A promising addition – with limitations (Photo: freepik, andranik.h90)
Since June 2023, the Gerd Kommer Multifactor ETF has offered an innovative way to invest globally. The fund presents itself as a possible alternative to established indices such as the MSCI World. He relies on a scientifically based approach that combines factor investing and economic weightings. But is he really the better choice?
Global diversification from a new perspective
The Gerd Kommer Multifactor ETF (ISIN: IE0001UQQ933) was created by Legal & General Investment Management (LGIM) and is based on the specially developed Solactive Gerd Kommer Multifactor Equity Index. Its claim: a more balanced country weighting and broader diversification than conventional indices. Not only market capitalization, but also economic indicators such as gross domestic product (GDP) play a role.
The main aim of the concept is to address a frequently criticized problem: the dominance of individual countries and companies. The MSCI World has a US share of almost 70 percent, which severely limits geographical diversification. The Gerd Kommer Multifactor ETF, on the other hand, aims to reduce cluster risks and also give greater consideration to emerging markets.
The factor investing approach
The core of the fund is the use of so-called factors. 5 proven factor premiums – including favorable valuation (value), high quality (quality) and stable price growth (momentum) – are intended to ensure long-term outperformance compared to classic world indices. Instead of concentrating on the largest companies like capitalization-weighted indices, the fund also takes smaller, often faster-growing companies into account.
This multidimensional approach promises broad diversification. In order to increase the quality of the portfolio, companies with weak performance or high debt are also filtered out. This should not only ensure stability, but also help to better manage risks.
Opportunities and risks at a glance
The broad diversification of the ETF is undoubtedly an advantage. With over 3,500 individual stocks, which are spread geographically and according to factors, the dependence on individual stocks is significantly reduced. The fund also minimizes the risk of overweighting mega-corporations, such as those that characterize the MSCI World.
However, this innovative approach also brings with it challenges. The total expense ratio (TER) of 0.50 percent is low compared to active funds, but is higher than the costs of classic world ETFs, which are often only 0.20 percent or less. Investors pay a price for the complex strategy – a cost factor that is only justified if the hoped-for outperformance actually occurs.
Another risk lies in the relatively short history of the fund. Since it has only been on the market since 2023, there is still no reliable data on how the multi-factor strategy performs in different market phases. Especially in an uncertain environment, it remains unclear whether the fund can also offer the promised resilience in practice.
A question of long-term potential
The performance of the Gerd Kommer Multifactor ETF so far has fallen short of expectations. While established indices such as the MSCI World benefited from the strong performance of US technology stocks, the fund developed less dynamically due to its broader diversification and alternative weighting.
Since its launch on June 15, 2023, the Kommer ETF has been up around 29 percent, while the iShares Core MSCI World ETF, which is favored by many, has gained at least 37 percent over the same period. This may be disappointing for short-term investors, but in the long term the factor investing approach combined with balanced country weighting could show its strengths.
However, investors should be aware that the Fund may exhibit higher volatility, particularly due to greater exposure to emerging markets. While these markets offer growth potential, they are also more vulnerable to political and economic uncertainty.
Conclusion: A promising addition – with limitations
The Gerd Kommer Multifactor ETF offers a refreshingly new perspective on global investing. Its innovative structure based on scientifically based factors and a broad Diversification based, represents an interesting alternative to classic world ETFs. However, caution is advised.
Due to its higher costs, lack of history and potentially higher volatility, it is particularly suitable for long-term investors who are willing to explore new avenues and wait patiently for the fruits of a well-thought-out strategy. This fund could be an interesting building block for investors who are looking for a complement or alternative to the MSCI World. However, it should be used carefully – ideally in a broadly diversified portfolio that also takes other approaches into account.
Disclaimer:
Not investment advice. No call to buy or sell securities.