Getting exposure to the Australian shares sector has never been easier thanks to ASX ETFs like the K2 Asset Management Australian Small Cap Fund (Hedge Fund) ETF (ASX: KSM). However, no matter how easy it seems to be, we think it’s still important to do your own ETF review.
How to use the K2 Asset Management Australian Small Cap Fund (Hedge Fund) ETF
The K2 KSM Fund is an actively managed small companies fund listed on the ASX. The fund seeks to provide investors with absolute returns, rather than tracking a benchmark.
The KSM ETF is yet to reach our FUM target
The KSM ETF had $11.74 million of money invested when we last pulled the monthly numbers. With a funds under management (FUM) or ‘market cap’ figure of less than $100 million, it’s important to consider if this ETF is still too small. We say an ETF with more than $100 million invested is typically more sustainable than one with less than $100 million (at least) because if an ETF is too small it may not be sustainable for an ETF issuer, such as K2 Asset Management. However, there are exceptions to this rule of thumb, especially if the ETF issuer/provider is committed to growing the ETF’s FUM to the point where it becomes profitable.
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3. KSM ETF fees & costs explained
With a yearly management fee of 2.39% charged by K2 Asset Management, if you invested $2,000 in the KSM ETF for a full year you could expect to pay management fees of around $47.80. For context, the average management fee (MER) of all ETFs covered by Best ETFs Australia on our complete list of ASX ETFs is 0.5% or around $10.00 per $2,000 invested. Keep in mind, small changes in fees can make a big difference after 10 or 20 years.
In addition to a yearly management fee, there are other costs investors must consider, including brokerage and taxes. A specific cost for ETF and mFund investors to consider is the buy-sell spread, which is the slippage or ‘invisible’ cost paid by an investor when he or she buys or sells the ETF. For the KSM ETF, the most recent average monthly buy-sell spread we gathered (May 2020) was 1.21%. Remember, the lower (or ‘tighter’) the buy-sell spread, the better. This buy-sell spread was above the average ETF spread of 0.45%, which means the KSM ETF has more slippage than the average ETF (that’s a bad thing).
Summary
Before ‘testing the water with both feet’ so to speak, be sure to read the KSM ETF’s Product Disclosure Statement (PDS), available on the K2 Asset Management website, or speak to your financial adviser. Also, be sure to take a look at our K2 Asset Management KSM report. While you’re on our website, use our complete list of ASX ETFs to search for a few different ETFs in the sector and conduct a side-by-side comparison using everything you’ve learned here.
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