A revisit to KNGS, the compounding ETF established by former hedge fund manager Robert Cantwell, finds the number of their investors and their assets have increased and he reveals his observation that he has been on something of a learning curve.
KNGS is an actively managed compounding equity strategy and was converted from a hedge fund with the goals to expand his investor base and to offer his strategy in an accessible, low-cost and tax efficient structure. He believes investors should be able to get access to hedge fund managers and compelling strategies for the non-accredited investors.
The firm launched with friends and family investors and saw assets and investor numbers increase over the first two years from 10 investors to 600, and USD2 million to USD10 million. However, it has faced a challenging year in terms of performance, but is now recovering. Cantwell has also had to reposition the fund for financial advisers.
“Lots of financial advisers build portfolios in pre-determined sleeves such as domestic equities, bonds or international equities and bonds,” Cantwell says. “Some even have a growth or value sleeve. When you come out with a product that says we are active managers our sleeve might change which is difficult for a financial adviser to allocate to.”
Cantwell now markets KNGS under the concept of a compounder product, as opposed to seeing growth or value. “Our angle is to buy companies that get the highest return on spending, for the fairest possible price” he says. “There are four areas we most commonly find these opportunities: ratings agencies, cloud software, payments and digital advertising.”
Taking the example of the payments industry, Cantwell says that this is a large industry with a small number of competitors.
Adyen, based in Europe, is a good example of his target investment group. The payment settlement firm is set to process USD1 trillion in payments next year. A small team of personnel can manage billions of dollars in this sector.
‘We actively manage risk around our weightings when there are fast variations in market price movements,” Cantwell says. “We also target high Active Share, above 80 per cent, to ensure high differentiation to passive indexes.”