Index-washing: how dirty data pollutes the NZ active (and passive) environment

S&P Global Dow Jones Indices (S&P DJI) hung out the NZ-domiciled global equity sector to dry this March in another of its famous SPIVA studies that found, as usual, active managers suck.

Many local news organisations laundered the S&P DJI report into stories such this one from Radio NZ headlined ‘All active funds 'underperform' over past year, data shows’.

Citing the SPIVA research, in the past week a chief executive of a passive index fund manager told NZ media that “74% percent of actively managed global equity funds in New Zealand underperformed the S&P World Index in 2025”. Another, called it “the survey most KiwiSaver managers don’t want you to read”.

Case closed. 

But let’s crack it open again.

In a new analysis, using the same process S&P applies to its SPIVA sets, I can ‘prove’ that 86 per cent of NZ-domiciled passive funds have underperformed the index. The table below compares the returns of a collection of index or passive NZ-domiciled global share funds against the S&P World Index over the three years to 31 July 2026:

I look forward to headlines screaming that ‘Almost 90 per cent of NZ passive funds ‘underperform’ the index’.

To be clear: the above header is deceptive as none of the products included in the table, or indeed any NZ-based global share funds, have been designed to track the S&P World Index. The reality is that if each passive fund was being measured against the index they track, by design 100% of them should underperform the index after fees.

Furthermore, two of the Kernel products in my comparison list, the Global Infrastructure and Global Clean Energy funds, are narrow, sector-focused strategies that shouldn’t be judged against any broad-based equities benchmark, let alone an index that no NZ managers reference, ever.

Yet S&P DJI makes exactly the same error in its SPIVA NZ report; soiling the sample pool with listed infrastructure strategies in the active global shares fund universe, for example.

After combining whites with colours, the research house compares the sodden, grey pile against a purity scale of its own design to produce marketing claims, like in a detergent ad, that only one brand of investment management can ever measure up.

Ironically, the flawed SPIVA NZ ‘index-washing’ approach works just as well at staining the relative performance reputations of both active and passive funds.

The SPIVA global spin-cycle

S&P DJI produced its second NZ-specific SPIVA Scorecard in 2026 but the index-provider applies a similar process in numerous other countries, dating back to its inaugural US study in 2002.

While S&P DJI promotes SPIVA as the impartial ‘scorekeeper’ in the endless game of passive-vs-active management, a recent study concludes that the underlying research assumptions tilt the playing field in favour of indexing.

The 2026 paper by well-respected finance academics, Martijn Cremers (Notre Dame), Jon Fulkerson (Dayton) and Timothy Riley (Arkansas), found the SPIVA methodology is rigged against active managers in three ways.

Firstly, the ‘How the SPIVA US Scorecard Understates the Performance of Actively Managed Mutual Funds’ study argues the S&P DJI assumption that counts every closed or merged active fund as an underperformer, regardless of actual historical results, muddies the pitch at the outset.

The academic analysis also shows SPIVA skews the outcomes by ranking performance of, say, a $5 million fund in the same way as a $50 billion counterpart rather than on a money-weighted basis.

And finally, Cremers et al critique the S&P DJI decision to measure active fund performance against a hypothetical, cost-free index that no investor could actually buy.

After stripping out the impact of those three distortionary factors, the study concludes just 55 per cent of active US equity funds underperformed passive alternatives over the 20 years to the end of 2024 compared to SPIVA claim of 92 per cent.

“Put another way, rather than overwhelming underperformance, our results suggest that the probability of outperformance for a given dollar invested in the U.S. equity class over the last 20 years approximated a coin flip,” the paper says.

Since the NZ Scorecard is built on the same S&P DJI methodology, every one of these built-in biases applies here, too.

However, the NZ version of SPIVA has some other specific flaws that further undermine its credibility as a neutral arbiter of passive-active relative performance.

Spot the difference: why no one lives in the ‘S&P World’

I have made some assumptions about the underlying NZ-based global share funds in the SPIVA sample  that S&P DJI can’t, or won’t, confirm but most of the arguments below stand without precise knowledge of the dataset.

The first, obvious, red flag hinges on the use of the ‘S&P World Index (NZD)’, a benchmark created only in 2024, as the ultimate yardstick to measure all NZ global equity funds over the last 15 years: according to a note in the SPIVA report, all results prior to 2024 rely on back-tested data.

How many NZ-domiciled international share funds use the above index? According to S&P DJI, representative benchmarks are selected for each fund category, but not all funds adopt the benchmarks stipulated. They noted that many funds do set their performance hurdle on benchmarks similar to the S&P World Index.

Are all global share indices really ‘representative’? Cows are very similar to bulls, too, but a farmer might want to know the difference come milking-time.

In fact, a more honest answer to my question would be that not a single NZ global shares fund uses the S&P World Index as its benchmark. None. Nada. Zip. Zero.

Whether NZ managers referenced the S&P index or not would not matter if the benchmark was more-or-less in line with those that are in fashion here but, on closer inspection, the differences are too large to ignore.

Importantly, the S&P World Index is an unscreened benchmark, potentially containing nasty elements such as companies involved in the manufacture of cluster munitions that are both illegal for New Zealand funds to invest in and part of a wider exclusion list, often modelled on the NZ Superannuation Fund, that many managers adhere to.

By that gauge, the S&P benchmark might fail to comply with regulations issued in 2014 under the Financial Markets Conduct Act (FMC) for all funds to reference an “appropriate” market index in the context of the NZ industry.

In another discrepancy with standard global shares benchmarking practices among NZ fund managers, the S&P World Index follows an old-school view of the ‘world’ that includes just 24 developed markets rather than the almost 50 housed in more common alternatives in use today such as the MSCI All Countries World Index (screened, of course, to local ESG specifications). Certainly, over five and ten years, an emerging markets allocation would be a headwind to returns versus this index.

The SPIVA NZ global equities analysis also appears to lump many funds that are partially NZ dollar-hedged (some up to 75 per cent) in an unhedged category, which by itself would undermine the validity of the Scorecard. 

At the same time, S&P DJI has piled a mismatched collection of funds into the same dirty-washing basket. This includes funds with certain styles (such as growth, value, sustainability or dividend focused) as well as sector or theme focused funds (e.g. infrastructure, disruptive innovation).

Herding a wildly different assortment of funds into a single group may synthesise statistical significance for rating against a broad benchmark but it’s no meaningful way to measure the skill, or not, of active managers… and it may be actively misleading.

Unfair dealing: how to clean up the benchmark mess

The Financial Markets Authority (FMA) has, quite rightly, been very active over the last few years in clamping down on fund manager advertising excesses as covered under broad ‘fair dealing’ rules.

In a 2021 guidance on advertising in the sector, the regulator notes "a person must not, in trade, engage in conduct that is liable to mislead the public in relation to any dealing in financial products, or as to the nature, characteristics, suitability for a purpose, or quantity of financial products".

The guidance note also spells out that advertising can be any medium, including posts made on social media and professional networking sites, as well as information promoted in the media and on news websites.

For instance, my notional claim that ’86 per cent of NZ passive global share funds underperform the index’ might spark a call from a friendly FMA operative, or perhaps a public shaming or worse.

It’s difficult to say whether S&P DJI, which is not registered financial services provider in NZ, would fall under the regime, but, theoretically, the same logic should apply to wide-sweeping statements about financial performance based on cherry-picked data.

To date, the FMA has focused on alleged misleading advertising around unsubstantiated ethical investment claims, however, the influence of indexing, often supported by ‘research’ such as the SPIVA report, is far more pervasive in NZ than any concerns about ESG labels.

This is not an argument for, or against, active or passive management: at Aurellan, we offer strategies in both styles to our clients, and, during my career I have built index funds like the highly successful Foundation Series US 500 Fund.

Instead, I want to highlight the dangers, and possible breaches of NZ law, of allowing flawed analyses of relative fund manager performance to stand unquestioned in what amounts to the benchmark version of ‘greenwashing’ – or, to coin a new phrase, index-washing.

Perhaps the FMA can adapt its ‘greenwashing’ language for index guidance purposes, as below:

Index-washing refers to false or misleading claims about the benefits of passive management, including misleading information or claims about how products might perform in relation to an index or benchmark.

While S&P Global Dow Jones claims to be the de facto scorekeeper in NZ’s active passive debate, only the FMA has the power to arbitrate on what it considers an ‘unsubstantiated claim’ is.  So it’s time for the FMA to get their calculators out and do the analysis. Would claiming that 86 per cent of NZ-domiciled passive global share funds underperformed the index be an unsubstantiated claim?  Ultimately, only the FMA can decide.

The future of accurate fund assessment is on the line.