iShares Edge MSCI Australia Multifactor ETF (ASX: AUMF)

Key Information

  • Name: iShares Edge MSCI Australia Multifactor ETF
  • Ticker code: AUMF
  • Issuer: BlackRock/iShares
  • Management Expense Ratio (MER): search our complete list
  • Exposure: Australian shares
  • Potential allocation: Tactical

What Does AUMF Do?

The iShares Edge MSCI Australia Multifactor ETF provides investors with the performance of an index, before fees and expenses, composed of Australian equities that have favourable exposure to four target style factors.

What Is AUMF Used For?

The iShares AUMF ETF uses a rules-based strategy to seek outperformance over the long-term. Investors could use this ETF to get exposure to a basket of Australian public companies that targets four drivers of return: quality, value, size, and momentum.

For example, the AUMF fund looks for companies with healthy balance sheets (quality) that are cheap relative to fundamentals (value), smaller in size and with a share price moving in an upward direction (momentum).

What AUMF Invests In

AUMF tracks the performance of the MSCI Australia IMI Diversified Multiple-Factor Index. To do so, iShares uses an optimisation indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to that of the index.

You could buy all of these yourself using a share brokerage account but, chances are, it costs a lot more in brokerage to buy each one -- and it would take far longer than buying one ETF!

Blackrock is the company responsible for the huge issuer of ETFs called iShares. It is one of Australia's and the world's largest ETF issuers, both in terms of the number of ETFs issued and the money invested, known as Funds Under Management or FUM.
what-is-a-bond-man-thinking

iShares have issued ETFs in Australia for more than a decade and currently operate over 30 ETFs listed on the ASX spanning local and global shares, local and global bonds and cash. iShares also offers rules-based ETFs.

The bestETFs Australian shares sector includes ETFs, managed funds and index funds which cover the ASX and national stock exchange (NSX). It also includes other sharemarket-focused ETFs and funds which may hold investments overseas (e.g. via the New Zealand or US exchanges).

Performance Characteristics

Over the ultra-long-term, the Australian share market has proven to be among the best-performing in the world. We truly are 'the lucky country'.

One of the unique features of the Australian sharemarket is a willingness by companies to pay substantial dividends back to shareholders. We believe this may be a result of Franking Credits.

bestETFs assesses the performance of this ETF against its peer group, which commonly use the ASX 200 or ASX 300 indices as their benchmark. The ASX 200 includes Australia's top 200 companies, ranked by market capitalisation. The ASX 300 includes the top 300.

We believe this benchmark provides the most reliable, consistent and relevant benchmark for assessing this fund/ETF against others in the sector and the market more broadly.

***

The benchmark we use to assess the ETF's performance -- and help us determine whether the ETF would be a good fit in our model portfolio -- may differ from the fund's chosen benchmark.

The Australian sharemarket is heavily skewed towards financials (i.e. banks and insurers), resources and property. These companies tend to be 'cyclical', meaning they move in-line with the direction of the broader economy and financial markets.

Some risks to investing in this sector include:

  • Market risk: This is the risk that the performance of the ETF/fund rises or falls unexpectedly day-to-day, month-to-month or even year-to-year. We believe these price movements are unpredictable. Therefore, we believe investing for multiple years is the most prudent way to invest.
  • Home country bias: That happens when you invest a larger amount of your money in local/Australian investments and exclude overseas markets. This may be because it is 'too difficult' or 'too complex' to invest in overseas markets.
  • Concentration: The Australian share market is made up of many companies. However, traditional market indices have a very high proportion of their performance tied to just a few investments, such as blue-chip shares in the financial and resources.
  • Regulatory risk: Australia is a market with a robust financial system. Changes to the rules or laws regarding public investments could alter the performance of ETFs and funds in the sector.

We believe this ETF should be used as part of a 'tactical' or 'satellite' allocation in a diversified long-term portfolio because of its unique strategy, costs, risk-reward profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

When you're investing in ETFs or managed funds, we think it's a good idea to consider breaking up your overall investments into two 'buckets':

Bucket 1: Core Investments

The 'core' is the larger part of your investment portfolio and could be reserved for a few different ETFs, blue-chip shares and/or managed funds. For example, you might have three diversified, low-cost and easy to understand ETFs in the 'core' of your portfolio. Each ETF might have between 20% and 30% of your money.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of your portfolio (e.g. 0% to 30% of your entire portfolio). In this section, you might decide to take more risk, invest in unique or unproven strategies, buy fast-growth individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that you use in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

The bestETFs website currently provides free access to a database of Australian ETFs, index funds and (soon) selected managed funds. If you want to access our top Australian ETF picks and research (for a small fee), please click here to learn more.

How do we pick ETFs?

All of the selected ETFs in our model portfolio must meet our strict criteria before we'll consider recommending them.

To learn more about our research and access the bestETF model portfolio, please click here. 

For our #1 ETF idea of 2019, please click here (free).

Latest News

FAQs

What Is An ETF?

Investing in an Exchange Traded Fund or ETF is typically a way to buy a tiny slice of many different shares, bonds or currencies with one investment. Technically, ETFs are 'funds' or legal 'trusts' which allow investors to pool their money together in one place and invest in the same strategy.

Learn more here.

What Is An Index Fund?

An index fund is a type of 'managed fund' which pools money in one place and follows an index. For example, an ASX 200 index fund buys all 200 shares included in the S&P/ASX 200 index maintained by Standard & Poor's.

Learn more here.

What's The Difference Between An 'Active' and 'Passive' Investment?

Traditionally, 'active' investors pick individual stocks they think will outperform the market (e.g. ASX 200 index). For example, an 'active' fund manager would pool investors' money together and invest that money in their best stock ideas.

'Passive' investors are investors who buy into standard index funds, like one that follows the ASX 200 or USA's S&P 500. These are also run by fund managers but they don't use their 'skills' or 'analysis' to pick individual stocks. Instead, they invest in the entire market and investors benefit from the growth of all companies, on average.

What Are Rules-Based Investments?

In recent times we've witnessed the emergence of 'rules-based' or 'smart beta' investment strategies, which are kind of in-between active and passive.

Typically, these strategies use automated rules to invest with strategies covering stocks/shares, bonds/fixed income, currencies, commodities (e.g. gold) and derivatives contracts (e.g. options). For example, a rule might be 'buy this share if XYZ happens' or 'sell that share if ABC is true', etc..

Learn more here.

Best ETF australian invest servicePsst! Are you looking for the best ETFs on the ASX in 2019? Take a look at our ETF investing service.

Complete list of ASX ETFs