Latest Rebalancing: Kernel Global 100 Fund

With investing, there is a fine balance between not being engaged enough, or in some cases being engaged too much.

At Kernel, we believe it’s important to regularly check in to see how your assets are tracking, or whether adjustments need to be made according to life milestones.

However, investments are ultimately long-term and therefore best left to ‘set and forget’.

With that in mind, we’ve taken the time to provide an update on a few changes made to the Kernel Global 100 Fund in our latest rebalancing.

One of the key responsibilities of index fund managers (such as ourselves) is ensuring that the balance of our funds accurately reflects the index that it is tracking.

Periodically, usually twice annually or quarterly, the index provider reviews the constituents of the index to ensure that the methodology is correctly applied and that eligibility and filters are considered.

Index fund managers then reconfigure portfolio holdings to match the rebalanced index to continue to achieve their index-tracking objective.

Index rebalancing is not to be confused with portfolio rebalancing. A portfolio rebalance would involve an investor realigning their investment goals back to what they set out to be after the market has shifted them.

You can read more on what index rebalancing is and how it works in our blog.

The Global 100 Fund is one of Kernel’s first globally diversified funds. Despite going through several interest rate hikes and perceived poorer economic conditions, the fund has seen a return of ~16% p.a since its inception (15 July 2020 - 15 September 2023). Mainly benefiting from the continued growth of the world’s mega multinational companies.

One of the key benefits of index funds is how they methodically and automatically change, adapting to companies as they grow over time.

For example, at its launch the Global 100 Fund had Amazon making up 9.4% of its underlying holdings. Fast forward to now, despite its growth, it only represents 5.9% of the fund, because other companies have grown faster. Meanwhile, Nvidia wasn’t even in the fund at launch and is now the 4th largest holding at 5.1%, having grown 1,050% in the last 3 years.

Aligned to its index, the Global 100 Fund rebalances every quarter. Since its launch, an average rebalance changes ~1% of the fund's composition, usually from adjusting to small changes to shares on issue. However, in September 2023 we saw a significant 18% change with 6 new companies being added.

While a change like the above is uncommon for the Global 100 Fund, it’s not unusual for there to be changes over time.

As the chart below shows, over the last 20 years, only 2 companies have managed to stay in the top 10, emphasising how difficult it is to predict the winning stocks over the long term.

Remember, these changes are healthy and reflect the importance of growth amongst companies. Further, it highlights the unpredictable nature of shares and the benefits of diversification. Plus, the systematic approach that index investing provides.