Gerd Kommer Multifactor Equity ETF

Dear Mustachians,

After studying the blog and silently reading many posts in the forum I have reached a point where I would like to hear your opinion. I would also like to start investing in the stock market and therefore I am looking for a one ETF solution. In the last two weeks I have been looking at many different ETFs, such as the famous Vanguard Total World and the Core MSCI World. I like the approach of a broad diversification and also having a foot in the door of the emerging markets and small caps, so not all of these famous ETFs fit to what I am looking for. On the other hand, what I do not like is too much exposure to one market like the US, which makes ~63% of the investments ( MSCI World) and too large individual positions like Apple (>5% for MSCI World) or to strong focus on one sector like tech.

In my ETF research I came across a newly launched ETF (IE0001UQQ933 (acc)

and IE000FPWSL69 (distr.)

that bundles some interesting approaches. Below are some details:

  • it is broadly diversified with ~5000 companies from around the world
  • Cap per position is 1% with rebalancing every three month, so something like Apple with 5% or more will not happen here
  • GDP and market cap are equal criteria (50/50) for market allocation, resulting in ~40-45% exposure to US markets
  • it considers small caps and emerging markets

The downside is, the ETF was launched about 2 weeks ago and has a low volume at the moment. Another point is the relatively high TER of 0.5 %.

There is a good youtube video (in German) where the company (Gerd Kommer asset management → idea behind this ETF, Legal & General Investment Management → ETF provider, Solactive AG → created the underlying index) who created this ETF answers many interesting questions.

What do you think about this ETF and the strategy behind it?

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Please stop shilling this clown.

If it must be one ETF, try one in {ACWI, VT} or likewise their Euro equivalents VWRA/VWRL, etc

If you are willing to invest an “above-minimal” amount of your own time, why not build your own “One ETF”?

If instead you want to invest minimal time only, why pay someone a crazy TER to build a “One ETF” for you instead of building yourself (again, with minimal time) a very small portfolio consisting of a few well established low cost ETFs that satisfy your needs (e.g. the ones already suggested by @xmj, as well as others, offered by Vanguard and others).

Regarding your ETF suggestion: I happen to work at a small asset management company that produces multifactor funds in multiple flavors (geolocations, risk profiles, etc). My candid description of these products: the “multifactor” argument is used to justify TER; it does not provide alpha (performance above the benchmark index) in any statistical sense.

If somehow you are interested in building your own “One ETF”, see this blog post by @DividendGrowth for why this might make sense. While it’s written from a dividend (growth) perspective, you can cross out the word “dividend” in the blog post and you get the same arguments for building your own ETF versus buying one.
If you’re indeed interested in building your own ETF, feel free to also check out my post about it* or check out my personal “One ETF”.
It’s certainly not for everyone, but if you are interested and are willing to invest time, it can be satisfying.
I personally love it!

If this was not at all the answer you were looking for, I’ll happily show myself out (of this thread). :wink:

Oh, and welcome to posting to the forum!


* Ok, ok, the post is about picking stocks … but pick enough stocks and you have the equivalent of custom “One ETF” tailored to what you’re trying to get out of the “One ETF”.

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welcome!

i think it’s not bad one, and you’ve already mentioned the pros and cons. i’d probably try to determine what are the most important criteria and then go for a one-fits-all solution or a small basket of etf’s.

2 Likes

For EU investors this fund is pretty good. Given that we as Swiss have access to Avantis and Dimensional Fund Advisors ETFs, this fund simply cannot compete.

Biggest weakness IMO are the high TER and GDP weighing, which has never made sense. For example, why should you hold more Siemens stock if an unlisted company like Lidl goes through the roof? It’s bonkers that people who claim to use “academic research” advocate for GDP weighing, GDP and stock returns are in no way corellated, just look at the returns of China. The fact he went for 50/50 market cap weight and GDP kind of tells you everything.

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Even if the GDP Weighting was bonkers, thats less of an issue in a 50:50. GDP Weights are relatively static. In combination with 50% Market Weight, this leads to constant Regional Re-Balancing. Meaning that even though the GDP Weight won‘t add Return, the 50/50 might do so given the re-balancing bonus. The Max Weight is technically a good idea as well as that can further lead to some re-balancing premium on individual shares.

The key challenge with the fund is the issuer (who knows them?), their lack of track record in managing ETF, the unknown Trading Fees applied / due for this tiny issuer and the fact that the Index was named on an individual that probably gets hefty Index License Fees. This all leads to likely very low AUM and hence both tracking error issues and unclear outlook.

If such ETF was provided by Blackrock, Vanguard, … and it had a seed size of 200M plus - I would probably even think about. Well provided the TER was in a range of 0.3% to max 0.4%.

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It’s no more or less bonkers than market cap weighting, IMO.

Why should you hold more of a company that operates in a bigger home market, compared to smaller companies that operate in smaller markets? That doesn’t make the bigger company a “better” or more sound investment. Possible economies of scale, you say? More competitors, higher degree of competition and lower margins in bigger markets, I counter with.

“Buying individual stocks in the US is commission free”
Well, rarely totally free, sometimes “free”, often cheap.

That said, it’s (probably) written from a U.S. perspective, with a horizon ending in Maine and Alaska (“There is the U.S. and there’s the rest of the World”). Ever bought German, let alone Indian, Brazilian or Russian stocks for free? Let alone apply for a refund of foreign withholding tax?

I think having a portfolio of stocks can be a good long-term alternative to an ETF, especially when figuring in ETF costs. Trading costs and tax treatment on dividends may very well tip the balance the other way (in favour of a World ETF), at least as soon as you’re looking at (many) non-U.S. markets.

Not sure whether I would bet too much on the rebalancing premium. A few coworkers of mine (work in Finance myself) have done an analysis on this topic not so long ago and results were not very encouraging. The existence of it is also against the efficient market hypothesis in its weakest forms. I cannot share the data but would recommend to be skeptical or carrying out own analyses.

I am also not sure about the capping. Yes, this sounds good from a risk perspective. However, historically only a tiny fraction of shares brought almost the entirety of the stock markets’ the performance. Even though not having this analysed, I have a feeling that by introducing caps one may curtail the gains on these (at least if the cap is small). In the Apple example, one would have missed much of the performance when its index weight increased from 1% to 5%, ie, a relative outperformance of 400%.

I am somewhat skeptical about all these “tilts” to market cap weighted indices. While there may be a good reason to introduce them, I am not (fully) convinced the alternative is indeed better. Interestingly Gerd Kommer has already partially reversed his strategy. In the past, he recommended a pure GDP-weighting but now sets up an ETF with 50:50 (50 GDP, 50 market cap). Interestingly he does this after years where his previous strategy produced significantly lower returns compared to market cap - smells like performance chasing to me.

I do like the author - read some of his books and thanks to him started investing systematically in ETFs. At the same time, I am not convinced about all the services he offers (ETF, seminars, consulting, robo advisor, bespoke investments etc.). In my opinion it is a bit too much - I am 100% sure he makes millions on this, which should make us investors skeptical :wink:

If one does not like market cap, there are easy options to tilt (more) towards GDP, much cheaper than 0.50% TER.

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Completely agreed.

Wanted to post the reply above, but the (bot?) forum police reminded me that my post must be at least 20 characters, so here you go. Should I be not responding with my short answer? Maybe. Maybe not.
Should I just fill in words as I am doing right now with the answer I am providing? Probably not. Anyways, there you go.

To be clear: not criticizing that I can’t respond with a short two word answer as I wanted to, just pointing out that maybe in some case it would be appropriate to allow that. Forcing me to write and readers to read to additional paragraphs of fluff crap just so I can post this? Well, no.

There’s an argument to be made that I should just not post. I find that not satisfactory as I feel a forum like this one should allow me to acknowledge the argument by @San_Francisco while also adding nuance to my argument.

Anywho, maybe slightly off topic for this thread.

I think it’s more to filter some bots. Human posters can bypass it with random fill like “Twenty chars”, numbers 1-10 in chinese or “Lorem Ipsum” to the proper length.

Edit: to be clear, it certainly won’t filter a majority of bots, but it might some. I’m not too fond of it myself.

Apple, Microsoft, Meta and Alphabet - and even Tesla and Amazon to some degree - not only benefit from huge economies of scale. They also greatly benefit from network effects: their ecosystems worth increase with their number of users - unlike, say, for instance a large oil company.

Even if, conceivably, you built a better engineered, and less costly product/service, you will have a hard time competing with those companies‘ core products - just due to the sheer number of users (including business users, developers and integrators) they have.

Rebalancing premium exists and more so in choppy markets with uncorrelated assets. You won’t find much of it if all your core holdings “go up and to the right” at the same time. :wink:

Well, L&G is quite a big asset manager with a respectable ETF offering, albeit they focus more on niche topics. So from that perspective, I wouldn’t mind this ETF.

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Note that many points addressed so far, as well as other relevant ones, have been already discussed in these two topics (at least):

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