Perspectives

The investment industry does not stand still. We strive to keep abreast of the latest developments and best investment practices.

Our Perspectives

Climate Investment Risk and Trustee's Fiduciary Duties

The recent report on climate change released by the IPCC says that the impacts such as extreme weather events are becoming more common and frequent, temperatures will rise more quickly than forecast, and much more action is needed to reduce greenhouse gas emission levels.

In New Zealand the Aotearoa Circle commissioned Chapmann Tripp to provide a legal opinion on how Trustees should factor climate change into their investment decision making as part of their fiduciary duties (this follows from an opinion released last year for Company Directors and fund managers). A link to the opinion is here and the key conclusion is copied below:

In light of the increasing understanding and awareness of climate-related financial risk in New Zealand in 2021, it is appropriate that trustees identify and assess this risk to determine whether it is likely to be material. Where it is likely to be material, trustees should appropriately manage that risk over the mid–long term, including by diversification and/or divestment of certain investments if appropriate. Trustees that fail to undertake any consideration of climate-related investment risk, where that risk is likely to be material, will be at risk of breaching their duties to beneficiaries.

This opinion is ground-breaking, and we believe will be material for most Trusts in New Zealand.

Introduction to Trend-following

Trend-following is a strategy that seeks to profit from trending behaviour in markets. This paper discusses attributes and weaknesses of this type of strategy. We examine the historical performance of trend-following in bear markets as well as its potential for risk mitigation.

Here to download the paper

Insurance Linked Strategies

Most investors are unfamiliar with Insurance Linked Strategies (ILS) which can take time to understand. This paper focuses on ‘Catastrophe Bonds’ as a form of insurance linked strategy that is publicly traded. The attractiveness of ILS is that it can provide portfolios with returns in excess of investment grade fixed income in an uncorrelated fashion. We discuss its role as a yield enhancer as well as its potential in risk mitigation.

Here to download the paper

The Fixed Income Conundrum

In recent years, bonds’ ability to deliver capital gains has declined as yields have fallen. Yields are now lower than those available from equities and in many cases are negative in real, if not also nominal terms. The ability to generate capital gains is less than the potential for capital losses. This paper discusses the implications of fixed income’s vanishing yields, and how it has both lowered expected portfolio returns and increased the expected risk of balanced portfolios.

Here to download the paper

SRI and Impact Investment Webinar Series

Aaron Drew and David Rae, of MyFiduciary were speakers at the 2021 Responsible Investment webinar series by the Asia Pacific Association for Fiduciary Studies. The webinars presented included:

SRI and Investment Manager Due Diligence, by David Rae
Here to access the webinar. A copy of the presentation slides can be found here.

Direct Investment and taking SRI to the next level, by David Rae
Here to access the webinar. A copy of the presentation slides can be found here.

Investing for Impact, by Aaron Drew
Here to access the webinar. A copy of the presentation slides can be found here.

SRI and Fiduciary Duty, Panel discussion
Here to access the webinar. A copy of the presentation slides can be found here.

Designees can also access these webinars in our learning site for PD credits. For more information about this event and the Asia Pacific Association for Fiduciary Studies follow this link.

Taxation of Foreign Equities for New Zealand Residents

MyFiduciary and Kernel Wealth have co-written a white paper on taxation of foreign equities. Overseas investment funds can be attractive for several reasons compared to New Zealand based products. There is a great deal more to choose from, investors can pick from some of the world’s best investment managers, and headline fund manager fees are sometimes much lower. However, in many cases, you will pay more tax than if you invested in a New Zealand product. The extra tax may more than offset any saving in manager fees, leaving you with a lower overall return.

Here to download the executive summary
Here to download report

Gold – Store of Value or Barbarous Relic?

Gold’s recent surge to all-time highs is generating renewed interest amongst investors and has rekindled the age-old debate about whether it ought to be part of diversified investment portfolios. We consider the issues for and against gold and determine that, under certain scenarios, it does have characteristics that enhance the resilience of portfolios.

Here to download paper

Privacy Act 2020 and the New Financial Advice Regime

There are many legislative changes taking place in the financial advice industry and it is important to understand how these relate. The aim of this paper is to provide an overview of the new Privacy Act and how its principles align with the new financial advice regime. We discuss what we see as the most significant practical implications for adviser businesses.

Here to download paper

MyFiduciary Report on KiwiSaver for the FMA

The FMA commissioned MyFiduciary to examine how active or passive each KiwiSaver Provider is. Our report also explores how investment fees differ between active and passive approaches. In addition to assessing the degree of activeness, we provide our view on trends in investment management fees and how this relates to what we observe with respect to KiwiSaver fees.

Here to download report
FMA Media Release

Our Submission for the Review of KiwiSaver Default Providers

On 7 August 2019 the Minister of Finance and the Minister of Commerce and Consumer Affairs released a discussion paper that sought feedback on proposed changes to KiwiSaver default provider arrangements. MyFiduciary's submission for this review can be found here.

If you would like to know more about the review please follow this link.

Fi360's Investment Governance Framework and the New Financial Advice Regulatory Regime

Fi360 Pacific (our sister company) provides education and training in investment governance best practices with reference to a global fiduciary standard. The new regime provides firms with the opportunity to assess and evaluate their compliance, processes and practices. Fi360 Pacific's investment governance framework can help advisers and financial advice providers meet many of their new duties and obligations.

The new regime will start on the 15 March 2021. The Government delayed the 29 June 2020 start date due to the COVID-19 pandemic.

For more information please download our paper and infographic.

Responsible Investment Conference 2019

Aaron Drew, MyFiduciary was a speaker at the 2019 RI Conference in New Zealand. He spoke about Social Responsible Investing and Fiduciary responsibilities.

Evidence now shows that factoring ESG into advice and investment processes can reduce risk and at least do no harm to returns. What are the implications for regulators and fiduciary obligations?

A copy of the presentation slides can be found here. For more information about this event and the Responsible Investment Association Australasia follow this link.

The Trusts Act 2019 and What Trustees Need to Know

This paper discusses the new Trusts Act 2019 and its implications for trustees’ obligations and duties. The new Act will come into force in February 2021. Under the new legislation, beneficiaries will have the right to access information such as the financial performance of their assets, trust distributions, and trust administration. The Act’s approach to information disclosure paves the way for increased awareness of beneficiaries’ right to be informed and hold trustees to account. This is in-line with the transparency and accountability focus of the new Financial Advisers Amendment Act (2019), which regulates advice provided to retail investors, and increasing transparency in larger scale ‘wholesale’ investment entities, such as KiwiSaver providers and New Zealand Community Trusts.

Click here to download paper

Practical Advice for Preparing an Investment Policy Statement

This paper sets out what should be included in an Investment Policy Statement (IPS) for an any organisation with a pool of investment assets to manage. This includes charitable trusts and foundations, Māori and Iwi investment organisations, superannuation and provident funds, and other board-governed investment entities. It provides helpful tips for Stewards who are preparing the IPS internally or adopting an IPS prepared by a financial adviser or fund manager.

Click here to download paper

KiwiSaver Socially Responsible Investing Continuum

Socially responsible investing (SRI) has become part of mainstream over the last few years as evidence has mounted SRI at least does no harm and can improve returns, and as more investment choices have come to the market. The vast majority of KiwiSaver providers have responded by at least excluding investments in companies that cause harm. However, our analysis shows that there are still only a few options for investors that want a comprehensive socially responsible approach across all their investments.

Click here to download paper

The Australian Royal Commission and its Implications for New Zealand

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia has revealed a number of concerns around the way advice is provided and insurance and assets are managed in Australia. Much of this reflects structural conflicts of interest in ‘vertically integrated’ providers, and in Australia banks have been selling out of their wealth and insurance divisions to avoid these concerns. Technological disruption is also rapidly changing value propositions. These forces will all hit our shore in time, and we are already seeing some of the effects. But no matter how they exactly they play out the fundamental principle is that providers need to put a higher focus on their clients and customers. In turn, investors from Mums and Dads through to larger scale foundations, charities and Iwi Trusts have a huge opportunity to benefit from these changes by selecting providers who are transparent across their fee structures and costs, who operate at a higher fiduciary standard, and who can demonstrate they put your interests first.

Click here to download paper

What You Need to Consider when Evaluating Objective-Based Funds

Objective-based asset allocation (OBAA) funds were born in the ashes of the GFC and target an absolute return. Their appeal is that they offer investors a one-stop solution and better potential management of downside risks through dynamic asset allocation and risk protection overlays. However, our analysis shows most have under-performed conventional balanced funds since inception, and they have not, in general, meaningfully used the asset allocation ranges permitted by their investment policies. They are also yet to be truly tested in a bearish market environment. Our findings show that the actual investments made differ markedly between OBAA funds. This highlights that the need for comprehensive due diligence by Advisers, Trustees and other fiduciaries is just as material for OBAA funds as conventional funds. Finally we argue that the ongoing monitoring requirement is even higher with OBAA funds because the asset allocation and fund selection decisions they make still remain the responsibility of the fiduciary – they cannot be delegated away.

Click here to download paper

Better Management of Body Corporate Maintenance Funds

Body Corporate committee members are entrusted with management of a Body Corporate to the benefit of all unit title holders. Part of this obligation includes development of a long-term maintenance plan, and potentially a long-term maintenance fund, to meet expected future capital expenses, or liability streams, from the building.

At present, many Body Corporates in New Zealand do not have an established fund to help meet their long-term liability needs, and even for those that do, the investment strategy may be sub-optimal. This means that unit title holders are at risk that their liability streams are not as well identified or managed as well as they could be.

In this paper we argue that applying sound investment governance disciplines to the management of Body Corporate plans can potentially reduce the burden of funding maintenance and capital requirements, and increase the value of unit titles to owners.

Click here to download paper

Socially Responsible Investing and What Boards Should Know

Socially responsible investing (SRI) is becoming the mainstream. It offers investors the opportunity to ensure that their investments align with their mission and values, and is part of a wider movement to make the global financial system more effective in mobilising capital towards an environmentally sustainable and socially inclusive economy.

As SRI is becoming better understood and more widely accepted, the historic barriers to SRI, such as the belief that it is inconsistent with the fiduciary obligation of loyalty to beneficiaries because it has a negative impact on returns, are being dismantled.

This paper aims to help those boards charged with overseeing investments for the benefit of others (i.e. fiduciary boards) in the Pacific sovereign fund, philanthropic, charity and Māori sectors understand what SRI is, and how it fits in with their fiduciary obligations and investment governance practices.

Click here to download paper

Issues in Governance of Charities and Foundations

This paper explains what investment governance is and its importance to community foundations and charities.

Community foundations have the potential to hold a special, privileged position by virtue of their structure and community role in defined geographic regions and that this privileged position heightens the level of fiduciary obligations they owe to their communities. We argue that the scrutiny of their investment governance practices and investments is likely to increase, as will the scrutiny of charities and foundations more broadly. Such scrutiny can be withstood by putting in place sound investment governance procedures, that can be outwardly demonstrated to those on whose support they rely - their communities, donors, and other stakeholders.

Click here to download paper

Trustees - Now's the time to recalibrate your provider radar

Financial service providers including brokers, advisers, banks and investment managers have had to re-think business models, re-train, even decide whether they want to continue. They are now wrapped in new regulation, designed to protect investors and inform. They lose their ticket to attend the game if they fail to meet requirements.

Providers might claim, “If we meet compliance, surely any client should be satisfied. What other scrutiny could possibly be necessary?”

Actually – quite a lot!

Click here to download paper