As you all know, I am an avid index investor. I’m generally interested in low cost, well-diversified index funds. There is a good deal of evidence out there that low-cost well-diversified index funds give you the best chance of getting a great return from the share market with little effort. No researching companies, or timing entry and exits of positions- while interesting- I don’t have the time. And lower fees eating into your profits.
After the fee increase from AMP’s NZ index fund, I was a little miffed about where to divert the NZ allocation of my regular investment amount. The options were to either remain with AMP and pay the entry and exit fee, switch to the Smartshares NZX50 index fund, or switch over to Kernel and invest in their NZ20 index fund.
I ultimately decided to go with Kernel’s NZ20 index fund with a management fee of 0.39%, which decreases to 0.29% once I hit $25k. And there is a $36 yearly members fee. This is on par with Smartshares NZ Top 50 index with a fee of 0.50%- although higher for lower amounts invested.
I had always planned to do a review on my experience with Kernel in the future, and the release of their new funds seemed like a good time to do it. So what is Kernel?
What is Kernel Wealth?
Kernel Wealth is an Auckland based investment fund manager. They believe in the power of index funds, which offer you lower fees. Kernel Wealth has built some unique PIE funds for the New Zealand Market.
Kernel wealth is great for anyone wanting to set and forget investing in the NZ market. You can set up a regular deposit and auto-invest which takes advantage of dollar-cost averaging. And there is talk of expanding their fund offering in the future.
Kernel has released 3 new global index funds. They are;
- Kernel S&P Global 100
- Kernel S&P Global Dividend Aristocrats
- Kernel Global Infrastructure
That means you now have 6 index funds to choose from with Kernel- the other three are NZ focused index funds;
- NZ 20 fund
- NZ Level 9 Fund
- NZ Commercial Property Fund
Here’s a quick overview.
|Membership Fees:||$0 for less than $1000|
$3 per month for $1000+
|Fund Fees||0.39% for under $25,000|
0.29% for over $25,000
|What’s on Offer:||3 New Zealand focused Index funds (NZX20, NZ commercial property, NZ level 9) and 3 Global focused index funds (S&P Global 100, S&P Global Dividend Aristocrats, Global Infrastructure)|
|Suitable for:||Suitable for all DIY investors. Kernel provides access to six index funds with dividend reinvestment and Auto invest options|
Kernels Fee Structure
Kernel’s fee structure may sound complicated when you first read them. $0 for less than $1000, then $3 per month, with fund fees of 0.39% for under $25,000 and then 0.29% for over $25,000. But it’s not as complicated as you think.
Firstly– the things I like about Kernels fee structure is that there is no transaction fees or any brokerage charges
Secondly– the fee for all six of their funds are exactly the same- either 0.39%- or if you have a total investment balance greater than $25,000 you receive a 0.1% rebate- making the fee 0.29%. And that is one of the lowest fees you will see in NZ. The only lower funds I can think of are the Vanguard funds on Investnow and Simplicity, as well as some cash funds.
Thirdly– they have their membership fee of $3 per month. It is free for below $1000.
Overall– they are very competitive on fees in the NZ landscape. In fact- probably one of the lowest around. Their membership fee does mean that the effective fee can be quite high if you invest smaller amounts. And to show you this I have created a graph showing you the effective fee- which includes both the membership fee and fund fee, below;
Kernels Funds on Offer
Kernel believes in Index funds- they currently offer 6 index funds. Three of which are NZ focused, and three of which are globally focused. Details of the global funds have only just been released- and at the time of writing this- you cannot invest in them. They are live from Monday the 6th of July, with the first trading day being Wednesday the 15th of July. So now there is a possibility of having an entire well-diversified portfolio with Kernel.
Kernel S&P Global 100
Kernel’s S&P Global 100 Index is a share market index fund of global stocks from Standard & Poor’s.
The S&P Global 100 measures the performance of 100 multi-national companies. It includes 100 large-cap companies from the S&P Global 1200 who operated globally. This index may meet you investing needs if you are looking for diversification across countries and markets and seek long-term growth in your portfolio.
The companies are selected from 29 local markets- but many are from the US. The same can be said for many global index funds. Many of the big names are included- Microsoft, Apple, Amazon, Alphabet (Googles’ parent company), Nestle, Intel.
- Excludes Controversial Weapon investments
- Diversified across sectors (Technology, Health, Finance, …)
- Diversified across Markets (US ~70%, Switzerland ~7%, UK ~7%, France ~5%, Germany ~4%, Japan ~3%, …)
- Diversified across 100 companies (Samsung, Cocacola, Walmart, Toytoa, Sony, GE, …)
- Quarterly distributions
There are other ways to access the S&P 100 Global index funds, one is through iShares and Hatch– but with a fee of 0.4% and a currency conversion fee of 0.5% and transaction fees. Kernel does sound like the better option if this is the index fund you are interested in.
Kernel S&P Global Dividend Aristocrats
The S&P Global Dividend Aristocrats is designed to measure the performance of the highest dividend-yielding companies within the S&P Global Broad Market Index that have an increasing or stable dividend for at least 10 consecutive years.
Basically- investing in big solid companies that consistently pay dividends.
Many of the top holdings in this fund are a bit obscure. The likes of Dominion Energy, Janus Henderson group, Mercury General Corp, but there are also a few better-known companies like AT&T.
- Quarterly Distribution
- Stable consistent Dividend payout
- Diversified across Markets (US ~40%, Canada~10%, Japan ~10% , …)
- Diversified across 78 companies (Subaru, Canon, AT&T …)
This index fund has been set up so that you can have confidence in receiving future divined payouts.
For a while, I through dividend investing would be a great idea to generate passive income. Now- I have realised that either a company pays a dividend, or the company invests the money back into itself increasing its share value. Either way- if you need to generate passive income you an rely on dividends or sell a few shares.
And since dividends are taxed at 33% RWT, but capital gains are generally tax-free, I tend not to focus on Dividends. I’m not exactly sure on how this works with Kernel funds as they are all portfolio investment entities (PIE) funds taxed at you prescribed investor rate (PIR). I will endeavour to clarify this in future.
Kernel Global Infrastructure
Kernels Global Infrastructure index fund does exactly as it says- it invest in global infrastructure. It’s designed to track the Dow Jones Brookfield Global Infrastructure Index.
The fund aims to invest in global companies that are heavily involved in infrastructure- at least 70% of their cash flow. This fund is closely tied to economic growth and has historically had a low correlation ton shares. The fund is diversified over 104 companies across 20 countries.
I couldn’t find much more information about this fund yet- so we will have to wait until they are launched to get more information.
NZ 20 fund
The NZ 20 index fund is designed to track the S&P/NZX 20 and invests in the largest 20 listed companies in NZ. They are collectively worth over $100 billion.
The companies are well known in New Zealand, including Fisher and Paykel, A2 Milk, Spark, Auckland Airport, Meridian Energy, Ryman Health, Contact Energy, Mainfreigth, Chorus, Infratil, Fletcher Building, Mercury Energy, Port of Tauranga, Several property groups, Sky City, and Z Energy.
The fund is diversified over different sectors including energy proprietors, transport, property, telecommunication, healthcare, building, and exports. The fund is actually quite close to the NZX50 since the top 10 companies in the NZX50 make up about 52% of the entire NZX50.
Kernel believe that picking the 20 largest NZ companies gives a more constant performance than picking the largest 50 companies. That’s because NZ is small and we don’t have many large companies. So the NZX50 has 10 companies making up 52% of the fund, which means that there are several relatively smaller companies in the NZX50 too. They believe that selecting the larges 20 companies over the larges 50 will mean that underperforming company will drop out of the index faster, and reversely, better-performing companies will be added more quickly.
Historically this has been true- In the last 10 years, the S&P/NZX 20 Index has outperformed the S&P/NZX 50 Index by 1.9% p.a.
NZ Small & Mid Cap Opportunities
This fund is designed to track the S&P/NZX Emerging Opportunities index. This fund gives you the opportunity to invest in companies outside the top 50 New Zealand companies.
There are around 40 companies in the fund. The number of companies in the fund does change to reflect how big companies are and their performance. The fund does give you access to smaller and growing NZ companies across a mix of sectors including property, tech, tourism, and transport.
Companies in the fund include Pushpay holdings, Metlifecare, Kathmandu, Air New Zealand, Synlait Milk, Skellerup, Fonterra, restaurant Brands, Napier Port, Tower, The Warehouse Group, Briscoe Group, and PGG Wrightson.
NZ Commercial Property Fund
The NZ Commercial Property fund is designed to track the S&P/NZX Real Estate Select index. It invests into eight listed real estate investment trusts- or REITs- that invest in and manage commercial properties. Think office buildings, industrial lots, and shopping centres. Below is the makeup of types of building invested in the fund.
What’s Kernels Platform like?
Kernel’s platform is very clean and intuitive. It’s easy to use and well designed. Everything you need is on your dashboard- which is the first thing you see when you log on. It has a performance section which shows how your entire portfolio is doing. A Wallet section which shows how much cash is available to allocate to funds. And a buy and sell section where you can place any buy and sell orders, and a Pie chart to show you how your money is allocated.
The one thing I would like to see is an annualized return. They do provide a monthly return in both % and $- which is nice- but I don’t have a good feel on percentage monthly returns yet compared to annual returns. Then again- I have only been using the platform for about 3 months- so the annualized return may appear once I have been invested for longer than a year.
I have an account with InvestNow, Superlife, Hatch, and Sharesies. (I don’t invest with them all). I would say that Kernels platform is more aligned with Hatch and Sharesies, than with InvestNow and Superlfie. That is to say that the former is well designed, clean, intuitive, modern, and simple, whereas the latter is more clunky, loaded with tabs and information and possibly a little outdated.
Kernel’s working on Gen 2 of their platform right now- and are looking for any feedback they can get to help shape it.
If you are really interested in having a look at how their platform works I would just suggest creating an account. It doesn’t mean you have to invest with them- it will just give you a feel for how their platform works and if you like it or not. I have accounts with Hatch and Shareies for the same reason- I wanted to know that their platforms were like.
Is my money Save with Kernel?
Just like all legal investment platforms in NZ, Kernel is regulated by the FMA who set up requirements on how Kernel can operate. And just like many other investment platforms such as Sharesies, Hatch, and Investnow, Kernel has an independent custodian that holds your investment. Kernels custodian is Adminis Ltd.
What this means in practice is that your investment is ring-fenced by the custodian away from any liabilities of Kernel Wealth. So if Kernel goes under, the creditors of Kernel cannot get their hands on your investments.
The custodian system is a great system to ensure that investment platforms cannot get access to your investment funds. That is why I always recommend using an NZ domiciled investment platform like Kernel, Sharesies, Hatch, and Investnow, over an overseas domiciled platform such as Stake and TD Ameritrade.
What Else do Kernel Offer?
Kernel seems to be driven by user input- so if you want to see them offering something- it’s best just to drop them a line. Some of the other features offered by Kernel are below;
Kernel’s platform allows you to set up an auto-invest. That means you can fully automate you investing. Set up an auto-transfer after your payday with your bank, then the auto-invest on Kenel’s platform will invest the money into the funds that you choose. The auto-invest can be set up weekly, fortnightly, or monthly.
Automating your finances is a surefire trick to get yourself ahead. Also known as paying yourself first. I use this technique to invest a certain amount automatically the day after I receive my wages. And just like Kiwisaver- once you get used to it- you don’t even know it’s happening- yet your investment keeps growing week on week.
You can choose whether or not to reinvest your dividends. If you select to reinvest- any dividends or distribution received will automatically be reinvested into the fund that paid the dividends. This, alongside auto investing, means that you can set up Kernel to be a truly set and forget investment option.
Kernel operates a weekly investment cycle- meaning that any orders placed before Wednesday lunchtime will be executed on Wednesday.
I have noticed that if I have deposited money into Kernel, and since it is not an instant transaction, sometimes I forget to put in an order. Kernel send me a reminder that I have money in my wallet and to meet the Wednesday deadline I need to place my order soon.
Not an overly flashy feature- but I have found it to be a little useful reminder since I have not set up an auto-invest yet.
Kernel’s Blog and Newsletter
Kernel run their own blog with useful information not only on their funds and platform but about investing in general. Everything from how to choose the right index funds, through to the known risks about investing. They are short, well written informative posts for any investor.
Kernel also runs a monthly newsletter called the Seed- which not only keeps you up to date with Kernels blog posts, they also share investing news and interesting tidbits.
Dean and Catherine from Kernel have been featured on both the NZ Everyday Investors and Cooking the books podcasts. I know these appearances are a long-form of marketing- but you do get to learn a bit more about Kernel and their philosophy.
- What is Kernel?
- Can passive investing be trusted?
- What is ‘Core-Satellite’ Investing?
- Core satellite: The shares investing strategy for those who like to pick winners
- Kernel Index Funds Review
Why I Choose Kernel?
With the increase in AMPs NZ share index’s buy-sell, and Smartshares NZ Top 50 fund having a relatively high fee – I’ve been looking around for a cheaper alternative for my fortnightly investment contributions. The NZ 20 seemed like a good option since it has a similar diversification as the NZX50. And it has such consistently out performances the NZX50.
The fees right now may be higher than the AMP share fund (0.39% vs 0.33%) but there is no 0.44% buy-sell fee with Kernel, and once I have over $25,000 invested with Kernel my fee will drop to 0.29% which is lower than both the AMP and Smartshares products.
And since Kernel has released the S&P Global 100 Index I could even switch the global allocation of my weekly investment to Kernel, which would mean I would reach the $25K threshold faster. Currently, my global investments are with Vanguard (0.2%) and AMP Capital All Country Global Shares Index (0.39%).
But, I’m not sure I will be switching my global allocation over to the Kernel 100 global fund just yet. I’m not sure that its a better option than Vanguard or AMP.
What do you think of Kernels new Global funds? Let me know in the comments
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