Can active management make sense?

Actively managed funds are such a thing, most do not beat their benchmark after costs. In addition, 95% of the return can be derived from the Fama-French 5-factor model.

If we define manager skill as the ability to exploit one or more of these factors better than the average investor, then it can make sense to buy into such management.

Is the Quantex team worth the money?

3.00 % front-end load

1.14 % management fee

1.50 % Ongoing charges

This has to be earned first.

The real problem is not that there are no above-average investors, but that they are only recognized after they have performed above average.

Whether it is easier to find good management or to learn the whole thing yourself probably differs greatly from person to person.

Here are a few points that, in my opinion, strongly suggest that Peter Frech and the Quantex team will be able to achieve above-average returns in the future:

1. outperformance despite headwinds

Since the fund was launched in 2008, market performance has been dominated by fast-growing tech companies and mega caps.

The MSCI World Value $IWVL (+9.84%) compared to the MSCI World $IWDA (+8.51%) has only generated just over half the return since its launch in 2014.

During this time, many value funds have been closed due to investor flight and minimum returns; the Quantex Global Value $SLCH6Z / $QGVU has not only beaten its benchmark (Bloomberg World Net Return) in the same period. It also outperformed the MSCI World.

2. professionals and not clowns

Quantex does not need to jump around on Instamm or be a guest twice a month on every financial YouTube channel in the DACH region.

It is primarily concerned with the funds and not with marketing.

3. profitable bears

Despite the outstanding performance, the fund management is extremely bearish. The risks are always seen first and acquisitions are usually made at such low prices that there is also a margin of safety.

Anti-cyclical companies from sectors and countries that have been overlooked or unjustly punished by the market are bought.

This strategy, based on the early Warren Buffett, has been implemented in a disciplined manner for almost 17 years now.

4. know your limits

Due to its success, the fund has reached a size at which it is capital constrained. The fund would have become too large to implement the desired strategy.

The same thing happened to Warren Buffett, who was no longer able to implement his value strategy uncompromisingly, as a result of which the returns also became lower.

To prevent this from happening to Quantex Global Value, a freeze on the issue of new units has been in place since November 2022.

In other words, the interests of investors have been placed above maximizing the company's own profits.

Nevertheless, it is still possible to invest in the fund: If fund units are redeemed or sold, subscriptions are possible to the same extent. All subscriptions are processed on a first come, first served basis. There are no partial executions and individual subscriptions are either accepted in full or rejected.

rejected.

Just have a look at the Swiss Exchange (SIX), you will usually still find some there.

On the https://www.quantex.ch/ next to the stormtroopers you can also see the available shares. 😅

Criticism:

What I would also like to mention is that this fund is not for people for whom ESG criteria are important. Quantex invests completely amorally.

The portfolio is (as of today) heavily overweighted in fossil fuels, tobacco, alcohol and mining (i.e. the wet dream of @TaxesAreTheft )

You can never rule out the possibility that the management was simply lucky and the returns are worse going forward, which is why such a fund can only ever be an addition.

Conclusion:

In my opinion, the Quanex team has proven over the past 17 years that it is able to find undervalued stocks, sell them at fair value and do so at a similar risk to the market as a whole.

The counter-cyclical nature of the strategy makes the fund an excellent addition to portfolios that are dominated by world ETFs or have similar sectors and country weightings to them.

https://www.quantex.ch/de/anlagefonds/quantex-global-value-fund/chf-r/

If you want to get a first impression of the management, I recommend the webinar recordings and investor letters on the Quantex website.

https://www.quantex.ch/de/aktuell/

https://www.quantex.ch/de/quantex-werte/

Smart Beta ETF

Part 2 - Deep f***ing Value

Disclaimer: No investment advice or recommendation, this article is for information purposes only. Before you decide on an ETF, take a closer look at it in terms of positions, sampling, regions, etc. I can't describe everything here as it would go beyond the scope of this article

Part 1 (Definition, Categories & Z-Score and Quality Factor): https://getqu.in/RCSY4a/

💡 Value ETF

Focus on shares that are (undervalued) as attractive from a fundamental perspective. Valuation benchmarks here can be, for example, cash flow in relation to book value or P/E ratio, price to book value, etc. In contrast to momentum or growth ETFs, for example, they have a more fundamentally supported valuation. In theory, there should be a "value premium" for these shares, which is based on the study by Fama and French, according to which differences in returns between shares can also be explained by size and value factors in addition to the classic beta factor.

👉 Interest rate dependency

This also means that value stocks should tend to outperform growth stocks in times of sharp interest rate increases (or the expectation of such increases).

This can also be seen in a direct comparison of $IWVL, $WSML, $IS3R. In the period 2022-2023, the $IWVL outperformed the other two by 13% and 16% respectively. However, it can also be seen that in anticipation of an interest rate cut, Growth & Momentum strongly outperform the Value ETF (Fig. 1).

👉 Correlation/beta

The correlation of value ETFs to their "parent indices", i.e. World Value to Value, for example, is around 0.9. This means that, in simplified terms, the value ETF is only 90% as volatile as its parent index, i.e. it is less volatile. Weak market phases can therefore be easily mitigated

👉ETFs:

👉Z-Score MSCI Value ETF

There are 4 larger ETFs that are the same in terms of methodology but focus on different regions (TD = tracking difference):

• $IWVL (+9.84%) (World | TER 0.30 % | TD -0.02 % | 3.5 bn Investv. | 3Y Underperf. vs. World - 2,1 %.)
• $IUVF (+9.79%) (USA | TER 0.20 % | TD -0.24 % | 1.7 bn | 3Y Underperf. vs. S&P 500 - 19,5 %.)
• $XDEV (+9.54%) (World | TER 0.25 % | TD -0.09 % | 1.7 bn | 3Y Underperf. vs. world - 1,7 %.)
• $IEFV (+6.84%) (Europe | TER 0.25 % | TD -0.20 % | 1.4 bn | 3Y Outperf. vs. Eurostoxx 600 -+6,4 %).

💡 Index methodology:

• The ETFs are based on respective "parent indices", e.g. the MSCI World.
• In the first step, the variables are named for the value ETF:
• Expected earnings per share (price-earnings ratio)
• Price-to-book value (price-to-book value ratio)
• Equity value / cash flow from operations (unlevered equity / operating cash inflow)
• For each share, the Z-value (see first article) is determined for the individual key figures
• Extreme values are then eliminated
• The Z-values are then added together for each share
• The shares with the highest total Z-scores are included in the ETF
• Rebalancing takes place every six months (May & November)

👉 Ossiam Shiller Barclays CAPE

• 
  $216361 (+7.01%) (US | TER 0.65 % | TD 0.66 % | 2.5 bn | 3Y Underperf. vs. S&P 500 -3,35 %)
• $CAPE (+6.34%) (Europe | TER 0.65 % | TD 0.64 | 0.2 bn | 3Y Outperf. vs. Eurostoxx 600 1,2 %)

💡 Index methodology:

• Based on the Cyclically Adjusted PE Ratio (CAPE Ratio) developed by Shiller
• The equity market, e.g. the US market, is divided into sectors (in this case 11) and the respective sector price earnings are determined. The inflation-adjusted (10-year) sector profits are used for this purpose
• A CAPE ratio is then calculated monthly for each sector and this is set in relation to the 20-year average for the sector.
• The 5 sectors with the lowest relative CAPE ratio are selected, as these are considered undervalued
• From these 5, the sector with the weakest 12-month price momentum is filtered out to avoid "value traps"
• The remaining 4 sectors are then weighted at 25%.

Conclusion Value:

The value premium was particularly evident in the 80-90s and after the dotcom bubble burst in the 2000s, but in the years that followed, growth stocks performed significantly better, so the value factor was more of a drag on returns. It is also questionable whether the value premium has come under pressure in the wake of changing business models. Instead of P/E ratios and P/B ratios, SAAS companies have their own KPIs such as Customer Acquisition Cost (CAC) or Annual Recurring Revenue (ARR), Daily Active Users (DAU) and many more.

However, if one follows the reversion to the mean approach that values tend to revert to the long-term mean, excessive differences in returns between value and growth stocks could be used to speculate on a convergence of these, in this case a resurgence of the value premium. The selection of these ETFs is therefore a bet that the value factor will prevail over growth companies in the future.

It is a pity that there is no value emerging markets ETF that I know of, as I believe it would be particularly important to pay special attention to the stability of equities here. There is a tendency for the European indices to outperform the benchmark index, which could be due to the fact that Europe is more value-oriented and does not have any large growth companies like the USA, for example. Anyone interested in the Shiller-Barclays-CAPE ETF (an exciting approach in my view) should in any case be aware of the high tracking differences.

#smartbeta

#etfs
#value
#valueinvesting
#portfolio
#stockanalysis

Friends,

I need your swarm intelligence - does anyone know a website where I can relatively easily display the correlation/beta of two assets. e.g. I would like to compare the $IWVL (+9.84%) to the $IWDA (+8.51%) in relation?

thank you very much for your feedback!

$IS3R (+10.46%) Momentum 0.3TER

$IS3Q (+9.98%) Quality 0.3TER

$IWVL (+9.84%) Value 0.3TER

$IWDA (+8.51%) World 0.2 TER

According to MSCI, the Momentum and Quality ETFs perform better than the World ETF. The positions are smaller and more concentrated than in the World ETF.

A world option for you?

What do you think?

Since I don't own an ETF and otherwise hold quality stocks, I can well imagine a momentum ETF as an addition.

But I'm not sure whether I would choose one of the ETFs if I only had to bet on a single ETF.

What do you think of Gerd Kommer's opinion to increasingly rely on smart beta ETFs such as a value factor in a global ETF portfolio?