New ETF KNGS focuses on cashflow compounders
An ETF launch from new ETF provider Upholdings adds to the conversion story of recent months, bringing Compound Kings, KNGS, to the investment world.
Upholdings is led by former Everlane CFO Robert Cantwell, and uses technology to navigate regulatory and financial hurdles to offer individual investors direct access to performance-driven investment strategies.
Cantwell spent some eight years as an analyst at a hedge fund, before moving to become CFO of Everlane, an on-line branded fashion retailer. After nine years of building the firm up, he took the opportunity of moving back to investment, and created KNGS, initially as a separately managed account, investing in a strategy that he had been familiar with from his hedge fund days.
Upholdings’ inaugural ETF KNGS identifies cashflow compounders: companies generating cash and reinvesting at a higher rate of return than the overall market.
The long-term holding of compounders is a common strategy employed by hedge funds to outperform the S&P 500 according to the firm. From its launch through September 2020, the fund has delivered average annual returns of 32 per cent vs. 14 per cent for the S&P 500.
Cantwell says: “On the institutional capital side, there is a ton of innovation in investment but it’s very expensive and only accessible to accredited investors and compared with the retail investment market, innovation has mostly been in the rise of the low-cost index fund.
“Here, products are very low cost, very diversified and the retail investment management market has not seen the same level of innovation that the institutional side has.”
Cantwell found that through the SMA route, his friends who wanted to invest in him faced a wall of pieces of paper ‘that they weren’t reading’. “That was the moment when I realised something was broken in the process of connecting the investment manager to the investor, so I went to the ETF structure.”
At 60 basis points, Compound Kings is challenging the traditionally high costs charged by performance-driven investment managers, the firm says. “At Everlane, we built long term value by persistently improving quality and driving down prices. Why shouldn’t actively managed investment funds work the same way?” says Cantwell.
Upholdings performs its research by combining customer interviews, alternative metrics, and public disclosures to evaluate target investments. The portfolio is limited to 30 securities and its three largest holdings are currently Facebook, Airbnb, and Tencent.
“It is opening up a concentrated form of growth investing to a non-accredited investor audience,” Cantwell says.