan (the major index component), Australia, Hong Kong, New Zealand, and Singapore and follows a passively managed, full-replication approach.
So what’s the catch? Well- there are extra fees involved when investing with Hatch, like currency exchange fees of 0.5% and a minimum $3 USD fee per trade. But they are far more competitive than the likes of ASB and ANZ securities. Also, you will have to do a bit more work come tax time as all the funds are foreign investment funds- just like on InvestNow- Hatch does most of the hard calculation work for you, though. Read more about Hatch here and about foreign Investment fund tax requirements here.
There are so many index funds on the Hatch platform. I would just encourage you to just sign up to Hatch (for free) just to have a look around and see what’s on the platform- they also have access to other large ETF fund providers such as the iShares funds from Blackrock with annual fees starting from 0.03%.
There are some other options available to you can to get access to the Vanguard funds. You can get access to the full range of Vanguard Australia ETFs listed on the Australian Stock Exchange when using a share broker. Note there will be brokerage fees involved, e.g. through ASB or ANZ Securities, and exchange rates to worry about. And as I recall- the brokerage fee for ASB and ANZ securities is quite high- around $30 per trade if I recall correctly. So to go down this method, you need to have a serious amount of money to invest to make it cost-effective. Even then, all the other options (InvestNow, SuperLife, Simplicity, or Hatch) will be far cheaper.
Easiest way to access Vanguards funds: the easiest way to get access to smartshares is probably through Smartshares funds, or Simplicity. Their fee structure is more transparent, and there is no having to deal with FIF tax once you have invested $50k.
The cheapest way to access Vanguard Funds: I would suspect the cheapest way to access the Vanguard fund over a longer period of time would be through Shareises or Hatch, as then you get the true Vanguard management fee- which can be as low as 0.03%. But- there are transaction fees and currency exchange fees that you need to factor in. Which makes the InvestNow Vanguard fund more transparent and a relatively cheap, with a management fee of 0.2%.
This is not a complete list of ways to invest in Vanguard funds from New Zealand. I’m sure I haven’t covered them all- and if you know of other ways- let me know in the comments. These are just some of the cheaper ways I know about. We’d all love to learn if there are others.
Depending on what stage you are at and what you are planning on doing will depend on what suits you best. If you were looking to invest in Vanguard on the regular- tieing in with when you get paid- I would suggest sticking with the vanguard funds on InvestNow, Superlife, or Simplicity.
InvestNow is free to join. You don’t have to deposit $250 to become a user. And you don’t have to pay a trade or currency exchange fee every time you purchase some units in the Vanguard fund. Simplicity has a membership fee, and that’s it.
If you want to invest in alternatives Vanguard funds than what’s on offer from InvestNow, Simplicity, and SuperLife, and you had a large chunk of change to invest, I would suggest Hatch. The initial currency conversion fee and trade fee might sting a bit- but over the long term, the lower fund fees offered by Vanguard could make it cheaper. Remember, some start at just 0.03%.
In a future post I’ll look into whether or not it would be worth selling my smallholding of Smartshares US500 in InvestNow and buy the Vanguard US500 fund directly through Hatch.