Active vs passive KiwiSaver: passive funds win on net returns in most categories
The short answer:
- Illustrative TAFC range — passive (index) funds within KiwiSaver schemes typically publish a Total Annual Fund Charge in the lower part of the NZ market, sourced from the FMA Disclose register.
- Active KiwiSaver scheme funds typically charge 0.60–1.50% per year.
- FMA Disclose data shows most active managers do not beat their benchmark by enough to cover that 0.5–1.0% fee gap. Over 5+ years, passive matches or beats active in most fund categories after fees.
- A 1.0% fee gap compounded over a 30-year working life is roughly 20–25% less wealth at retirement.
Active funds employ managers who pick investments aiming to outperform a benchmark; passive (index) funds track a market index automatically. The fee gap between the two approaches is the central driver of outcomes — and it favours passive in most KiwiSaver categories. Below: the data side-by-side, where active still wins, and how to choose.
Last updated: May 2026
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.
Illustrative Comparison: Sample Balance $50,000 Over 10 Years
Hypothetical mechanics — illustrative only. Past performance is not a guarantee of future results. Comparing two live FundCompare growth funds (one passive, one active) using an Illustrative — sample balance of $50,000:
High Growth Fund
Milford Kiwisaver Active Growth Fund
Illustrative Cost Comparison Over 10 Years (sample balance $50,000):
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 — illustrative TAFC gap of ~0.7 percentage points or more between passive index funds and actively managed funds within KiwiSaver schemes
- • 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
- • Higher TAFC than passive index funds — see each scheme's PDS on FMA Disclose for current fee figures
- • 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: Sustained fee differences compound substantially over multi-decade horizons. Illustrative — a sample 0.7% fee gap on a sample $500,000 portfolio over 30 years can shift the final balance by a six-figure amount, even when gross fund performance is identical.
📈 Morningstar Research
Finding: Low-fee passive funds within KiwiSaver schemes have consistently ranked competitively against actively managed peers in their categories over multi-year horizons, largely due to their fee advantage compounding. Past performance is not a guarantee of future results.
Which Should You Choose?
Choose Passive/Index If:
- •You want the lowest fees - Illustrative — even sub-1-percentage-point fee gaps compound 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 within KiwiSaver schemes publish competitive TAFCs; compare net-fee returns
- •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 compounding mechanics: An actively managed fund with a higher TAFC must generate enough additional gross return to cover the fee gap before delivering equal net-fee return to a lower-fee passive peer. Academic research consistently shows that, across long horizons, this hurdle is hard to clear consistently. Past performance is not a guarantee of future results.
However: Some specific active managers in NZ have published competitive long-term net-fee returns and offer ethical/responsible-investment mandates not available in passive form. Compare specific funds' published TAFC + net-fee return on FundCompare's fund pages (FMA-Disclose-sourced).
Ready to Choose?
Data source: FMA KiwiSaver reports, Morningstar NZ, SPIVA scorecards. Last updated: May 2026.
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.
