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  • rmacculloch

Forget GST on KiwiSaver: the Finance Minister's stockmarket investing tips have cost Kiwis billions

Several years ago I figured it was important to weight one's share portfolio more toward the oil, gas & minerals sectors - and did so with my own investing. Why? Since low-cost renewable (alternative) energy sources are not coming on stream nearly fast enough to replace non-renewables anytime soon. Hence the share price of existing companies, like Exxon & Shell, given the constraints on new drilling & exploration, would probably strengthen. Further, I figured these resource companies were great inflation hedges, since commodities are not subject to drops in the value of money.


However, our Finance Minister went the opposite way. On 1 March 2020 Grant Robertson & Minister Faafoi stated in a Beehive Press Release, "NZers’ savings in KiwiSaver default funds will soon exclude investment in fossil fuels .. [Aside from climate change reasons] it also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions ... In 2017, the $47 billion NZ Superannuation Fund adopted a climate change investment strategy that resulted in it removing more than $3 billion worth of stocks that exceed thresholds for either emissions intensity or fossil fuel reserves, without negatively affecting performance. So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.


These two Ministers "knew" that not investing in fossil fuel companies would not lower returns, did they? They made this cocky assertion at a time when the price of oil had just dropped dramatically in early 2020 to around $US 20 a barrel and the share prices of many oil & gas companies had, as a consequence, also dropped significantly.


What has happened since the March 2020 stock investing tip from the Finance Minister & Consumer Affairs Minister? Well, Exxon is up around 100% from US$ 50 to US $100, for example, as are the share prices of many other oil & gas companies. The price of oil is now hovering near $US 100. Barely two years later, the Beehive characterization of the oil & gas industry as the owner of "stranded assets" has proven to be .. a laughable joke.


Yes, Robertson's investment strategy is shaping up to cost Kiwis billions - and it wasn't even "responsible" - the responsible action is simply to price carbon emissions - as NZ already does - to recognize the cost of environmental damage. By not allowing the Super Fund & default Kiwi Saver providers to buy shares in fossil fuel companies, Robertson has left Kiwis undiversified, uninsured, exposed, unhedged & unprepared in the face of the sharp rise in oil & gas prices since 2020 (and the inflation of the past year).


And why is the CEO of the NZ Super Fund quoted as saying in 2020, "So not only has this approach [divesting of fossil fuel investments] reduced what we considered to be an insufficiently rewarded risk, it has also added return”? That statement breaches the known laws of finance. It is arguing that a less diversified portfolio can reduce risk & increase returns. No, greater diversification improves the risk-return profile.


I'm all for the emissions trading scheme and pricing carbon to fight climate change, but not for making Kiwis poorer in retirement & exacerbating poverty by inventing wonky investment strategies that do nothing to achieve this aim.


Sources:

https://www.beehive.govt.nz/release/default-kiwisaver-changes-support-more-responsible-investment


https://www.goodreturns.co.nz/article/976517612/super-fund-gains-through-carbon-reduction.html