Kernel went live in September 2019, launching our fully digital investment platform and three NZ index funds. When designing our first range of funds, it was important that they had the hallmarks to make them a successful long term investment option.
After significant research, both internally and with our global index partner S&P Dow Jones Indices, we landed on three NZ investment options.
Why did we start local?
You may wonder why we started with NZ share funds and not other asset classes. Part of the reason is that we understand the New Zealand market well. We knew we could develop an investment offering that was more efficient than current options and better designed to suit Kiwis.
In fact, NZ shares have a number of fundamentals that made it an attractive place to start. In short, investing locally has a number of great tax benefits. Considerations like capital gains tax and imputation credits mean an equivalent international fund must produce a return around 1.2% higher each year to give a 28% PIR investor the same result.
Additionally, NZ companies often have high dividends which add to their stability. The end result being the long term total return from investing in NZ shares has been high compared to investing in global equities.
And of course, NZ shares will often be a key part of a local investor’s portfolio without the complicating factor or cost of foreign exchange.
What makes our funds so attractive?
As proponents of index investing, it was important that the design of our funds passed through the full benefits that come with it. While low fees are important, they are not the only criteria that matters. We were interested in all the aspects that impact your end result.
We investigated to ensure our funds minimise the impacts of tax, have low underlying costs and efficient high quality operations. Whilst some say running an index fund is “easy”, it really comes down to operational efficiencies and trading nuances that enable us to mirror the return of the index as close as possible.
We’ve solved for all of these problems, while still giving you flexibility to design a great portfolio. For example, thanks to some of those operational nuances, since inception to 20 May 2020, the funds beat their index by a weighted average of 0.53% before fees.
Through the Kernel platform, investors can buy and sell into any Kernel fund without transaction costs. You can opt to take quarterly distributions as cash or reinvestment. Plus you are rewarded with a lower management fee as your portfolio balance grows.
Picking a good index
Finally, when investing in an index fund, the choice of index itself is crucial. Ultimately, it is the index design and structure that will determine what sort of performance you can expect.
All three of the Kernel funds were constructed after a rigorous review of the NZ market. The NZ 20 fund was the starting point, acting as the core to an NZ equity portfolio.
To compliment this, we had a custom index built by the experts at S&P DJI which gives access to smaller NZ listed companies. This is our Level 9 Fund – why Level 9 you ask? Well, to be included in this index, you need to have at least nine digits in your market capitalisation and…well our office is on Level 9 🙂
Then the last piece of the puzzle was the NZ Commercial Property fund. This gives investors access to a diversified mix of listed property trusts, who collectively own and manage over 300 commercial properties across NZ. All three of these funds have been designed to compliment each other and can form part of an investor’s portfolio.
Plans for the future
Since launch, our team has been busy expanding the functionality of our platform, releasing features like auto-invest. But we’ve also been while diligently working on expanding the fund range.
Using the same philosophy we applied to our NZ equities, we have been designing a range of new funds. These will vary in their risk/return profiles and will compliment our existing NZ funds.
So when can you expect to hear the details about these? Very soon.
In fact, so soon that now is the time to subscribe to the newsletter or open your Kernel account, as our existing investors will be the first to hear the news.
Ready to become an investor with Kernel? Click here to get started.