KiwiSaver Rebalance Proposal — May 2026
Summary
Restructure both Jonathan's ($562K) and Julia's ($150K) Kernel KiwiSaver portfolios from a concentrated Global 100 / hedged S&P 500 mix to a diversified, all-unhedged allocation.
Target: 40% World ex-US / 30% S&P 500 / 20% Emerging Markets / 10% Global 100 (all unhedged)
Total affected: $712,500 across two accounts.
The Problem
Both KiwiSaver accounts are dangerously concentrated:
| Fund | Jonathan (%) | Julia (%) | Issue |
|---|---|---|---|
| Global 100 | 64% | 63% | 48% of this fund is just 6 stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet) |
| S&P 500 (NZD Hedged) | 18% | 19% | Hedging costs 1-2% pa — catastrophic over 23-year lock-up |
| High Growth | 18% | 18% | Mixed fund that duplicates holdings in the others at higher cost |
Key risks with the current allocation:
- Mag 7 concentration: ~48% of Global 100 is in 6 mega-cap tech stocks. An AI/tech correction could wipe out years of returns.
- Hedging drag: The S&P 500 (Hedged) fund costs 1-2% pa more than unhedged due to currency forward contracts. Over 23 years at 1.5% pa drag, that's ~30% of final value lost.
- No geographic diversification: Zero emerging markets, zero ex-US developed markets outside the Global 100.
- "High Growth" opacity: This is a mixed fund that holds the same underlying equities with less transparency and higher implicit cost.
Why These Funds
World ex-US (Unhedged) — 40%
- Tracks developed markets excluding the United States
- Zero Mag 7 exposure — genuine diversification from US tech
- Includes Europe, Japan, UK, Australia, Canada
- Reasonable valuations (CAPE ~17 vs US ~40)
- If US tech corrects, this outperforms significantly
- Largest allocation because it provides the most diversification benefit
S&P 500 (Unhedged) — 30%
- Broad US market (500 companies, not just top 6)
- Unhedged saves 1-2% pa vs the hedged version currently held
- Still provides US growth exposure but far less concentrated than Global 100
- Top 6 stocks are ~30% of S&P 500 vs ~48% of Global 100
Emerging Markets — 20%
- China, India, Taiwan, South Korea, Brazil
- Highest growth potential over 23-year horizon
- Currently trading at significant discount to developed markets (CAPE ~13)
- Highest volatility — but with 23 years, volatility is irrelevant
- No hedged option exists (NZD exposure only)
Global 100 — 10%
- Retained at a small weight for mega-cap quality factor
- Reduced from 64% → 10% eliminates dangerous concentration
- Still provides exposure to the world's largest companies
- Acts as a quality anchor alongside the broader funds
Why NOT These Funds
| Fund | Reason for exclusion |
|---|---|
| S&P 500 (NZD Hedged) | Hedging costs 1-2% pa. Over 23 years: ~30% of terminal value lost. Unacceptable. |
| High Growth | Mixed fund duplicating other holdings. Less transparent, higher implicit cost. |
| Global Infrastructure | Defensive — lower growth, income-oriented. Wrong for a 23-year growth portfolio. |
| Dividend Aristocrats | Income-oriented. Dividends are reinvested anyway in KiwiSaver — no yield advantage. |
| Cash Plus | NZD cash at ~5% when equities return ~9-10% long-term. 23 years of drag. |
| Global Property | Sector bet. Property returns historically trail broad equities over long periods. |
| Global ESG | Exclusion-based fund with similar returns but less diversification. No advantage. |
Hedging Analysis
Current state: 18-19% of each portfolio in S&P 500 (NZD Hedged) — paying ~1.5% pa for currency protection.
The case against hedging over 23 years:
| Factor | Impact |
|---|---|
| Annual hedge cost | 1-2% pa (forward points + roll costs) |
| 23-year compound effect at 1.5% pa | ~30% of terminal value destroyed |
| NZD/USD direction | Expected flat-to-weaker (favours unhedged) |
| FX volatility over 23 years | Smooths to near-zero impact on real returns |
| Academic evidence | Hedging costs exceed benefits for horizons >10 years |
Worked example: $130K in hedged S&P 500 today → at 9% growth over 23 years:
- Unhedged: $130K × (1.09)²³ = $930K
- Hedged (7.5% net after 1.5% drag): $130K × (1.075)²³ = $710K
- Cost of hedging: $220K per $130K invested
This is why we eliminate all hedged positions.
Execution Plan
Mechanism: Kernel KiwiSaver uses percentage-based allocation. You set target percentages and Kernel automatically rebalances via internal switches. No manual sell/buy, no tax event, no spread cost.
Steps (do for BOTH accounts)
- Log in to Kernel KiwiSaver
- Go to Portfolio → Edit allocation
- Set the following percentages:
| Fund | Set to |
|---|---|
| World ex-US (Unhedged) | 40% |
| S&P 500 (Unhedged) | 30% |
| Emerging Markets | 20% |
| Global 100 | 10% |
| S&P 500 (NZD Hedged) | 0% |
| High Growth | 0% |
- Confirm and save
- Repeat for the second account
Timeline: Kernel rebalances gradually — may take several days to fully implement. No action needed after setting percentages.
Post-Rebalance State
Jonathan ($562,577):
| Fund | Value (approx) |
|---|---|
| World ex-US (Unhedged) | $225K |
| S&P 500 (Unhedged) | $169K |
| Emerging Markets | $113K |
| Global 100 | $56K |
Julia ($149,923):
| Fund | Value (approx) |
|---|---|
| World ex-US (Unhedged) | $60K |
| S&P 500 (Unhedged) | $45K |
| Emerging Markets | $30K |
| Global 100 | $15K |
Cost & Tax
| Item | Impact |
|---|---|
| Transaction cost | $0 — free internal switch |
| Tax event | None — PIE switches within KiwiSaver are not taxable events |
| Spread cost | $0 — no buy/sell spread on Kernel KiwiSaver |
| Ongoing fee change | Negligible — all Kernel index funds charge 0.25% |
This rebalance is entirely free to execute.
Risk Comparison
| Risk | Before (64% Global 100) | After (diversified) |
|---|---|---|
| Mag 7 correction of 40% | -$183K (Jonathan) | -$36K (Jonathan) |
| US tech sector rotation | Devastating | Manageable (30% US broad + 10% Global 100) |
| NZD strengthens 15% | -$18K (hedged portion protected) | -$84K (all unhedged) |
| Emerging markets boom | Zero benefit | +$113K+ (20% allocation) |
| Broad global recovery | Concentrated in 100 stocks | Exposed to thousands of companies |
The only scenario where the old allocation wins is NZD strengthening significantly AND US mega-caps outperforming. Our view: NZD expected flat-to-weaker, and concentration risk in 6 stocks is unacceptable for a 23-year lock-up.
Decision
Approved May 2026. Execute immediately — no reason to delay a free, zero-tax rebalance away from dangerous concentration.