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One of the topics brought up in recent debates about the New Zealand Superannuation Fund is the difference between active and passive investment.

The contention is that the Fund, which invests actively, will not be able to sustain its track record of out-performing the market over time and a wholly passive fund would be better.

We disagree.

Active investing is difficult and not worth doing in many markets, and we agree that active investing costs more. This is why the majority of the Fund is managed passively – two thirds is invested in line with an index-linked Reference Portfolio. This is a diversified growth portfolio (80 per cent shares, 20 per cent bonds) that is fully implemented passively at a low cost.

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