Insights
What is a Benchmark
What a benchmark is, how it works and what we use at Pathfinder.
What is a Benchmark?
A benchmark is a standard or measure that can be used to analyze the allocation, risk, and return of a given portfolio. Individual funds and investment portfolios will generally have established benchmarks for standard analysis.
Each Pathfinder Fund has its own benchmark which can be one index or a composite of indexes. There’s no market standard index that applies to all funds in the same risk category.
We changed benchmarks for our KiwiSaver Funds and the Pathfinder Ethical Growth Fund in 2021.
Prior to 1 October 2021 the benchmark of the Pathfinder Ethical Growth Fund was a composite of: 5% Bloomberg NZ Bank Bill Index, 20% Bloomberg Barclays, Global Aggregate (100% hedged to NZD), 20% S&P/ NZX50 Gross Index, 20% S&P/ASX200 index (50% hedged to NZD) and 35% Morningstar Developed Markets Net Index (50% hedged to NZD).
Prior to 1 December 2021, the benchmarks used for the Pathfinder KiwiSaver Funds were:
For the Conservative Fund: 20% Bloomberg NZ Bank Bill Index, 60% Bloomberg Barclays Global Aggregate Total Return Unhedged (gross of interest and tax; 100% hedged to NZD) & 20% Morningstar Developed Markets Net Index (net of dividends and tax; 50% hedged to NZD).
For the Balanced Fund: 10% Bloomberg NZ Bank Bill Index, 30% Bloomberg Barclays Global Aggregate Total Return Index Unhedged (gross of interest and tax;100% hedged to NZD) and 60% Morningstar Developed Markets Net Return Index (net of tax and dividends, and 50% hedged to NZD).
For the Growth Fund: 5% Bloomberg NZ Bank Bill Index, 15% Bloomberg Barclays Global Aggregate Total Return Index Unhedged (gross of interest and tax, 100% hedged to NZD) & 80% Morningstar Developed Markets Net Return Index (net of tax and dividends; 50% hedged to NZD).
The Current Benchmarks for the above funds are:
Pathfinder Ethical Growth Fund: Morningstar® Target Allocation IndexTM: Growth Multisector for New Zealand
Pathfinder KiwiSaver Growth Fund: Morningstar® Target Allocation IndexTM: Growth Multisector for New Zealand1
Pathfinder KiwiSaver Balanced Fund: Morningstar® Target Allocation IndexTM: Balanced Multisector for New Zealand1
Pathfinder KiwiSaver Conservative Fund: Morningstar® Target Allocation IndexTM: Conservative Multisector for New Zealand1
Pathfinder’s rationale for changing these benchmarks:
a. The new benchmark index is independently administered, easily verified, and widely used to compare funds in NZ.
b. As the new index is a NZ based index, it more closely aligns to the asset classes that the funds actually invest in. By contrast, the old benchmark was a weighted composite of three indices which was formulated and manually calculated by the manager and did not reflect the asset classes of the funds as well as the new benchmark (e.g., the equity index used was the Morningstar Developed Market Index which did not reflect the Australian/NZ bias of NZ fund managers). The new index is a composite of 7 indices which are weighted and calculated by Morningstar rather than the manager.
c. The components of the old index would have required licenses from Bloomberg and Morningstar. The new index only requires a Morningstar licence and is therefore more economic.
d. The new indexes are introduced by Morningstar in 2020 and were not available when the KiwiSaver Funds started in July 2019. There was no change to the investment strategy or actual investments as a result of the benchmark change and both indices could have been used since inception but, for the reasons outlined above, the manager considers that the new benchmark is better.
