Active vs Passive KiwiSaver Funds
Understanding the difference between active and passive management - with real cost and performance data.
Passive (Index) Funds
Automatically tracks a market index (like the NZX 50 or S&P 500). No human stock picking.
Active Funds
Fund managers actively pick stocks trying to beat the market. Human decision making.
Real Example: $50,000 Over 10 Years
Let's compare two real KiwiSaver Growth funds with $50,000 invested:
High Growth Fund
Milford Kiwisaver Active Growth Fund
Cost Comparison Over 10 Years ($50,000 invested):
How Each Strategy Works
Passive/Index Management
The Philosophy: "You can't consistently beat the market, so just match it cheaply."
How It Works:
- Fund tracks an index (like the S&P 500 or NZX 50)
- Buys all stocks in the index in the same proportions
- Computer automatically rebalances when index changes
- No human decision-making on which stocks to buy
- Very low costs (no research teams, no trading)
Popular Passive KiwiSaver Providers:
Active Management
The Philosophy: "Expert fund managers can identify undervalued stocks and beat the market."
How It Works:
- Professional fund managers research companies
- Analyze financial statements, market trends, competitive advantages
- Actively decide which stocks to buy and sell
- Try to buy undervalued stocks and avoid overvalued ones
- Higher costs (research teams, more trading, manager salaries)
Popular Active KiwiSaver Providers:
Pros & Cons
🤖 Passive/Index Funds
✅ Advantages
- • Much lower fees (0.3% vs 1.0%+)
- • Consistent performance - matches market
- • More money compounds - less eaten by fees
- • Transparent - you know exactly what you own
- • Tax efficient - less buying/selling
❌ Disadvantages
- • Won't beat the market (by definition)
- • Buys bad companies too (owns everything)
- • Can't avoid market crashes
- • No human judgment or flexibility
👔 Active Funds
✅ Advantages
- • Potential to beat market - higher returns
- • Expert management - professional decisions
- • Can avoid bad companies - selective
- • May reduce losses in downturns (sometimes)
- • Specialized strategies (ethical, tech-focused, etc.)
❌ Disadvantages
- • Much higher fees (0.8% - 1.5%)
- • Most don't beat market over 10+ years
- • Manager risk - depends on human skill
- • Less tax efficient (more trading)
What Does the Research Say?
Key Findings from Global Studies:
📊 SPIVA Scorecard (2023)
Finding: Over 15 years, 88% of actively managed funds failed to beat their benchmark index after fees. The small percentage that did beat the market couldn't consistently repeat their performance.
💰 Vanguard Research (2020)
Finding: The average difference in fees (0.7%) compounds to $140,000 less retirement savings on a $500,000 portfolio over 30 years - even if performance is identical.
📈 Morningstar NZ KiwiSaver Survey (2024)
Finding: Low-fee passive funds (Simplicity, Kernel) consistently ranked in the top quartile for 5-year and 10-year returns in their categories, largely due to their cost advantage.
Which Should You Choose?
Choose Passive/Index If:
- •You want the lowest fees - Every 0.5% in fees matters over 30+ years
- •You're investing for 20+ years - Time in the market beats timing the market
- •You believe markets are efficient - Hard for anyone to consistently beat them
- •You want simplicity - Set and forget, no worrying about manager changes
- •You're okay with average returns - Which is actually better than most active funds
Choose Active If:
- •The manager has a strong track record - 10+ years of consistently beating their benchmark
- •You want specialized strategies - Ethical investing, specific sectors, or ESG focus
- •You value the human element - Comfort knowing experts are making decisions
- •The fee difference is small - Some active funds charge under 0.7%
- •You're willing to accept the risk - That the extra fees might not be worth it
The Bottom Line
For most KiwiSaver investors: Passive/index funds offer better value. The combination of lower fees and consistent market-matching performance typically leads to higher long-term returns than most active funds.
The math is simple: If an active fund charges 0.9% and a passive fund charges 0.3%, the active fund needs to return 0.6% more every single year just to break even. Most don't.
However: Some active managers (like Milford, Fisher Funds) have strong long-term track records. If you believe in their strategy and the fees are reasonable (under 1%), they can be good choices - especially for ethical or specialized investing.
Ready to Choose?
Data source: FMA KiwiSaver reports, Morningstar NZ, SPIVA scorecards. Last updated: October 2025.
Disclaimer: Past performance does not guarantee future results. This is educational content, not financial advice. Consider your personal circumstances and consult a licensed financial adviser.