Auckland-headquartered index fund manager, Kernel Wealth, has upped its product suite to eight, releasing two new global equities offerings that blend ‘innovation’ themes with a twist of artificial intelligence (AI).
The two Kernel funds target electric vehicle and the broader ‘disruptive’ technology company sectors, respectively, using a benchmark stock selection process managed by heavyweight AI data-cruncher, Kensho.
Index provider S&P paid US$550 million in 2018 for Kensho, a record price for an AI firm. Kensho subsequently developed a range of ‘21st Century Sectors’ benchmarks with S&P including the Electric Vehicle and Moonshots indices adopted by Kernel for its latest funds.
Dean Anderson, Kernel co-founder, said the new funds offer investors access to fast-developing global themes while avoiding the risks associated with a single-stock approach.
For example, he said the EV portfolio currently covers 29 stocks – mostly listed in the US – with a mix 11 manufacturers and 18 other firms connected to the electric ‘ecosystem’.
Meanwhile, the Moonshot portfolio is capped at 50 US-listed early-stage companies identified by the Kensho process as most likely to supply “the products and services shaping our future”, according to the index factsheet.
Unlike the EV fund, which features well-known brands such as Toyota and Tesla, the Moonshot holdings are more obscure with top 10 names including companies such as Vuzix, NantKwest and MongoDB.
Anderson said in a statement that the average lifespan of companies in the US S&P500 index has more than halved since the late 1950s, suggesting the increasing pace of disruption “highlights the need for investors to look beyond just mega caps and invest in companies that are changing our tomorrow”.
But he said Kernel was looking for sustainable investment opportunities with the new products rather than chasing fads.
“These are next-generation thematics, not short-term trends,” Anderson said.
However, given the quasi-active stock selection process, the new Kernel products cost more than the standard 0.39 per cent for the group’s market cap-based index funds.
Both priced at an all-in 0.55 per cent annual management fee, the Kernel EV and Moonshot funds are structured as portfolio investment entities (PIEs) with no other transaction fees or spreads. Due to officially open for business on February 17, the new currency-unhedged funds, which follow a ‘modified equal-weight’ index construction, are also unlikely to pay distributions.
Kernel went live in August 2019 with three NZ share index funds before doubling the product pool with a global equities selection last July.
Stepping up the index ladder from pure market cap-weighted to ‘smart beta’ to the new thematic range was a logical move for Kernel, Anderson said.
Currently, the manager, which also double-bills as a platform, boasts about $100 million under management. Wellington-based Adminis provides custody and administration to Kernel while Trustees Executors is supervisor.