Active vs. passive KiwiSaver management: which should you choose?

By MAS Team

If you're trying to figure out which KiwiSaver fund works for you, it's important to understand the difference between active and passive investment management. Both strategies have their pros and cons, and choosing between an actively and a passively managed KiwiSaver fund will depend on your own financial goals and priorities. 

What is the difference between active and passive investment management?

The money you contribute to your KiwiSaver account is invested on your behalf by your KiwiSaver scheme provider. Active management means there's a real person - an investment manager - who is making decisions about which investments they're buying or selling for you. 

Passive management doesn't involve human decisions about specific investments, but focuses on "index tracking". This means that investment decisions are based on mathematical models that seek to replicate what the whole market is doing, rather than looking at each asset individually and choosing whether to invest. 

What are the pros and cons of active management?

Active investment aims to outperform the market by making conscious choices around what to invest in. This involves an experienced fund manager who oversees investments, looking to stay on top of any changes in the market by making informed decisions around what to buy and sell. 

When the market is doing well overall, a skilled fund manager will be making the most of this, seeking to build your gains beyond what the market may deliver. And if the market slumps, they're there to try to help protect your investment by making choices that seek to soften the impact of any market downturn. 

Of course, even a skilled investment manager does not always get it right. So, there is the potential for returns to be lower than a simple market tracking strategy. 

Active fund management requires research, resources and skilled managers, so actively managed funds usually have higher fees than their passively managed counterparts.

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What are the pros and cons of passive management?

Passive management involves a more hands-off strategy, where your KiwiSaver account's performance will follow what the market is doing.

Your KiwiSaver contributions will be invested in funds that track a particular market index such as the NZX50, which follows the performance of the 50 largest traded companies on the New Zealand stock exchange. 

Your return on a passive investment will always reflect overall market performance, less any fees, so there's no chance of "beating the market".

This means that when the market is doing well and these companies are thriving, your KiwiSaver account balance will increase but by no more than the market has increased. At the same time, if the market slumps, your KiwiSaver account balance will track the market downwards. People who invest in index funds generally like the certainty of knowing that their returns will reliably be a little less than the market. 

Passively managed funds generally have lower fees than actively managed funds. However, they're not able to outperform the overall market trends, and because fees are taken out of your balance, your overall returns will always be less than the performance of the market in which they invest. 

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How active and passive funds perform in market downfalls

MAS Head of Investment Colin Thomson says that market downturns, like the one caused by the Covid pandemic in early 2020, are where active fund managers can prove their worth. 

"While the market was rapidly dropping, our active fund managers were taking steps to mitigate the damage as much as possible. There's no way to completely shield investments from that kind of global downfall, but large market movements create tremendous opportunities for skilled active managers."

How are MAS KiwiSaver Scheme funds invested?

Colin says "our approach is about actively balancing potential risk and return for investors while taking a responsible approach to the companies we invest in, with regards to the future of our people and our planet."

"You could describe our approach as conscious choice investing. We work closely with experienced investment managers, who analyse markets and companies to make savvy decisions about where to invest our Members' money. Our choices are based on what will provide good long term returns and also what matches our responsible investment standards. 

"We believe that over the long-term our skilled investment managers can outperform an index tracking strategy," says Colin. 

"An important part of our conscious choice investment approach is investing in a way that's socially responsible and contributes to a healthier Aotearoa New Zealand, and a healthier world. This means excluding investments in industries like fossil fuels and weapons, and making sure we're supporting companies that are also committed to acting responsibly."

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Medical Funds Management Limited is the manager and issuer of the MAS KiwiSaver Scheme (the Scheme).

A copy of the Product Disclosure Statement (PDS) for the Scheme can be found here

This article provides information of a general nature only and is not intended to be financial advice. If you would like to talk to a MAS adviser, phone 0800 800 627 or email us

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