How to research the K2 Asset Management Australian Small Cap Fund (Hedge Fund) ETF (ASX:KSM)

You might be sitting back and considering the K2 Asset Management Australian Small Cap Fund (Hedge Fund) ETF (ASX: KSM) and thinking that December could be as good of a time as any to take closer look. Here’s how we would start our research.

Find out what the ETF does

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.

KSM’s FUM does not meet our minimum hurdle

The K2 Asset Management KSM ETF had $9.05 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). This is because if an ETF is too small, it may not be sustainable for an ETF issuer/provider, such as K2 Asset Management, to continue to operate it.

That said, there are exceptions to this rule of thumb, especially if the ETF issuer is committed to growing the ETF’s FUM to the point where it becomes profitable.

Pay attention to yearly costs & fees

K2 Asset Management charges investors a yearly management fee of 2.39% for the KSM ETF. This means that if you invested $2,000 in KSM 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.

Our takeaway

If you’re thinking about investing in KSM, bear in mind that this is just an introductory glance at the ETF. To explore further, check out our free K2 Asset Management KSM report. And for good measure, search our complete list of ASX ETFs for similar ETFs in the Australian shares sector to do a good comparison.

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Low fees? Check.

Long-term growth potential? Check.

Regular cash returns? Check!

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