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Kernel vs Smart (previously know as Smartshares)

​Our comprehensive comparison between Kernel and Smart, two leading investment platforms, explores the key differences in index funds vs ETFs, fund options, fees, tax considerations, KiwiSaver options, accessibility, and more to help you find out which platform best suits your investment needs.
Updated 24 December 2024
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Summary
  • Many New Zealanders are investing in index funds, given the growth opportunities, low fees and tax benefits.
  • In 2019, data from Sharesight showed most NZX trades were Smartshares ETFs (now known as Smart ETFs). Today, ETFs and index funds continue to be popular, and all 40+ Smart funds are traded on the NZX daily in varying volumes.
  • Smart was the first to introduce index funds to New Zealanders, but rivals have emerged. Kernel, alongside Simplicity, is arguably the most well-known and successful challenger to appear in recent years.
  • In this comparison, we examine Smart and Kernel; each platform is known for its range of index-tracking funds.
  • While both platforms offer index funds, there are some structural differences between them that can impact your investment outcome. 

To explain the differences and help you make the right choice for your investing needs, we break down the key differences between Kernel and Smart. We cover:
Disclaimer: MoneyHub Founder Christopher Walsh invests with Kernel and Kernel is a client of MoneyHub. However, our research and analysis are conducted independently to ensure unbiased and objective information. This guide is intended to comprehensively compare Kernel and Smart to help investors make informed decisions based on their individual investment needs and preferences.​

MoneyHub Founder Christopher Walsh shares his experience with Smart and Kernel:

"After undertaking this comprehensive research into Kernel vs Smart in detail, which has never before been published publicly, the findings made me take action. I am now an investor who has transitioned from Smart to Kernel for my S&P 500 investments. It's important to read this review in detail, given the differences between Smart and Kernel - this is my high-level experience:

One of the primary reasons I switched to Kernel was to avoid the brokerage fees associated with buying and selling ETFs through Smart. With Smart, I only bought, and every transaction required going through a broker (which in my case was Sharesies), which added $25 as I was buying $10,000+ every time. On the other hand, Kernel allows me to invest directly without these extra fees, making it a more cost-effective option to grow my exposure to index funds. 

I also didn't appreciate having to wait four days for Sharesies to get my money back to me, having sold on Friday morning and, unless paying an extra 1.90% to get the funds right away, having to wait until Wednesday. I contrast that to Kernel, which I was already invested in for other funds, which trade daily. If you make a withdrawal request before 4pm (on business days), the money hits the account that evening after Kernel processes buy and sell orders daily, provided they are received before 12pm on a business day. Much faster, much easier.

Tax considerations were also relevant. Kernel operates with Multi-rate PIE funds, which are taxed at the investor's prescribed investor rate (PIR). This means I only pay the tax rate on the dividends that apply to my income level. In contrast, Smart's funds are listed PIEs, taxed at a flat rate of 28%. If I were in a lower tax bracket (with a PIR under 28%), this would result in over-taxation. To avoid this, I would need to include the details on my tax return to claim back any overpaid tax on the dividends.

Kernel also offered a few other perks I found useful, including a $1 minimum investment per fund - this would be cost-ineffective with Smart, given brokerage costs and let me keep adding to a fund without brokerage fees sucking up my investments. While I appreciate Sharesies offers subscriptions to minimise these fees, the limitation is that managing and considering is more friction. In contrast, Kernel is a simple bank transfer, and then, a few hours later, it invests in the fund(s) without me being pinged on fees.

I have been with Kernel since 2020 and find the platform intuitive and easy to use, with transparent reporting on fund performance and composition. Smart's direct platform has a very different user experience, and it is not one that I believe is angled at anyone wanting online access.

Selling up my Smart ETFs and moving the money to Kernel has been a strategic move to optimise my investment efficiency and reduce unnecessary costs. For those considering a similar transition, Kernel's tax efficiency, lower fees, and additional benefits make it a compelling choice.

This guide has been published to provide insight and help you make informed decisions about your investment strategy. I appreciate Kernel doesn't have the fund choice of Smart, so it won't be for everyone. However, given New Zealanders' continued interest in investing in the S&P 500 and similar indexes, I've made sure we compare every aspect of Smart and Kernel so you can see the specific differences, whether they're important to you or not".

If you have an experience with Kernel or Smart you'd like to share, please contact our research team.
Christopher Walsh
MoneyHub Founder

Key Differences Between Index Funds and ETFs

​While Exchange-Traded Funds (ETFs) and Index Funds are often used interchangeably by many investors, they are not the same thing. We explain the differences to help clarify.

What is an Index Fund?

  • ​An index fund is a type of investment designed to invest in the components of a market index, such as the New Zealand S&P/NZX 50 (the largest 50 companies) or the Standard & Poor's 500 Index (S&P 500). An index fund provides diversity and can lower risk as your investment is spread over many companies within the index.
  • Index funds also benefit from low operating expenses, which means their management fees are usually lower than those for actively managed funds. This is because the funds invest systematically in companies within the index, eliminating the need for active management. 
  • An index fund operates regardless of market conditions, so your investment is worth more as markets increase and vice versa.

How Do Index Funds Relate to Exchange Traded Funds (ETFs)?

​Exchange-traded funds (ETFs) are, in most cases, index funds; however, the term ETF doesn't tell you if the fund is index-tracking or actively managed. Instead, it simply tells you that the units in the fund are traded on a stock exchange like individual shares, allowing for real-time buying and selling throughout the day using a broker. 
The price of an ETF fluctuates as the index it represents moves, whereas the price of an index fund typically updates once a day. 

Buying and selling an ETF will almost always incur trading costs or brokerage, unlike index funds, which can be bought without transaction fees. A key difference is that units in an ETF can be traded throughout the day, while units in an unlisted index fund are often traded just once a day.

This distinction is important as Smart offers New Zealand's widest selection of ETFs on the NZX, while Kernel focuses on providing low-cost index funds.

Kernel vs Smart - Funds and Fees Compared

Smart:
  • It offers 40+ Exchange-Traded Funds (ETFs) covering New Zealand, Australia, and US-focused markets, as outlined in our Smart review.
  • Launched in 1996, the company is owned by NZX (New Zealand Stock Exchange) and has 175,000+ investors with over $10 billion invested.
  • Requires a minimum investment of $500 when investing directly via the Smart platform.
  • Direct investments (via the Smart platform) are only processed once a month. If invested via the NZX, investors need a broker to buy and sell, incurring transaction costs from platforms such as Sharesies, ASB Securities or any sharebroker.
  • Smart are arguably suitable for long-term, passive investors who buy and hold, usually transacting via the NZX (and not directly via their Smart platform).

Kernel:
  • Offers 20 local and international index funds and 5 actively managed fixed income funds, as outlined in our Kernel review.
  • Launched in 2019, Kernel has grown quickly with $1 billion invested and thousands of investors, arguably made popular for its low management fees and user-friendly platform.
  • Allows investments starting from $1. Kernel operates on daily order processing; any orders (buy or sell) received before 12pm on a business day will begin processing that day.
  • Kernel is arguably suitable for long-term, passive investors who buy and hold and use the Kernel platform. 

Our view: Both Smart and Kernel provide a range of options suitable for different investor needs. Smart has a broader selection of ETFs covering various markets, which might appeal to those seeking specific regional or sector exposure.

Our observation of trading volumes on the NZX and total funds invested suggests most Smart investors prefer the Total World Index, NZX50 and selected Australian-focused Smart ETFs. Kernel, on the other hand, offers a streamlined selection of index funds with a focus on low-cost and tax efficiency, making it an attractive option for investors looking to maximise their returns through cost-effective investing, with some of the largest funds being Kernel S&P Global 100, Kernel Global ESG (a Total World alternative), and Kernel Global Infrastructure. 

Platform Fees

Smart:
  • Management fees range from 0.20% to 0.75% p.a.
  • One-time $30 establishment fee (if you're buying directly from Smart's platform, e.g. not using a broker such as Sharesies or ASB Securities)
  • No ongoing membership fees
  • Brokerage fees will be charged if you want to avoid the monthly buy and sell and get a faster investment allocation using a share investing app.

Kernel:
  • Management fees: 0.25% p.a. for core funds, 0.30% to 0.50% p.a. for bond and thematic funds
  • No platform fee for investments
  • No transaction fees for buying or selling units

Our view: Kernel's fund management fees are generally cheaper than Smart's range of index funds. We believe that Kernel's greater tax efficiency and an investor's ability to avoid brokerage fees as they build wealth puts Kernel far ahead of Smart.

Kernel vs Smart - Investment and KiwiSaver Options Compared

While touched on above, we further compare how investors buy and sell Smart and Kernel funds and discuss some of the other considerations to be aware of.

Investment Options

Smart:
  • Direct investment or through platforms like Sharesies and ASB Securities
  • Investment partners include ANZ Bank, Forsyth Barr, Craigs, and ASB Bank
  • Monthly contributions are possible with a minimum of $50
  • Reinvests dividends into your ETF holdings

Kernel:
  • Direct investment via Kernel's online platform
  • Partnered with selected financial advisors for personalised advice
  • Offers a regular investing plan with automatic contributions
  • Dividends can be reinvested or paid out as cash

Our View: Both Smart and Kernel provide robust platforms tailored to different types of investors. Smart offers a broad range of ETFs with established partnerships, making it suitable for those looking for various regional and sector-specific investments. Investing directly or through platforms like Sharesies adds flexibility, especially for those who prefer a broker-assisted approach.

Kernel shines with its user-friendly online platform and low barrier to entry, allowing investments starting from just $1. The option for automatic contributions makes it an appealing choice for investors seeking a more hands-on approach to their financial planning without impediments such as brokerage costs. Kernel's flexibility in dividend reinvestment or cash payouts adds a level of customisation that can cater to individual investor preferences.

KiwiSaver Options

Smart:
Kernel:
  • Offers the Kernel KiwiSaver Plan
  • Includes options for short, medium, and long-term investment horizons
  • Provides a choice between DIY portfolios or well-diversified funds
  • No platform fees or annual membership for KiwiSaver investments
  • Focus on low-cost, long-term investment strategies

Our View: Kernel stands out with its dedicated Kernel KiwiSaver Plan, which offers diverse fund options and no platform fees, focusing on low-cost, long-term investment strategies. This makes it an attractive option for those looking to maximise their retirement savings without incurring additional fees. Smart, while not offering a standalone KiwiSaver scheme, provides access to its ETFs through the SuperLife KiwiSaver scheme, which allows for a mix of over 40 Smart ETFs. This offers an excellent alternative for those looking to integrate Smart's ETF offerings into their KiwiSaver plans given the huge range of funds available.

Both platforms offer valuable features and the fund preference will ultimately decide what investors choose.

Kernel vs Smart - Distributions and Tax Considerations

Smart:
  • Most ETFs pay distributions semi-annually in June and December
  • Thematic and ESG ETFs do not pay distributions; income is reflected in the fund's value 
  • Cash and Bond ETFs pay quarterly distributions
  • Smart ETFs are Listed PIEs rather than Multi-rate PIEs, which means they are taxed at a flat and fixed rate of 28%. If your PIR is lower than 28%, you may be able to claim back excess tax paid as a credit in your tax return. This means an investor will have an additional tax obligation to file.
  • If an investor doesn't have other income that they can use the tax credits against, such as investing for a child, they will be overtaxed compared to using a Multi-rate PIE fund.
  • Most of the Smart international funds simply invest in other offshore ETFs; for example, the Smart Total World fund buys a Vanguard Total World fund.
  • This layering of investments creates tax leakage, meaning an investor in New Zealand will have lower after-fees and after-tax returns compared to a New Zealand-based fund that buys all the underlying assets directly. 
  • The impact varies by fund based on the yield on the underlying assets, but it could arguably add 0.10% to 0.40%+ to returns per Kernel's research.

SuperLife (linked to Smart):
  • Funds do not pay out distributions; income is reflected in the fund's unit price
  • Multi-rate PIEs taxed according to your PIR
  • More tax-efficient for those with a PIR lower than 28%
  • Often higher fees than the Smart equivalent options, plus has platform membership fees

Kernel:
  • Distributions can be reinvested or paid out as cash, except for a couple of thematic funds focused on capital growth.
  • All Kernel funds are multi-rate PIE funds, meaning tax is paid at the investor'sinvestor's correct PIR. There is no additional tax work required by the investor and the investment options are tax efficient for children.
  • Kernel funds hold the underlying assets directly, meaning they don't suffer from tax leakage issues.

Our View: Kernel offers a more streamlined and tax-efficient approach. All Kernel funds are multi-rate PIEs, ensuring investors are taxed at their correct PIR and eliminating the need for additional tax filings. This simplicity is particularly beneficial for investors with lower PIRs or those investing for children, as it prevents over-taxation.

Smart's use of listed PIEs taxed at a flat 28% can result in higher tax obligations for some investors, especially if their PIR is lower than 28%. Additionally, layering investments in Smart's international funds can lead to tax leakage, reducing after-tax returns compared to funds that hold underlying assets directly.

Kernel's flexibility in reinvesting or paying out distributions as cash provides investors with more control over their income, and its direct holding of assets ensures no tax leakage issues. Investors want a tax-efficient and straightforward investment experience, and therefore, Kernel presents a clear advantage over Smart.

Kernel vs Smart - Other Considerations

​Smart:
  • Potential spreads when buying/selling on NZX – this is the difference between the price you can buy a unit in the fund at vs what the true net value of a unit should be.
  • Fund switching requires selling old funds and buying new ones, which incurs brokerage costs 
  • No automatic rebalancing of portfolios
  • Typically, you can only buy whole units rather than fractional units. This means you may have residual rounding and spare cash after an investment.

Smart KiwiSaver (prevously known as SuperLife):
  • Easier fund switching, but comes with higher fees
  • Automatic monthly portfolio rebalancing between share and bond funds

Using Sharesies for Smart ETFs

As Smart investors, you need a broker to sell units. Many use Sharesies to buy and sell NZ-listed ETFs. For investors who use both ETFs and direct stocks, this is potentially the best platform. However, Sharesies is one of the most expensive options for investors seeking a hands-off investment or who predominantly want to invest in index-based funds. 

An investor using Sharesies to regularly invest in index funds via NZX-listed ETFs will typically have the following considerations:
  • Transaction fees of 1.9%, capped at $25 per ETF (unless using a plan)
  • On-market spreads when buying the ETFs (buy vs sell prices for Smart)
  • Tax filing – If you're on a PIR lower than 28%, you must do an additional tax filing. For a child, they will almost always over-taxed
  • Tax leakage – Investing in NZX–listed ETFs that hold international assets likely incurs higher tax costs than other fund options in New Zealand.

However, investors benefit from being able to buy fractional units in the ETFs and from intra-day liquidity.

Kernel investors looking to regularly invest in index funds through Kernel would not incur any additional costs noted above. Kernel investors can only buy and sell units once a day. Overall, Kernel offers:
  • No spreads as transactions are direct
  • Fractional units can fully invest down to the cent
  • Immediate investment allocation via Kernel wallet
  • Transparent reporting on fund performance and composition
  • No automatic rebalancing; manual adjustments are required

Our View: The finer features of Smart and Kernel are important. We believe that Kernel offers several advantages to streamline the investment process and reduce costs for regular investors. With Kernel, there are no buy/sell spreads to worry about as transactions are direct, and the ability to purchase fractional units ensures that every dollar is fully invested. This contrasts with Smart, where buying whole units can leave residual cash uninvested (unless using Sharesies, which allows fractional shares), and spreads can add to the cost of transactions.

Kernel also provides immediate investment allocation through the Kernel wallet and transparent reporting on fund performance and composition, making it easier for investors to track their investments and make informed decisions. While Kernel does not offer automatic rebalancing, the platform's user-friendly interface and daily order processing make manual adjustments straightforward.

Smart, on the other hand, have certain limitations, such as the need for a broker to sell units, buy/sell spreads when trading on the NZX, and the lack of automatic rebalancing. Using a platform like Sharesies will reduce some of these issues, but you'll pay transaction fees for the privilege and create tax filing complexities.

We believe that investors seeking a cost-effective, efficient, and straightforward investment experience will find Kernel the better option. Its low-cost structure, elimination of brokerage fees, and flexibility with fractional units provide a more seamless and economical approach to investing in index funds.

Kernel vs Smart - Accessibility, Customer Support and Additional Features

​Smart:
  • No direct account tracking; investments held through NZX
  • Monthly investment allocation can be slow (up to 43 days)
  • 0800 phone support available for customer inquiries
  • Investors will need to open a broker account to sell the investments

Kernel:
  • User-friendly online platform for tracking investments
  • Immediate investment allocation through the Kernel wallet
  • 0800 phone support and email for customer service
  • Transparent reporting on fund performance and composition

Additional Features

Smart:
  • Wide range of ETFs offering sector and geographic diversity
  • No socially responsible investment (SRI) options

Kernel:
  • Low-cost, fee-competitive index funds
  • Offers the Kernel KiwiSaver Plan with diverse fund options
  • Focuses on investor education and transparency
  • Ethical investment options with low ESG fees
  • No joining fees; every dollar invested goes directly into funds
  • Ideal for automated, regular investors

Our View: Regarding accessibility and customer support, we believe Kernel outshines Smart with its user-friendly online platform, which allows immediate investment allocation through the Kernel wallet. This is a significant advantage for investors who value quick and easy investment access. In contrast, Smart requires investments to be held through the NZX, which can slow down the allocation process, taking up to 43 days. Furthermore, the necessity of opening a broker account to sell investments adds another layer of complexity and cost for Smart investors.

Kernel's platform offers ease of use and transparent reporting on fund performance and composition, helping investors make informed decisions. Additionally, Kernel's customer support is robust, offering 0800 phone support and email assistance, ensuring investors can get help when needed.

Regarding additional features, Kernel stands out with its focus on low-cost, fee-competitive index funds and its Kernel KiwiSaver Plan, which offers diverse fund options. Kernel's commitment to investor education and transparency, along with its ethical investment options and low fees, make it a compelling choice for socially conscious investors. The absence of joining fees means that every dollar invested goes directly into funds, ideal for automated, regular investors looking to maximise their returns without unnecessary costs.

While offering a wide range of ETFs with sector and geographic diversity, Smart lacks socially responsible investment options. However, it is suitable for investors looking to trade and who value having real-time intra-day liquidity. However, index investing isn't volatile, so the benefits of trading on the NZX are minimal and the costs add up, even when using low-cost platforms like Sharesies. 

We believe that Kernel provides a more accessible, transparent, and supportive investment experience, making it a strong choice for investors prioritising ease of use, ethical options, and cost-efficiency.

Kernel vs Smart - Our Conclusion

  • Our comparison confirms that both platforms offer unique advantages tailored to different types of investors. Smart, with its broad range of ETFs and established market presence, is a reassuring choice for investors comfortable with brokerage requirements and seeking specific regional and sector exposures. However, the need for brokerage accounts, transaction costs, and slower investment allocation processes add complexity and cost to the investment experience.
  • Kernel provides a streamlined, user-friendly platform emphasising low-cost investing and tax efficiency. The ability to invest with minimal amounts, avoid brokerage fees, and benefit from transparent reporting makes Kernel an attractive option for cost-conscious and long-term investors. Additionally, Kernel's ethical investment options and focus on investor education further enhance its appeal.
  • For investors prioritising simplicity, cost-efficiency, and a seamless investment process, Kernel arguably stands out as the superior choice. Its flexible and intuitive platform, combined with daily order processing and fractional unit investments, offers a modern and efficient way to grow wealth.
  • While Smart remains a solid option for those looking for a diverse range of ETFs and are comfortable navigating the brokerage requirements, Kernel's overall package provides a compelling alternative for maximising returns and minimising costs.
  • Ultimately, the choice between Smart and Kernel will depend on individual investment goals, preferences, and priorities. By understanding each platform's distinct features and benefits, as outlined in our comparison above, everyday investors can make informed decisions that best align with their financial strategies.​

Frequently Asked Questions

If you have specific questions, we suggest contacting the client services team at Kernel and Smart. Our information below is general and specific to the differences between the two platforms.

What are the main differences between Kernel and Smart?

Kernel offers a streamlined selection of 20 local and international index funds and 5 actively managed fixed-income funds with daily order processing and a low-cost structure. Smart provides over 40 Exchange-Traded Funds (ETFs) covering various markets but requires brokerage accounts for transactions and typically processes investments monthly.

What are the cost differences between Kernel and Smart?

Kernel:
  • Management fees: 0.25% p.a. for core funds, 0.30% to 0.50% p.a. for bond and thematic funds.
  • No platform fee for any amount of investments
  • There are no transaction fees for buying or selling units.

Smart:
  • Management fees range from 0.20% to 0.75% p.a.
  • One-time $30 establishment fee for direct investments.
  • Brokerage fees apply when transacting via brokers like Sharesies or ASB Securities.

How do tax considerations differ between Kernel and Smart?

  • Kernel: All funds are Multi-rate PIEs, meaning tax is paid at the investor's Prescribed Investor Rate (PIR), which is more tax-efficient for individuals with a PIR below 28%.
  • ​Smart: Funds are Listed PIEs taxed at a flat 28%, which could result in over-taxation for those with a lower PIR. International funds may also suffer from tax leakage.

What investment minimums do Kernel and Smart require?

  • Kernel: Allows investments starting from $1, making it accessible for small investors.
  • ​Smart: Requires a minimum investment of $500 when investing directly through their platform. You can invest less using a broker such as Sharesies and ASB Securities but it won't be cost-effective to do so.

How do Kernel and Smart handle distributions?

  • Kernel: Offers the option to reinvest distributions or pay them out as cash, with all funds taxed according to the investor's PIR.
  • Smart: Most ETFs pay distributions semi-annually or quarterly, but thematic and ESG ETFs reinvest income. Distributions are taxed at a flat 28%.​

Can I invest in socially responsible funds with Kernel and Smart?

  • Kernel: Yes, Kernel offers ethical investment options with low ESG fees.
  • Smart: Does not offer specific socially responsible investment (SRI) options.

What are the KiwiSaver options available with Kernel and Smart?

  • Kernel: Provides the Kernel KiwiSaver Plan with diverse fund options, no platform fees, and a focus on low-cost, long-term strategies.
  • Smart: Not a KiwiSaver scheme itself but offers access to its ETFs via the SuperLife KiwiSaver scheme, allowing a mix of over 40 Smart ETFs.

How do I buy and sell investments with Kernel and Smart?

  • Kernel: Investments can be made directly through Kernel's online platform without needing a broker. Orders are processed daily if received before 12pm on business days.
  • Smart: Investments can be made directly via the Smart platform with a minimum of $500 or through brokers like Sharesies and ASB Securities, which charge brokerage fees. Direct investments are processed monthly.

How quickly can I access my funds after selling investments?

  • Kernel: Withdrawals requested before 4pm on business days are processed the same day, with funds typically available that evening.
  • Smart: Selling through a broker can take several days. For example, selling via Sharesies on Friday morning might not see funds available until the following Wednesday unless you pay extra for faster processing.​

How do Kernel and Smart handle automatic investing and rebalancing?

  • ​Kernel: Allows regular investing with automatic contributions and offers manual rebalancing options through its platform.
  • Smart: Automatic monthly contributions are possible, but fund switching requires selling old funds and buying new ones, which incurs brokerage costs. No automatic rebalancing is provided.

Are there any joining or exit fees for Kernel and Smart?

  • Kernel: No joining fees or exit fees are charged, and every dollar invested goes directly into funds.
  • Smart: A one-time $30 establishment fee applies for direct investments, but this won't be charged if you use a broker such as ASB Securities or Sharesies. Brokerage fees apply when buying or selling through brokers.
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