ETF Pulse Check Fundamentals First ETF KNOW - Balancing Growth and Stability in a Complex Market Environment

The Fundamentals First ETF, known by its ticker symbol KNOW, is an actively managed exchange-traded fund that aims to deliver both income and capital growth through strategic investments in listed equities, bonds, and preferred stock ETFs. It focuses on fundamental analysis, investing primarily in publicly traded equity securities and fixed-income securities. The fund encompasses companies of any market capitalization, industry, or geographic location, including foreign and emerging markets, with the aim of delivering long-term, diversified returns through a buy-and-hold strategy. With a carefully curated list of approximately 100 globally significant companies, the fund minimizes risk through diversification, ensuring that no single company's performance can significantly impact the portfolio. Emerging markets are defined by the MSCI Emerging Markets Index, with issuers' economic ties to non-U.S. countries determined by their headquarters or primary business location. The current macroeconomic climate, characterized by geopolitical tensions and shifting trade policies, heightens the relevance of KNOW's diversified investment approach, emphasizing stability and intrinsic value.

Basic Information
The Fundamentals First ETF, trading under the ticker KNOW, is issued by Mason Capital Partners, with an issue date of January 26th, 2024. It carries an expense ratio of 1.10%, which is relatively high compared to other ETFs in the market. The top 15 holdings include significant weights in companies like TSMC, Dollarama, KLA, and Parker-Hannifin, among others, with none exceeding a 2.34% portfolio weight, ensuring diversified exposure. The largest sector exposure is to Industrials at 10.94%, followed by Information Technology and Consumer Discretionary. Despite no net inflow or outflow in the 7-day and 30-day net flow ratios, the fund's returns over 6 months, 1 year, and 3 years average below 1%. However, this underperformance is counterbalanced by relatively low volatility, indicating stability.

News Summary
Recent developments in the industrial sector, a significant part of KNOW's portfolio, are noteworthy. The sector has seen a shift with US companies moving into the data center market to supply critical infrastructure, while geopolitical tensions, notably between China and the EU, impose challenges. The National Association of Manufacturers (NAM) has been active in advocating for favorable tax policies, with recent legislative successes likely to impact industrial companies positively. Additionally, the need for enhanced cybersecurity in operational technology environments is highlighted as a critical area for industrial firms. These sector dynamics, along with geopolitical tensions affecting global supply chains, present both risks and opportunities for KNOW's holdings.

Analyst Rating: Sell
Upon evaluation, the Fundamentals First ETF (KNOW) presents a challenging investment proposition. The ETF's high expense ratio of 1.10% diminishes cost efficiency compared to peers. While it demonstrates a stable concentration, with the top 15 holdings accounting for 23.77% of the portfolio, its average returns over recent periods have been notably weak, failing to meet competitive benchmarks. Despite low volatility indicating stability, these factors, combined with the lack of capital inflow momentum, result in a 'Sell' rating for the ETF.

Backtest Scenario
A backtest of the Fundamentals First ETF (KNOW) against industrial sector performance during the 2017 Tax Cuts and Jobs Act implementation period reveals underperformance by KNOW relative to the sector. While the industrial sector experienced a significant "Trump bump" driven by promises of tax reform and infrastructure projects, KNOW's strategy focused on stability and quality, resulting in more subdued performance. The ETF's fundamental-focused strategy aligned with prioritizing stability and quality over the speculative rallies, thus missing out on the sector's gains during that period.

Risk Outlook
The Fundamentals First ETF (KNOW) faces several forward-looking risks, primarily due to its industrial sector concentration, which constitutes 10.94% of the portfolio. Potential geopolitical tensions, particularly between China and the EU, could disrupt global supply chains and affect revenue streams for industrial firms like Schneider Electric. Moreover, macroeconomic uncertainties, including trade disputes and fiscal policy changes, pose risks to multinational holdings such as Alphabet C, KLA, and Cummins. While liquidity risk appears low at present, the potential for rapid shifts in investor sentiment remains, which could exacerbate market volatility and impact the fund’s performance.

Conclusion
The Fundamentals First ETF (KNOW) offers a conservative investment approach, focusing on stability and diversified exposure across sectors and geographies. While it may not suit aggressive investors seeking high returns, it fits well for those prioritizing lower volatility and risk mitigation. Going forward, investors should monitor geopolitical developments and macroeconomic policies that could impact the ETF’s sector exposures and overall performance.