Internationally, there has been a strong shift to passive investment strategies, which track indexes.

That has prompted some commentators in New Zealand to argue investors here should follow suit.

But Brian Gaynor, of Milford Asset Management, said it was misleading to apply the US experience to New Zealand investing decisions.

He said he did not argue with surveys showing that it was difficult for an active manager to outperform passive funds in the US over the longer term. But he said the situation was different here.

“This is because the US fund sector is very competitive and most major US companies are extensively covered by broker analysts.”

He said the US market had a lot more fund managers operating in it. “The more people in the market the more competitive it is and the more difficult to outperform. New Zealand is a totally different environment with far fewer participants.”

He said most people in New Zealand were invested in multi-sector funds, which was not the case in the US.

“We believe that actively managed multi-sector funds are more appropriate for NZ investors and have the figures to prove this. The Milford KiwiSaver Active Growth Fund had an average annual return of 12.3%, after fees and tax, for the eight years to March 2016 compared with 5% for the largest bank-operated passive fund. Our KiwiSaver Balanced Fund outperformed the passive Balanced Fund by 9% to 6.5% over a six-year period and our KiwiSaver Conservative Fund outperformed by 8.8% to 4.6% over three years.”

He said it was not fair to take the findings of research in other countries and apply it to a market that did not have the same characteristics.

John Berry, of Pathfinder, said the answer to whether active or passive management was best was not black and white.

“There's a strong case to argue that New Zealand equities may be different to deep liquid markets like the US and Europe. In the US, knowledge and skill is very widely dispersed, the S&P500 is also a much more efficient passive benchmark given there are more constituents and the largest stocks have a lot less influence than in NZ, and the NZ market has liquidity constraints that can also impact on pricing behaviour.”

He said the ten largest companies in the S&P500 made up 18.2% of the index. Apple is the largest single company at 3.3%. The ten largest companies in NZ make up 55.5% of the NZX50 with Spark, Fletcher Building and Auckland Airport each being more than 8% of the index.

Gaynor said it was possible that in a low-return environment, more people might seek cheaper passive strategies. But he said the cost differential between active and passive management was not as large in New Zealand as it was in the United States because our passive options are not as cheap.

In tough market conditions, investors might prefer to find managers who could deliver better returns, he said.