This article was originally published on May 24, 2017. 

With Simplicity opening up their KiwiSaver funds as investment funds this month, I thought it’d be a good idea to see how they stack up against Smartshares’ ETFS.
As you know I’m really big on Smartshares already but now I’m also super keen to get investing with Simplicity.

I’m going to be breaking down how Smartshares’ ETFs and Simplicity’s new investment funds compare to each other.
If, like me, you’re keen to get involved with Simplicity but not sure how all these funds compare, it could help you decide which one (or both!) is right for you.
Today I’ll focus mostly on comparing the fees between the two providers and next time I’ll go into some other factors.

What’s the difference between the two providers?

Smartshares ETF’s are traded on the NZX which means they can be bought and sold during the day, whereas Simplicity’s funds are bought directly through Simplicity.

One of the big positives with Simplicity is that you’re getting a diversified portfolio straight away with no need to purchase multiple funds.
However, Smartshares gives you more flexibility, and the ability to focus on particular economies, like the United States, for example.

What does each one actually involve?

I’m about to chat about asset allocations, so if you need a quick refresher hit up this article.

A Simplicity fund is actually pretty similar to a collection of Smartshares ETFs. Let’s take a look at the types of assets that are included in the Growth fund for Simplicity:

  • 6% International fixed income (bonds)
  • 8% New Zealand fixed interest
  • 14% New Zealand shares
  • 14% Australian shares
  • 58% international shares

Their other funds (Balanced and Conservative) are similar but contain more fixed interest and less shares.

If you wanted to roughly do the same thing by investing with Smartshares, it’d probably involve an asset allocation a bit like this:

  • 6% Global Bond (GBF)
  • 8% NZ Bond Fund (NZB)
  • 14% NZ TOP 50 (NZF)
  • 14% AU Top 20 (MZY)
  • 58% Total world Fund (TWF)

 

Here’s one important difference between them – it’ll shock you

FEES.

(oh wow what a surprise Ryan mentioned fees again)

You might be sick of hearing me say this, but fees are important yo. Just an extra 1% in fees can cost you tens of thousands of your dollars over your lifetime.

This is why it’s so key to invest as cheaply as possible. How does Simplicity compare to Smartshares in this regard, you might ask?

Lemme hit you with some sweet calculations

Below I’ve done my best to estimate what you’d pay in a year of owning a Simplicity fund, compared to what you would pay for in a year of owning a collection of Smartshares funds.
Warning: this is where it gets very number-heavy.

Simplicity’s Growth fund compared to Smartshares ETFs

I’m imagining you’ve got $10,000 being managed by the fund, as right now $10,000 is the minimum amount you need to invest in one of Simplicity’s funds.
(Yep, definitely not for the low-key investor just yet)

In this first example, I’ve calculated the fees based on a Smartshares fund that tries to roughly match Simplicity’s Growth fund (it’s based on those asset allocations from earlier).
Just an example, not a recommendation or a strict guide!

$10k under management
Year One

Smartshares Simplicity
Application fee $150 $30
Management fee $55 $31
Total $205 $61

 

Something to keep in mind is that with Smartshares here, you’ve signed up for five ETF’s and each one has a $30 application fee. This is a one-off charge and won’t be incurred again in following years. The management fee of $55 is a yearly recurring cost, however (this will change depending on how much your investments are worth).
For each Smartshares fund, the management fee ranges between 0.33% and 0.75%.

Simplicity an application fee of only $30 overall, but this is a recurring yearly charge, plus the management fee of 0.31% ($31 in this example).
Therefore in Year Two of the scenario above (assuming you still had $10k under management), you’d still pay $61 in your Simplicity fund, but you would now only pay $55 with Smartshares

Saving that sweet $6 a year sounds fab, but it all depends on how much you have invested. The more you have invested, the less important the application fee is.
For example, with 20k under management, Simplicity’s Year One fees would be $92 while Smartshares would be $261.
In Year Two Simplicity would still be $92 while Smartshares would now be around $111.

Clearly, it doesn’t seem to make much sense trying to match a Simplicity fund with Smartshares ETF’s, especially if you were investing quite a lot of money. It looks like you’d be better off just going with Simplicity.

However, it’s a bit different if you’re just going for a simple Smartshares portfolio.

Simplicity Growth fund vs a simple Smartshares portfolio

I’ve chosen a pretty typical portfolio as an example. Something like:

  • 70% US500 (USF)
  • 20% NZ50 (FNZ)
  • 10% Global bond fund (GBF)

Smartshares looks better in this scenario. You’re paying less in application fees in year one (as you are only in three funds as opposed to 5). You are also saving money because one of those funds is the US500 which has very low management fees (0.35%). I’ve called this portfolio “Basic” in the tables below.

$10k under management

Year One

Smartshares (Basic) Simplicity 
Annual fee $90 $30
Management fee $40 $31
Total $130 $61

 

$10k under management
Year Two

Smartshares (Basic) Simplicity
Annual fee $0 $30
Management fee $40 $31
Total $40 $61

 

As you can see in this scenario Simplicity is cheaper in Year One, but Smartshares is cheaper in every subsequent year. Again, this changes as you have more money under investment.

The downside with this kind of Smartshares portfolio is that you don’t have the diversification you would under a Simplicity Growth fund as you’re invested in far less companies.

Conclusion

In the first year of investing, Simplicity definitely involves a lot less upfront cost.

In the following years which provider is cheaper will depend on which Smartshares funds you are investing in and the total amount invested.
The more you have invested, the better Simplicity is, as the application fee ($30) stops mattering so much in comparison to management fee. The management fees on Smartshares ETFs are between 0.35% and 0.70%, always more than Simplicity’s.

To be honest, this is all pretty academic if you don’t have $10,000 to invest, considering you can’t get into any Simplicity funds for less than that. This, unfortunately, does make it pretty out of reach for a lot of people.

If you’re like most of us without $10,000 handy, Smartshares is a fantastic option for just buying into a few different funds and quietly growing your wealth.
However, if you’re lucky enough to have $10k burning a hole in your pocket or have been considering what direction to take with your current investments, Simplicity could be a good one to check out.

I know this article has been kinda deep with the data, so hit me up with a comment or email if there’s anything you want clarifying!

If the fee chat hasn’t already got you super excited …

Of course, there are more factors other than fees when it comes to choosing an investment provider.
I’ll be looking deeper into the other important factors, which include: tax, the minimum amount to invest, how each provider lets you monitor your shares and many more wonderful things!

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