What’s the best global shares index fund in 2022?

Smartshares Total World (TWF), Macquarie All Country, Russell Sustainable Global Shares, Kernel Global 100, and Vanguard International Shares Select Exclusions. These are all global shares index funds which are easily accessible to Kiwi investors, and allow you to effortlessly invest in sharemarkets across the world. So which one is the best? In this article we’ll take a detailed look at each fund including what they invest in, their fees, and tax efficiency to help you make a decision on which fund to invest in.

This article covers:
1. What’s on offer?
2. Fees
3. Fund composition
4. Tax
5. Other considerations

1. What’s on offer?

Global shares index funds allow you to invest in global sharemarkets in one go, by containing companies from sharemarkets in the US, Europe, Asia, and beyond. They make it easy to spread your investment portfolio outside of New Zealand, saving you from having to pick specific overseas countries or regions to invest in.

In addition to geographical diversification, each of these funds is spread broadly across many companies and industries. You’ll find the usual big name companies in these funds including Apple, Microsoft, Coca-Cola, and Toyota. This saves you from having to research and pick individual companies to invest in.

And being index funds, all of these benefits come with low management fees. Overall, global shares index funds are popular among Kiwi investors, and are commonly used as a core building block in a long-term investment portfolio. So let’s take a look at our fund options below:


Smartshares Total World

Smartshares’ core global funds are the Total World ETFs which track the FTSE Global All Cap Index. These funds contain over 9,000 large-cap, mid-cap, and small-cap companies from over 40 developed and emerging markets. The Total World ETF is available in two varieties – an unhedged version, and a NZ Dollar hedged version:

More on currency hedging later. You can invest in these funds direct from Smartshares (minimum investment $500), through InvestNow (TWF only, minimum investment $50), or via an NZX broker like Sharesies (minimum investment $0.01).

The Total World funds are also offered by Smartshares’ sibling fund manager SuperLife. The SuperLife versions of these funds have the same underlying investments, but have slight differences around fees and tax which we’ll cover later the in article. SuperLife’s funds are:

Both SuperLife funds are available direct from SuperLife (minimum investment $1), or through Flint (minimum investment $50).

Further reading:
Smartshares & SuperLife review – The smart way to invest in shares?


Macquarie All Country Global Shares

Macquarie offers one global shares index fund, the All Country Global Shares Index Fund. The fund tracks the MSCI All Country World ex Tobacco Index and invests in over 2,900 companies globally from over 40 developed and emerging markets. The fund is 69% hedged to the NZ Dollar.

It’s available through both InvestNow (minimum investment $50) and Sharesies (minimum investment $0.01).


Russell Investments Sustainable Global Shares

Russell’s Sustainable Global Shares Funds aren’t strictly index funds. Instead the funds are based on the MSCI ACWI Index but are modified to give them a sustainability tilt. They exclude investment into coal, nuclear and controversial weapons, civilian firearms, and tobacco, and the funds also have higher weightings to companies participating in the transition to renewable energy. Overall the funds invest in over 1,300 companies from both developed and emerging markets. The fund is available in two varieties:

Both funds are available through the InvestNow platform where the minimum investment is $50.

Russell also offers the Global Shares Fund and Hedged Global Shares Fund, but these are completely different actively managed funds.


Kernel Global 100

Kernel offers the S&P Global 100 Fund which tracks the S&P Global 100 Ex-Controversial Weapons Index. The fund invests in 100 large-cap companies from 10 developed countries around the world, and is designed to give broad global diversification with each company in the fund required to have operations in all three major continents, and have their assets and have revenue streams spread around the world.

You can invest in this fund directly via Kernel.

Further reading:
Kernel review – High quality index funds


Vanguard International Shares Select Exclusions

Vanguard offers the International Shares Select Exclusions Index Funds which track the MSCI World ex Australia, ex Tobacco, ex Controversial Weapons, ex Nuclear Weapons Index. The funds invest in over 1,400 companies from 23 developed countries, but excludes Australian companies. Vanguard’s funds come in two varieties:

Both funds are available through the InvestNow platform where the minimum investment is $50.


Summary

Here’s an overview of the different global share index funds on offer:

FundConstituentsEmerging
markets?
Currency
hedged?
Smartshares
Total World
9,472YesNo
Smartshares
Total World (Hedged)
9,472YesYes (100%)
Macquarie
All Country Global Shares
2,918YesPartially (69%)
Russell
Sustainable Global Shares 
1,359YesNo
Russell
Hedged Sustainable Global Shares 
1,359YesYes (100%)
Kernel
S&P Global 100
100NoNo
Vanguard
Intl. Shares Select
1,455NoNo
Vanguard
Intl. Shares Select (Hedged)
1,455NoYes (100%)

2. Fees

Management fees

All funds charge a management fee which is an ongoing fee charged as a percentage of the amount you have invested in a fund, and reflected as a tiny deduction in your fund’s unit price:

FundFee
Smartshares
Total World
0.40% p.a.
Smartshares
Total World (Hedged)
0.46% p.a.
SuperLife
Total World
0.48% p.a.
SuperLife
Total World (Hedged)
0.48% p.a.
Macquarie
All Country Global Shares
0.42% p.a.
Russell
Sustainable Global Shares 
0.34% p.a.
Russell
Hedged Sustainable Global Shares 
0.36% p.a.
Kernel
S&P Global 100
0.25% p.a.
Vanguard
International Shares Select Exclusions
0.20% p.a.
Vanguard
International Shares Select Exclusions (Hedged)
0.26% p.a.

Other fees

Transaction fees

If you buy/sell Smartshares’ ETFs through Sharesies or another NZX broker, then a brokerage/transaction fee will apply. For example, Sharesies charges a 0.5% transaction fee on orders up to $3,000, then 0.1% on any amounts above $3,000. There’s no transaction fees for investing in Smartshares’ ETFs direct via Smartshares, via InvestNow, or through SuperLife or Flint. Nor do any other funds covered in this article have transaction fees.

Spreads

Spreads apply whenever you buy or sell units in some funds. This is a small fee to cover the transaction costs of the fund, and work by applying a premium or discount to the fund’s unit price. For example, if a fund’s buy spread is 0.07% you’ll buy units in the fund at a 0.07% premium to the current unit price, and if a fund’s sell spread is 0.07% you’ll sell units in the fund at a 0.07% discount to the current unit price.

FundBuy spreadSell spread
Smartshares
Total World
~$0.005~$0.005
Smartshares
Total World (Hedged)
~$0.005~$0.005
SuperLife
Total World
n/an/a
SuperLife
Total World (Hedged)
n/an/a
Macquarie
All Country Global Shares
0.07%0.07%
Russell
Sustainable Global Shares 
0.18%0.13%
Russell
Hedged Sustainable Global Shares 
0.20%0.15%
Kernel
S&P Global 100
n/an/a
Vanguard
International Shares Select Exclusions
0.07%0.07%
Vanguard
International Shares Select Exclusions (Hedged)
0.09%0.09%

Spreads are arguably not a bad thing, as funds who don’t have spreads still incur transaction costs which are then passed onto investors in the form of a small drag on performance.

Account fees

Some investment platforms charge account fees on top of the other fees:

  • Smartshares – A one-off $30 set-up fee applies if you’re investing directly via Smartshares.
  • SuperLife – An ongoing account fee of $12 per year applies if you’re investing directly through SuperLife.
  • Kernel – An ongoing account fee of $5 per month applies if you’re investing over $25,000 through Kernel. This can increase their effective fees by quite a bit, from a headline management fee of 0.25% to 0.49% if you’re investing $25,000, or 0.35% if you’re investing $100,000.

3. Fund composition

All five funds are built differently, tracking slightly different indices. But they’re still similar enough that you don’t need to invest in more than one. With the exception of Kernel, the investments inside each fund are quite similar with roughly the same exposure to different companies, countries, and industries. But there’s a few key aspects that set these funds apart, so here’s a more detailed look at some of them:

Emerging markets

Smartshares, Macquarie, and Russell’s global funds each have a roughly 10% investment in emerging markets like like China, India, Brazil, and South Africa. Is it better to have exposure to these countries (as opposed to developed markets only)?

Emerging markets tend to offer higher growth potential, and they add a little bit of extra diversification to each fund. However, they tend to be more volatile and less stable. Take Russia for example which used to be included as an emerging market, but had its sharemarket obliterated as they went into war with Ukraine earlier this year. They definitely aren’t an essential part of an investment portfolio, and you could always invest in a standalone emerging markets fund if you still wanted exposure to this region.


Small caps

Most indices invest only in large and mid-cap companies (i.e. larger size companies). However with its 9,000+ constituents, Smartshares’ Total World ETFs also invests in small-cap companies. Like emerging markets, small-caps offer higher potential returns, but are more volatile. Again they’re not an essential part of a portfolio.


Ethical considerations

The Russell Sustainable Global Shares Fund is the only fund here to promote itself as ethical or sustainable. They aim to make the fund “sustainable” by:

  • Excluding companies involved with Coal, Nuclear Weapons, Controversial Weapons, Civilian Firearms, Tobacco, and Uranium.
  • Having higher weightings to companies with higher ESG scores and companies participating in the transition to renewable energy.

These exclusions and tilts aim to reduce the fund’s carbon footprint and fossil fuel exposure by at least 50% compared to the MSCI All Country World Index which the fund is based on.

Macquarie, Kernel, and Vanguard’s funds aren’t marketed as ethical or sustainable, but exclude companies involved in selected contentious industries:

  • Macquarie All Country Global Shares Index – Tobacco
  • Kernel Global 100 – Controversial Weapons
  • Vanguard International Shares Select Exclusions – Tobacco, Controversial Weapons, Nuclear Weapons

Is the Global 100 Fund diversified enough?

Kernel’s Global 100 Fund is quite unique, investing in significantly fewer companies compared to other global funds, leaving many investors wondering whether the fund is diversified enough.

Kernel argues that having just 100 companies allows them to decrease transaction costs, and is still a strong representation of global sharemarkets. Given most indices are market cap weighted (with larger companies taking up a larger proportion of an index), smaller companies have much less influence on the performance of an index. For example:

  • Russell’s funds – The 100 largest constituents make up 44% of the fund, with the remaining 92% of constituents making up only 56% of the fund.
  • Macquarie’s funds – The 100 largest constituents make up 43% of the fund, with the remaining 96% of constituents making up only 57% of the fund.
  • Smartshares’ funds – The 100 largest constituents make up 37% of the fund, with the remaining 99% of constituents making up only 63% of the fund.

As a result of the dominance of the largest 100 constituents of each fund, there should be a reasonable level of correlation between Kernel’s Global 100 fund and other global funds, despite the huge difference in the number of constituents.

Performance of a US based Global 100 fund (blue) vs a US based Total World fund (red)

In terms of geographical diversification, Kernel’s fund invests in 10 countries. This isn’t a lot compared to Vanguard’s fund with 23 countries, or the 40+ countries represented in the funds that contain emerging markets. Plus the Global 100 is also more US-heavy with a 70%+ exposure to US shares compared with ~60% on other global funds. But 10 countries still gives a greater global spread than the US only S&P 500 index.

CountryGlobal 100
Weighting
Total World
Weighting
United States71.7%59.2%
United Kingdom7.9%4.2%
Switzerland5.7%2.4%
France4.4%2.5%
Japan3.2%6.1%
Germany3.2%2.0%
South Korea1.6%1.5%
Australia1.0%2.2%
Spain0.8%0.6%
Netherlands0.4%1.0%
Country exposure of the Global 100 Fund vs the Total World Fund

In terms of sector diversification, all 11 industries are represented within the Global 100. However, it’s IT heavy (almost a 30% weighting versus 20% on the Total World Fund), leaving it with less exposure to most other industries. However this tilt towards the IT sector isn’t too different from the S&P 500 which has a similarly heavy 27.1% weighting towards the sector.

IndustryGlobal 100
Weighting
Total World
Weighting
Information Technology29.8%20.7%
Healthcare13.7%11.6%
Consumer Discretionary12.2%13.5%
Consumer Staples11.5%6.3%
Financials9.5%14.6%
Communication Services8.6%3.1%
Energy7.2%5.4%
Industrials3.7%13.3%
Materials2.4%4.7%
Utilities0.8%3.3%
Real Estate0.7%3.7%
Industry exposure of the Global 100 Fund vs the Total World Fund

Overall Kernel’s fund is less diversified than the other funds, but still diversified enough. We believe that good diversification isn’t about the quantity of assets you have, but rather how adequately you spread your money around different types of assets. We personally think that 100 companies is enough to achieve sufficient diversification, and you can always combine the Global 100 fund with other funds (like Kernel’s Global Dividend Aristocrats, Global Green Property, or Global Infrastructure funds) to increase it.

Further reading:
S&P 500 vs S&P Global 100: Which Should I Invest In? (Kernel blog)

4. Tax

How are the funds taxed?

Different funds are structured differently, and this means they can be taxed in slightly different ways.

FundFund structure
Smartshares Total WorldListed PIE
SuperLife Total WorldMulti-Rate PIE
Macquarie All Country Global SharesMulti-Rate PIE
Russell Sustainable Global Shares Multi-Rate PIE
Kernel Global 100Multi-Rate PIE
Vanguard International Shares Select ExclusionsAustralian Unit Trust (FIF)

Let’s start with the Vanguard funds which are Australian Unit Trusts. They’re considered Foreign Investment Funds (FIFs) in which special tax rules apply. Essentially you’ll need to calculate your taxable income using one of the following methods and include that income in your end of year tax return. InvestNow’s tax guide and tax reports should help you with this process.

  • If you’ve invested under $50,000 into FIFs – You’re considered a de minimis investor and your distributions (dividends) are taxed at your marginal tax rate.
  • If you’ve invested $50,000 or more into FIFs – Your taxable income must be calculated using either the FDR method or CV method, then taxed at your marginal tax rate.

All other funds are NZ domiciled PIEs. They automatically take care of your tax liabilities for you, which is good if you find FIF tax a hassle. However, there’s a misconception that these funds enable you to get around FIF tax altogether. But because all of these funds invest in overseas shares (which are also FIFs), the fund manager must pay FIF tax on those shares (calculated using the FDR method), which is then passed on to the fund’s investors – so you still end up paying FIF tax indirectly.

  • SuperLife, Macquarie, Russell, and Kernel funds are Multi-Rate PIEs (MRPs), so are taxed at your Prescribed Investor Rate (PIR), which should either be 10.5%, 17.5%, or 28%.
  • The Smartshares ETFs (excluding SuperLife) are Listed PIEs so are taxed at a fixed rate of 28% (though if you’re on a lower rate you can claim back any excess tax paid on your tax return, to offset the tax payable on your other income).

One advantage of PIEs is that their maximum tax rate of 28% can be lower than your marginal tax rate. However, PIE funds can only apply the FDR method in calculating their taxable income, and not the CV method (which is useful during years of low or negative returns). A more comprehensive look at the FIF tax rules and quirks can be found in the article below:

Further reading:
Tax on foreign investments – How do FIF and Estate Taxes work?


Tax leakage

Not all funds are created equal in terms of tax efficiency. Some funds have a tax leakage issue which comes about due to the following:

  • When the underlying companies in each fund pays dividends, the fund has to pay tax on those dividends. This includes a 15% withholding tax that goes to the foreign government of where the dividend paying company is domiciled.
  • Usually this 15% withholding tax can be claimed as a tax credit to reduce the amount of tax the fund has to pay (otherwise it’d be double taxed on the dividend).
  • The above isn’t an issue for NZ domiciled PIE funds that hold their shares directly, as the fund can appropriately claim the above tax credits.
  • But funds that aren’t NZ domiciled (like Vanguard’s funds), or funds that invest in their underlying shares through an overseas domiciled fund can be problematic. In these cases the fund forfeits some or all of their tax credits.

Tax leakage means the fund’s effective tax bill is higher, which is then passed onto the fund’s investors. Here’s the estimated tax leakage impact for each fund:

  • Smartshares – Invests in its underlying shares entirely through the US domiciled Vanguard Total World Stock ETF. It’s US shares aren’t affected by the tax leakage issue, but the ~40% of the fund invested in the rest of the world is. Estimated tax leakage of 0.12% p.a. (2% dividends x 15% tax credits lost x 40% invested in rest of world = 0.12%)
  • Macquarie – Holds most shares directly, except for its emerging markets shares (~10% of the portfolio) which is held through an Australian Unit Trust. Estimated tax leakage of 0.03% p.a. (2% dividends x 15% tax credits lost x 10% invested in an AUT = 0.03%)
  • Vanguard – Is an Australian Unit Trust, so all tax credits are lost. Estimated tax leakage of 0.30% p.a. (2% dividends x 15% tax credits lost = 0.30%)
  • Russell, Kernel – All shares held directly, no tax leakage issue.

In addition, the Vanguard funds have two other sources of tax inefficiencies:

  • Capital gains – As AUTs, the funds have to pay out any realised capital gains as dividends, resulting in a de minimis investor effectively paying tax on these gains. Being a passively managed fund means this shouldn’t be too substantial, but capital gains can still be realised when the fund is rebalanced or when it sells off shares as investors enter and exit the fund. Assuming these realised gains are paid out at a rate of 2%, this will have a 0.66% p.a. tax impact for a de minimis investor on a 33% tax rate.
  • Management fee deductibility – On PIEs, the fund management fee is deductible as an expense, resulting in the fund having to pay slightly less tax on your behalf. As an AUT, 95% of the management fee on Vanguard’s fund isn’t tax deductible, leaving it with a ~0.06%-0.08% tax impact for a 33% taxpayer.

What’s the most tax efficient?

Let’s assume you’re on the 33% marginal tax rate. With a tax efficient PIE, we can expect the annual tax impact on your fund to be 1.40% (5% deemed dividend on the FDR method x 28% tax rate). However tax inefficiencies can increase a fund’s overall tax impact:

  • Smartshares/SuperLife – Minor tax leakage issue relating to non-US shares. Annual tax impact of ~1.52%. Difference between Smartshares and SuperLife
  • Macquarie – Minor tax leakage relating to emerging markets shares. Annual tax impact of ~1.43%
  • Russell – No tax leakage issue, annual tax impact of 1.40%
  • Kernel – No tax leakage issue, annual tax impact of 1.40%

For the Vanguard AUTs, your tax impact depends on whether you apply the FIF tax rules or the de minimis exemption:

  • FIF – Tax impact of 2.01% using the FDR method, and 0.36% using the CV method. Estimated weighted average tax impact of 1.52% p.a. assuming the CV method is applied 30% of the time.
  • De minimis exemption – Estimated annual tax impact of 1.68% (0.66% from dividends + 0.66% from realised capital gains + 0.36% from tax leakage).

The below table summarises the estimated annual tax impact for each fund:

FundEstimated annual tax impact
Smartshares Total World1.52% (Listed PIE)
SuperLife Total World1.52% (Multi-Rate PIE)
Macquarie All Country Global Shares Index Fund1.43% (Multi-Rate PIE)
Russell Sustainable Global Shares 1.40% (Multi-Rate PIE)
Kernel S&P Global 1001.40% (Multi-Rate PIE)
Vanguard International Shares Select Exclusions1.52% (FIF rules)
Vanguard International Shares Select Exclusions1.68% (De minimis exemption)

Overall tax is very complicated, but we believe that the tax impact of each fund is close enough that they’re not worth stressing out over!

5. Other considerations

Currency Hedging

Investing in international shares adds another layer of volatility to your investments due to fluctuations in exchange rates. For example, even if the price of your shares stay the same, the value of your investment would still rise and fall as the NZ Dollar goes up and down. Smartshares, Russell, and Vanguard funds have currency hedged versions to greatly reduce these fluctuations, while the Macquarie fund is 69% hedged to the NZ Dollar.

So should you go for the Hedged or Unhedged version of a fund? There’s no definitive answer, and it depends on personal preferences. But it’s our personal view that unhedged is perfectly fine:

  • Hedging is more expensive – Smartshares and Vanguard’s hedged funds charge an extra 0.06% in management fees, while Russell’s hedged fund charges an additional 0.02%.
  • Exchange rate volatility can sometimes be beneficial – Volatility goes both ways. For example, so far in 2022 global sharemarkets have gone down significantly, but so has the NZD-USD exchange rate. This exchange rate drop has dampened the impact of the sharemarket downturn on Kiwi investors.
  • Currency fluctuations should even out over the long-term – Given shares are a long-term investment, there’s less need to hedge them as the volatility evens out over time.

Fractional units

It isn’t possible to buy fractional units in Smartshares’ ETFs (unless you invest via Sharesies). This can result in some quirks where you’re left with uninvested cash after putting in an investment order to buy these ETFs, especially when using the InvestNow platform (this quirk is described in more detail in this article). All other funds support fractional units, so don’t have the same issue.


Distributions

All funds intend (although do not guarantee) to pay distributions at the following frequencies:

  • Smartshares – 6 monthly, except for SuperLife – No distributions
  • Vanguard – Quarterly
  • Macquarie – 6 monthly
  • Kernel – Quarterly
  • Russell – 6 monthly

All distributions can be automatically reinvested into the fund (except when using Sharesies or Flint), or taken as a cash payment.


KiwiSaver

Some of these funds are available to be selected as part of a KiwiSaver scheme:

Further reading:
The ultimate guide to KiwiSaver funds and schemes

Conclusion

Of our five global shares index funds, none are built equally. Here’s our overall thoughts about each option:

  • Smartshares Total World – Provides the ultimate level of diversification, containing 9,000 companies across over 40 countries. However, it’s a relatively expensive fund once you factor in the tax inefficiencies.
  • Macquarie All Country – An investor favourite available on both InvestNow and Sharesies, but we think that Russell’s funds may be slightly more compelling with their lower management fees.
  • Russell Sustainable Global Shares – It’s a relatively new product, but we can see it becoming a popular choice. It’s tax efficient with great fees (apart from their spreads which are a little higher), and many will be fans of the sustainability tilt.
  • Kernel Global 100 – Another tax efficient fund with reasonable fees. Less diversified but still adequate. Watch out for the account fee that kicks in on balances over $25,000 as it can make the fund a little bit more expensive.
  • Vanguard International Shares – Has the cheapest overall management fees, but not always the best when it comes to tax efficiency. Plus not everyone wants to deal with FIF tax.

There’s certainly no definitive best, and your personal preferences will also have a big influence which one you should invest in. Just keep in mind the funds are similar enough that it’s probably not worth investing in more than one as they’ll overlap/duplicate each other. So if you’re struggling to deicide, all are solid options – so we think it’s better to just pick one and start investing rather than let analysis paralysis hold you back.


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Disclaimer

The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.

Comments

  1. Thoroughly enjoyed reading this, I learned quite a few things. Thank you for providing such an awesome resource!

  2. Hi, congratulations for the article!!

    any reasons for not including Smartshares Global Equities ESG ETF (ticker ESG)?

    1. Thanks. The article was already massive without ESG, so we had to stop somewhere! So we stuck with the most popular option across the 5 fund managers – The higher fee of ESG probably doesn’t help in that regard.

  3. Great article! I am personally been invested in the smartshares total world via invest now for the past 2 years and very happy with my investment as this fund is including emerging markets. I think going forward these emerging markets will produce great returns especially China.

    Keep up the good work

  4. Wish your post were out before I started my investing journey (a year back). Just realised I bought global shares from 3 different sources. Reading your post, I feel like I have paid a lot on fees (3 sources instead of just 1). Do you have any advise to offer for my situation please? Market is down so selling any of them feel like I am realising my losses.

    1. Hi Chris, a couple of things to consider. Firstly, the situation on fees isn’t so bad. Given fees are largely percentage based, you usually wouldn’t pay substantially more by spreading your money across 3 funds vs having it in 1 fund. Secondly, you aren’t really realising your losses by selling down your funds (assuming you’re reinvesting the money into another global fund). The global fund you’re reinvesting into will be down by a similar amount so you’ll also be buying into your new fund at a lower cost.

  5. I know all funds are held in trusts, but is any one fund better managed or safer than another e.g. from fraud or mismanagement? I am essentially planning to invest my life’s savings, so am looking for a bit more assurance!

    1. Not really, they’re all reputable fund managers, and (for the NZ domiciled funds anyway) fall under the same regulations and are monitored by independent supervisors. You could perhaps argue that some fund managers are more well established, versus Kernel who’s essentially a start-up, but their trust/custody arrangements and supervisor means your money won’t be lost if they were to shut down. So whatever fund you choose, your life savings should be in good hands!

  6. Hi there,

    Regarding Russells funds, is there any advantages of investing in the Global Shares Fund instead of the Sustainable Global Shares Fund?

    1. Hi, they’re quite different products. The Global Shares Fund is actively managed, with Russell’s investment managers handpicking the companies the fund invests in. The advantage is that the fund could potentially outperform the return of the market (which the Sustainable Global Shares Fund tries to achieve with its passive investment strategy). The disadvantage is that it charges higher fees (0.89% vs 0.34%), and actively managed funds tend to perform worse than its passively managed counterparts over the long-term (in the Global Shares Fund’s case it’s returned 10.17% over the last 5 years, underperforming its market benchmark which has returned 11.79%).

  7. Thank you so much. These are exactly the issues I have been trying to get my head around. So if in effect you would be paying about 1.4 – 1.68 % in “fees”, for these funds, taking into account tax slippage etc, then this makes the actively managed funds look less expensive ….or do the actively managed funds have tax slippage or other issues that need to be taken into consideration too, making what you pay greater than their stated fees also?

    1. Hi Shelly, actively managed funds need to pay tax on their holdings as well. So if we assume it’s a tax efficient PIE fund 100% invested in global shares, it’ll also have an annual tax impact of about 1.4%.

  8. Let me echo the thanks of many(above) for tackling these tricky options. We’re Kiwis in the +70s; in a PIE managed fund — needing more value/ dividend index funds to supplement that growth.
    Would Russell funds be best? Which uncomplicated offering do you recommend?
    And which local vendors do we access them through, please?

    1. Cheers Kevin. We’re not allowed to give specific recommendation on what you should invest in, but we can give an overview of the value/dividend index funds out there. All are PIE funds which keep things relatively uncomplicated:

      Dividend focussed index funds – Smartshares NZ Dividend ETF, Smartshares Aus Dividend ETF (accessible through InvestNow/Sharesies/direct from Smartshares), or the Kernel Dividend Aristocrats Fund (accessible through Kernel)
      Value focussed index fund – Smartshares US Large Value ETF

      In addition, some other sector specific funds may have a slight dividend focus like Kernel’s Global Infrastructure and Global Green Property Funds.

  9. Out of this list, I can only find the Smartshares Total World fund on Sharesies. Are there other funds available on sharesies which are equivalent to the Russell, Macquarie or Vanguard listed?

    1. Hi David, the Macquarie All Country Global Shares Index Fund is also available on Sharesies. Otherwise there’s some fairly similar US listed alternatives like the iShares Global 100 ETF which is similar to Kernel’s fund.

  10. It’s impressive Kernel can offer a global 100 fund at 0.25% fee compared to iShares Global which comes in at 0.40%. Blackrock being a much bigger company I would have thought the fees for iShares Global are cheaper. I am however still hesitant to pull the trigger on Kernel global 100 despite reading their article on diversification, it feels like 100 companies is still too little, wondering if you had some thoughts on this.

    1. The iShares Global 100 is likely a niche fund for Blackrock hence the higher fee compared to their other funds. On the other hand it’s a core fund for Kernel, plus Kernel also make money from their membership fees. There’s probably two things to think about when it comes to diversification with the Global 100:

      • 100 different companies is still plenty. The hundreds/thousands of companies other funds contain doesn’t actually provide much additional diversification as they make up such a small weighting in those funds.
      • The Global 100 isn’t designed to be the only fund in your portfolio. If you combine it with other funds like NZX 50, Global Infrastructure, etc. you’ll likely end up with a portfolio of 200-300 unique companies. We imagine very few people would say that 200-300 companies is too little.

      That probably doesn’t give you any more info over what you’ve already read, but hope it helps!

  11. Hi
    All this tax stuff confuses me!
    If an Investor is on 39% marginal tax rate what’s the difference between an PIE vs AUT with tax leakage and capital gains?
    How do I calculate this?

    1. Hi there, For PIEs, the tax rate remains at 28% meaning a tax impact of ~1.40% to ~1.52% for the PIEs mentioned in this article. For the AUTs, you get taxed at 39% so the tax impact is:

      • ~1.73% under FIF rules. Under the FDR rule we have a 2.31% tax leakage (5% FDR x 39% tax + 0.36% tax leakage), and under the CV rule we have a 0.36% tax leakage (0 income + 0.36% tax leakage). Our calculation assumes we apply the FDR rule 70% of the time and the CV rule 30% of the time.
      • ~1.92% under the de minimis exemption. Calculated by 2% dividends x 39% tax + 2% capital gains x 39% tax + 0.36% tax leakage.

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