The iShares Edge MSCI Australia Multifactor ETF (ASX: AUMF) is coming up on three years listed on the ASX. Here’s a review of how it has performed and what the outlook could be.
About ETFs
Exchange-traded funds, or ETFs, are investment funds that are listed on a securities exchange and provide exposure to a range of shares or assets with a single purchase. The video below explains ETFs in more detail.
iShares AUMF ETF
The iShares Edge MSCI Australia Multifactor ETF uses a rules-based strategy to seek outperformance over the long-term. The fund targets four main drivers of returns: quality, value, size, and momentum.
In a little more detail, the AUMF fund looks for companies with healthy balance sheets that are cheap relative to fundamentals, smaller in size and moving in an upward direction.
At face value, this appears to have been an effective strategy, returning 14.88% over the last 12 months and 13.28% per year since inception in October 2016.
However, there is more to the story.
ETF Breakdown
AUMF has 98 holdings and, looking at the factsheet, you’ll find that the largest holdings are far from being the small, nimble companies mentioned in the strategy.
The largest three holdings are Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Ltd (ASX: CSL). While these are great companies, they’re also among the largest companies in Australia and don’t seem to match the strategy.
In fact, all of the top 10 holdings are in the ASX 200 and have market capitalisations of more than $7 billion.
In terms of sectors, financials is the largest (27.53%) followed by materials (21.24%) and real estate (13.23%). At this point, this might be starting to sound familiar because these are very similar companies and weightings to what you’d expect in an ASX 200 ETF.
AUMF Versus IOZ
This is where I become somewhat cautious about this ETF. The iShares Core S&P/ASX 200 ETF (ASX: IOZ) invests in a lot of the same companies and weights a lot of sectors similarly. However, IOZ has 200 holdings (better diversification) and a management fee of 0.09% versus 0.3% for AUMF.
Even looking at the last two calendar years, you can see the similarities. AUMF returned 15.38% in 2017 and lost 3.41% in 2018, while IOZ returned 11.6% in 2017 and lost 3.01% in 2018.
My Take
AUMF tries to outperform by using certain growth factors, but in reality, it quite closely mimics an ASX 200 ETF but with higher risks. While the returns may be slightly higher, so are the fees and AUMF would possibly fare worse in a downturn.
If you don’t mind extra risk for a slightly higher return, this ETF could work for you, but I wouldn’t pair it with an ASX 200 ETF, and I don’t think it’s the best option for a risk-averse investor.
I’d rather invest in our number one ETF pick in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
