inPZU vs. Finax Intelligent Investing
PZU is one of the biggest financial institution in CEE region with almost 200 years of history and is Poland's biggest and oldest insurance company. Last year they introduced a new investment product inPZU to the market. Is this product a good option to invest, or the investors have better options possibly?
Juraj Hrbatý | Our results | 11. November 2019
PZU Group is one of the largest financial institution in Poland and in CEE region. For over 200 years, the core of PZU Group was insurance activities covering large scale of life and non-life insurance products.
Within the last ten years of operation PZU Group has been expanding in the field of investments and health and lately also in the banking sector trying to acquire some holdings in Alior Bank, Bank BPH and Bank Pekao.
If the transaction is finalized, PZU will become the largest financial group in Central and Eastern Europe as the leader in insurance, banking, and asset management.
Since 2010, PZU has been listed on the Warsaw Stock Exchange, where - since its debut - it became part of WIG20 on the first trading day.
In May 2018, just a few months after Finax has started its Intelligent Investing products, PZU has launched its new passive investment product line called inPZU.
Impact of InPZU in Poland
Mutual funds in Poland have always had quite high average fund costs. Average equity based mutual fund would have (according to Key information document) fees between 2% - 3,5% p.a. This number is in general higher than average fee in other V4, where the average fees tend to be 1,5% - 2,5% for equity-based funds.
As Poland has a much bigger market than rest of V4 countries combined, this information was quite surprising to me. Nevertheless, creating funds, where the average cost is only 0,5% has made a big pressure on the Polish market. That seems like a bargain and that seems, what clients love.
When making a thorough research on Polish investment market, one fact becomes obvious. Polish investors invest large portion of their money into local stocks and local bonds. This is in big contrast to Slovakia and Czechia, however, in those countries the capital markets are quite underdeveloped.
However, years of stable growth of Polish WIG20 are far behind us. Since some institutions ceased to consider the CEE region as part of the the “emerging markets” category, there has been quite a run on the markets and the major indices never recovered.
Comparison of basic parameters of inPZU and Finax Intelligent Investing
We have made a deep look into the basic parameters of both investment options and have them summarized in following info-graphic form.
When I first visited the site of inPZU, I have been nicely surprised of the service, however, after going bit deeper all the way to the bottom of the pot, few things came out.
The site says, that it can help you to invest within 15 minutes, but without some financial background, you would have a hard time to select the funds. In my example, I have selected, that I want to invest for 30 years in the most aggressive way for my retirement. However, the service has offered me as a first choice the most conservative fund inPZU Inwestycji Ostrożnych, a fund that bears almost no risk but returns well below inflation, so I would actually lose money in the long run.
Secondly, I have to choose which funds I want. This can be very confusing for a rookie investor. The platform also offers mostly Polish funds. Looking at the past performance of Polish index WIG 20 or WIG40, this is probably not the market, into which you want to invest most of your money. Predefined strategies, only 3 strategies out of six offer international stocks or bonds, while maximum allocation to international stocks is 40%.
On the other hand, Finax only offers funds, that are fully focused on international market based on world market-cap allocation. You would find stocks from American, European and emerging market indices. These includes also small-cap and mid-cap companies indices, that gives Finax portfolios much better diversification (lower risk), but also higher return, as these companies tent to perform 2-3% p.a. better in long-run, than large-cap stocks.
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Major difference between inPZU and Finax is the further service being offered by law. With inPZU, they only service selling of the product, without further management of the investment. Despite the fact, the inPZU does rebalance the portfolio 4 times a year, which is according to our long-term analyses not a good approach to rebalancing, as it does not add much additional return. the investment to suit your risk in the long run. Finax algorithm will choose the right portfolio for you, depending on how much you have to save and if you are off track to meet your goal, it will guide you what changes you need to do to get back on track. With inPZU you have to do all these things by yourself.
The depth of the service is then transferred to price. This can be seen as the biggest advantage of inPZU, as the service is cheaper by almost 0,9% (including value added tax and ETF fund fees). Finax is however claiming, that rebalancing can add almost 0,47% p.a. extra return, which makes the difference lower. However, bear in mind, that yield is what matter most. If your investment is cheaper, but does not perform so well, then its not the best investment.
Bear in mind, that inPZU left for themselves backdoor to rise the management fees up to 1% for some funds, as this is mentioned in the funds’ prospectus.
Investing through inPZU, you do not need to think about taxation, as withholding tax applies on capital gains. With Finax, you have to file PIT-8C form every time you make a withdrawal or when Finax makes rebalancing. However, Finax make this for clients easier, as it supplies automatically filled PIT-8C forms for its clients.
Important for the investor can also be protection of his investment. With Finax, your funds are fully protected up to 50 000 eur equivalent by Slovak Investment Guarantee Fund. Further details can be found in our article: How are your investments protected at Finax.
Porfolio 5 inPZU vs. Finax 40/60
As part of the comparison, we have decided to compare one of the portfolios offed by inPZU with corresponding strategy of Finax. To be fair, we have chosen Portfel 5, that according to the site has the best performance for the last 5 years. Portfel 5 has 40% stocks allocation so we will compare it with corresponding Finax strategy 40/60 that has 40% of stock allocation.
All funds of PZU were created in May 2018, but similarly as Finax, they have been able to model their performance to be able to show past 5 years performance. However, few bloggers have noticed inPZU funds, that they might not replicate the indices with such an efficiency as ETFs provided by Blackrock (iShares ETFs) or State Street (Spider ETFs).
Our assumption was to invest long-term 30 years for my retirement with a one-time amount 100 000 Zl with a maximum risk. I was quite surprised, that the inPZU “advisor” has selected, under these assumptions, some very conservative portfolios as a first choice. I believe, many clients with lower financial literacy would have chosen portfolios that are too conservative. This way they lose on possible returns.
Here is the comparison of a 5 years modeled performance for both strategies. Both models have all fees included:
Finax would earn the client (even with slightly higher fees) almost 8% more, making it 1,3% more per annum. If this would be a longterm 30 years product, it would make a significant difference of 150.000 Zl.
Portfel 6 inPZU vs. Finax 70/30
Problem with Portfel 5 that we see is that, for a 30-year investment, you do not want to invest so conservative, as you are loosing out on higher returns. That is why a normal investor should pick Portfel 6 for their long-term retirement goal. However, investor with smaller financial literacy would probably choose a portfolio with highest back-tested result, even though, this is not the best future strategy for him/her.
Most of the clients with 30 years horizon and good risk appetite would have such account set with Finax 80/20 strategy or higher (80% stocks). This is a strong negative for inPZU, as it offers maximum of 70% stocks in their predefined strategies.
So, to be fair, we will compare the Portfel 6 strategy with Finax 70/30 strategy.
Finax strategy would earn client significantly higher returns. This is mainly due to 30% allocation of Portfel 6 to Polish equity indices. Not only that they have poor performance, but they are highly geographically concentrated. On the other hand, equity portion of Finax strategies are invested within 6 international (regional), industry diversified funds, that encompass more than 5500 underlying companies.
Finax 70/30 strategy has earned more than three higher performance of 7,6% p.a. comparing to 2,4% p.a. profit for Portfel 6, making it together 44,6% for Finax and 12,8% for inPZU.
In the last 5 years except 2018, the value of global stock exchanges has risen significantly, while Polish WIG companies were only flat. If you have 50% of your wealth allocated in such a concentrated geographical location (30% equity + 20% bonds), then you need to count, that such difference can occur.
Even though that inPZU has brought a great innovation to Polish market, price is not, what you should be concerned about.
Net return (return after all fees), risk (diversification) and liquidity is what matters the most. It seems, that on the liquidity and risk, both investments could be equal, however the returns for Finax products are significantly higher.
What will client appreciate is the ease of registration for both products, but with inPZU, the investor has to be a bit more skilled to select a proper portfolio, while with Finax, algorithm will offer you the portfolio with appropriate risk profile for you.
To me, after an initial enthusiasm with inPZU products (I think passive investment products are the most suitable investment product for retail clients), going deeper, I have found out, that it is still lacking some necessary aspects and the platform needs improvement.
Don’t forget, that Finax offers a discount, if you decide to transfer your less profitable products to Finax. Finax will manage 10% of the transferred value free of charge for 5 years.
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