Kernel Review

Updated 19 December 2019
Summary of Kernel

  • Kernel  launched in late 2019 and offers three index funds, all of which specifically invest in New Zealand assets.
  • The funds, NZ 20, NZ Commercial Property and NZ Level 9, have specific investment profiles. 
  1. The NZ 20 fund invests in twenty of NZ’s largest companies (i.e. A2 Milk, Fisher & Paykel Healthcare, etc.).
  2. The NZ Commercial Property fund invests in several commercial property companies (Goodman, Kiwi Precinct), and
  3. The NZ Level 9 fund which invests in 35+ companies valued at between $100 million and $1 billion. 
  • The three funds have the same fees; an annual 0.39% management fee on the balance managed, calculated daily. If an investor has a balance of over $25,000, the management fee drops to 0.29% p.a. 
  • Investors also pay a $3/month membership fee to access the investment platform.
  • Investors can buy into funds direct, or via a financial adviser. The ongoing fees are the same.
  • The minimum investment is $10 per fund
  • Recent returns can be found for each fund - NZ 20, NZ Property and Level 9

Note: While we don’t know the size of each fund, reporting due in 2020 will disclose this. From our discussions with Kernel, there are currently hundreds of investors and the average balance is close to $10,000. 

Our View: 
  1. The founding team worked for many years at the NZX but launched Kernel to meet a demand for fee-competitive New Zealand-focused index funds. With annual management fees around half to two-thirds of NZX’s Smartshares offering, Kernel presents a challenge to established funds.
  2. We expect the platform to launch new funds and features throughout 2020, and will update this guide as these changes go live.
We are not a fan of high managed fund fees – some institutions charge as much as 3% on your investment every year to look after your savings…while you take all the risk on what they invest in. In the last couple of years, index funds have become available to the average Kiwi investor. 

Our Review 
In this guide, we outline what Kernel is, what funds they offer to the Kiwi investor, what index funds are and how they're different to other funds, as well as looking at alternatives and the level of fees involved.  
Please note: MoneyHub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of Kernel's funds as an investment opportunity.

The Specs of Kernel

  • Kernel is a private company launched in mid-2019 and based in Auckland. 
  • Kernel only sells its own funds, unlike platforms such as Sharesies or InvestNow which offer third-party funds. All underlying investments are held by an independent custodian, meaning your money is protected should anything happen to Kernel. 
  • Investing in any Kernel fund means you are investing in the New Zealand sharemarket. Each fund invests in specific shares based on the investment profile and index they track. For example, the NZ Commercial Property Fund invests only in New Zealand listed property shares. Importantly, Kernel only offers funds exclusively investing in New Zealand companies.

Who is Kernel Suited to?

Best For:
  • Long-term New Zealand-focused investors looking for stability and growth that is passive with low management fees. 
  • Investors looking for index funds without a sector preference. Both the NZ 20 and NZ Level 9 funds invest in 20 and 35+ New Zealand companies, respectively. These range from A2 Milk to Fisher & Paykel Healthcare and Fletcher Building, meaning there is no over-exposure to one industry. 
  • Ultimately, with any Kernel fund, investments anticipate New Zealand markets rising over time while being diversified enough to avoid losing money if one or two shares flounder. In saying this, Kernel offers one specific-sector fund, the NZ Commercial Property fund, which invests in listed real estate investment trusts.

Not suitable for:
  • ​Investors looking to make individual investments in specific companies, or investors seeking short-term buying and selling. Index funds don’t move that much in the short term.

Standout Features:
  • New Zealand’s lowest management fees (if you’re investing over $25,000) – at 0.29%, Kernel beats InvestNow funds, some of Simplicity’s Investor funds (0.31%) and all equity-focused Smartshares.
  • Kernel exclusively offers investments in the NZX 20 index, which has outperformed the NZX 10 and NZX 50 index over the last ten years. While this is no indication of future performance, it does suggest Kernel is looking beyond traditional funds and launching opportunities that other investment companies don’t offer.
  • Kernel’s Level 9 fund is the only index fund to invest outside of the top 50 largest NZ listed companies.
  • The minimum investment is $10 – this compares favourably to Simplicity’s Investor funds ($5,000) or other specialist funds. However, a $1,000 investment will see around $40 a year go towards monthly member fees ($36/year) and management fees ($3.90/year), which is a high fee cost as a proportion of the total investment.
  • There’s no joining fee, meaning every dollar you invest goes directly to your Kernel fund(s).  

But be aware:
  1. There is a monthly $3 membership fee to be a Kernel investor, and this is charged on top of the fund management fees. Smartshares, for example, don’t charge such a fee.
  2. While we appreciate Kernel is new, there are still only three funds to invest in. Also, there are no overseas opportunities – every investment currently offered is New Zealand-domiciled.

The Competition – Kernel vs SmartShares, InvestNow and Sharesies

InvestNow, Sharesies and Smartshares are just some of the options for index fund investing. For any investment over $25,000, it’s hard to beat Kernel when it comes to management fees. In fact, other than one Simplicity fund (discussed below), Kernel appears to offer the lowest-priced management fee for investments over $25,000.

Simplicity's 0.10% p.a. Management Fee Alternative
  1. Simplicity offers four index-based funds, but it’s the NZ Share fund which provides a similar fund for a cheaper price.
  2. It invests in the top 49 New Zealand companies, charging a super low 0.10% p.a. management fee.
  3. In some sense, it’s similar to Kernel’s NZ Level 9 and NZ 20 funds, yet with one quarter the management fee.
  4. However, the minimum investment in Simplicity’s NZ Share fund is $5,000.
  5. If you’re looking for an NZ-orientated index fund and have $5,000 to invest, the NZ Share fund may be of interest.

What Others Are Saying

The below articles are more public relations-focused than a critical review, but we have included them to introduce the team behind Kernel and what their intentions are. Recent articles, TV and radio appearances include Newshub, Stuff and Interest.co.nz.
The Bottom Line
  • Kernel is new and, we believe, most suitable for serious investors. With a $3 monthly fee and 0.29% annual management fee for investments over $25,000, there’s a lot to like about Kernel. 
  • But, the limited number of funds and New Zealand-only investment means anyone looking for international diversity may want to look elsewhere.
  • Amongst its peers, strong alternatives exist. InvestNow, for example, offers a greater range of funds, and no monthly membership fee. 
  • Kernel may not appeal to everyone - if you’re fresh into investing and want diversity, Kernel arguably lacks options when compared to InvestNow, Sharesies or Smartshares.  
  • The funds are explained in detail so that potential investors know exactly what they are investing in. Because they are index funds, they follow their investment mandate and won’t deviate in.
Limitations
  • Kernel’s funds, like most index funds, are not for the short term. While investors are free to buy and sell without fees as frequently as they like, to get the most out of index funds, you’re realistically looking at a 5-10 year investment plan to maximise the return.
  • And, if you are an active or aggressive saver/investor and want a fund manager to continuously pick shares or other securities for short/medium-term investment, Kernel doesn’t offer that type of investment option.

10 Things to Know About Kernel

​You don’t need to buy Kernel funds directly; they partner with a few financial advisers who can offer advice

If you prefer to talk to someone about an making investment, we suggest getting in touch with Kernel to find an adviser in your area. Currently there is no published list of advisers who offer Kernel products.
​

Kernel offers New Zealand-specific investment diversification

An investment in one any of the Kernel funds goes into a number of companies, so if one doesn’t perform as expected, the strength of other companies will balance out low-performing investments. For example, the NZ 20 fund invests in the twenty largest New Zealand listed companies, so you are well-diversified relative to a ‘top 10’ NZX fund.​

Kernel’s funds are PIE funds

Kernel’s investment funds are PIE funds (like KiwiSaver funds). This means any investor will pay income tax according to their Prescribed Investor Rate (which is either 10.5%, 17.5% or 28%).
​

You can make automatic contributions

If you wish to make regular investments to achieve saving goals, Kernel offers this functionality.
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The composition and performance of Kernel funds are 100% transparent

Kernel exhaustively lists what investments comprise each fund, as well as the percentage weightings. Kernel also reports return on investments in plain English, with data ranging from 3 months to five years.
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​Dividends your fund(s) receive are reinvested, meaning more cash is invested on your behalf

Many of the investments held in Kernel funds pay regular dividends. These cash payments represent the profits from companies returning it to the shareholders, i.e. you. When you create a Kernel account, you will be asked to select whether you want distributions from your investment funds to be automatically reinvested or paid out as cash to your wallet.

Kernel offers a proven investment model by investing in index funds

Index funds historically outperform managed funds. According to Fortune Magazine, the S&P 500 (an American sharemarket index) outperformed more than 82% of all active funds over a 15-year period. Given the low fees an index fund charges and the reliability in outperforming active funds, it's a relatively conservative approach to investment for your retirement.
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​Kernel is a challenger index fund platform…and there are many out there

Investors can find an array of index funds via other platforms such as 
InvestNow, Sharesies and Smartshares, and even Simplicity’s investment funds. The fees vary, but Kernel arguably charges on the lower-end for annual management fees.
​

Kernel is a digital servivce

This is consistent with the likes of Sharesies and InvestNow, which also exclusively offer email only and/or online chat. Although the Kernel phone number is a little hard to find, they are welcoming of investor queries.

​Kernel also doesn’t offer financial advice, so they will be unable to assist you in guiding you to which fund is most appropriate for your needs.​
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Signing up isn't complicated, and you can deposit money into a Kernel ‘wallet’ until you’re ready to invest

Once your account is approved, you can select the fund or funds you want to invest in and confirm the contribution you’d like to make. To register for a Kernel account, you’ll need your IRD number, NZ drivers license or passport and bank account details.

Our Conclusion

  • We like Kernel’s intentions to charge below-market management fees and offer New Zealand-specific investments. But it’s important to know it’s not suitable for small-scale investing.
  • We appreciate the platform is very new right now, and that additional features, funds and benefits will be introduced in 2020. Until then, inexperienced investors may find more opportunities and diversity in platforms such as InvestNow.
  • Despite only three funds available right now, Kernel offers New Zealand investment diversity by way of its fund compositions, which include investments in up to 39 individual companies. Again, as more funds are added, the options for investors will grow. 
  • In summary, for investors preferencing low-fee New Zealand-only assets, Kernel delivers three funds designed to deliver positive returns over a 5 to 10-year period.