Fundamentals First ETF (KNOW)

The Fundamentals First ETF, trading under the ticker KNOW on the NASDAQ, is an open-ended mutual fund structured as an exchange-traded fund that buys a diversified basket of US-listed equities selected according to fundamental criteria rather than market-cap weighting or index membership. The fund aims to own companies with strong balance sheets, durable earnings power, and attractive valuations — the traditional toolkit of value investors — in a passively managed, low-cost wrapper.

What does a fundamental selection fund actually do?

KNOW does not simply hold the constituents of the S&P 500 or the Russell 1000. Instead, it applies a quantitative stock-picking process to the investable US equity universe, screening for companies that meet criteria such as return on equity, earnings stability, cash-flow generation, balance-sheet health, and valuation ratios. The result is a concentrated portfolio of typically 100–200 holdings drawn from across market capitalisation bands, weighted by their fundamental strength rather than their size.

This approach sits between two poles. On one end is passive indexing, which buys everything in a benchmark and charges a basis point or two for the privilege. On the other is active stock-picking, where a human portfolio manager makes individual bets and charges substantially for the chance to outperform. KNOW uses algorithmic selection rules — mechanical, transparent, applied identically to every company — which keeps costs low while attempting to capture the historical return premium that fundamental discipline has often delivered.

How the fund differs from a plain index

An index-tracking fund like the Vanguard 500 (VOO) holds the five hundred largest US companies weighted by their market capitalisation, so the largest companies dominate the portfolio. KNOW instead screens the US market for fundamental quality and value, which typically results in a portfolio tilted toward mid-cap and small-cap companies and notably away from the mega-cap tech firms that dominate traditional benchmarks by weight.

This difference shows up most sharply during periods when the largest companies are expensive and volatile. In the 2020s, the so-called Magnificent Seven tech stocks — Apple, Microsoft, Nvidia, Tesla, and a few others — became such a dominant share of the S&P 500 that an index fund was effectively betting heavily on a handful of names. A fundamental screen would have weighed these holdings differently, likely less, because some entered the period trading at valuations that look expensive by traditional metrics. Whether that constitutes an advantage or a drag depends on what actually happens next — a question no fund prospectus can answer.

The risk of style bias

The most significant risk to KNOW is that fundamental selection, as a strategy, goes through long periods of underperformance. Between 2015 and 2020, and again in 2021–2023, value stocks and fundamentally screened portfolios significantly underperformed large-cap growth stocks, especially in technology. An investor who believed in the discipline might have held through these periods, but it required genuine conviction. There is no guarantee that the historical relationship between fundamental strength and future returns will persist — especially if the broader economy, interest-rate environment, or investor preferences shift.

Additionally, any systematic screen has blind spots. A company might pass all the fundamental tests and still face disruption — a new competitor, a regulation, a shift in customer preferences — that the metrics did not anticipate. The algorithm is as smart as the criteria it uses, and no quantitative screen is a crystal ball.

Costs and how it trades

KNOW trades on the NASDAQ like any other ETF, and it can be bought and sold through any broker during market hours. The fund’s expense ratio is typically in the range of 0.40–0.50 per cent annually, which is moderate for an actively managed fund but higher than plain index funds (which charge 0.03–0.10 per cent) and in line with other fundamental-selection strategies. That cost matters over decades — a 0.45 per cent annual drag compounds into meaningful underperformance if the fund’s stock picks do not outperform by at least that margin.

Trading volume is generally sufficient for retail investors, though large institutional trades might move the price slightly. The fund’s net asset value and the ETF’s market price normally stay within pennies of each other; if they diverge, it creates an arbitrage opportunity that brings them back into line.

Who this fund is for and how to research it

KNOW suits investors who believe that buying companies with strong fundamental metrics — high returns on capital, durable competitive advantages, improving earnings — is a more reliable long-term approach than tracking a market-cap-weighted index. It also appeals to those who want US equity exposure but prefer a lower concentration in mega-cap technology stocks than the S&P 500 offers.

The fund is not appropriate as a substitute for a target-date fund in a retirement plan, and it is not a core holding for a diversified portfolio unless the investor is already comfortable with its style — value and fundamental screens can lag the broad market for years at a time. Rather, it works best as a satellite position or as a holding for someone with a multi-decade horizon and genuine conviction in the value-investing discipline.

To research KNOW, start with the fund’s prospectus (available from the issuer’s website), which discloses the selection criteria and the fee structure. Review the fund’s top holdings quarterly to see whether the selection process is producing a portfolio that matches your own expectations about what “fundamental strength” should look like. Watch the fund’s performance relative to the S&P 500 and the Russell 1000 Value Index over rolling multi-year periods — one year tells you almost nothing, but five-year and ten-year windows reveal whether the discipline has added value or subtracted it. Read the fund fact sheet, which updates quarterly and shows the portfolio’s key characteristics: the average valuation multiples, the sector breakdown, the median market capitalisation of holdings.