‘Knowledge Effect’ ETF surpasses $100m in assets

Oct 24th, 2017 | By | Category: ETF and Index News

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Colorado-based Knowledge Leaders Capital has announced that its Knowledge Leaders Developed World ETF (NYSE Arca: KLDW) has surpassed $100 million in assets under management.

‘Knowledge Effect’ ETF surpasses $100m in assets

Steven Vannelli, CEO and CIO of Knowledge Leaders Capital.

The New York-listed ETF is linked to the Knowledge Leaders Developed World Index, an equal-weighted index of companies identified through a proprietary process that capture the so-called ‘Knowledge Effect’.

The Knowledge Effect is the tendency of stocks of highly innovative companies to experience excess returns. It results from investors’ systematic errors in evaluating companies that invest large sums of money in producing knowledge.

The origins of the phenomenon can be traced to two factors:

  1. A surge in the pace of knowledge production catalysed by the release of the first commercially available semiconductor in 1971. Due to the cumulative nature of knowledge, this acceleration has resulted in an exponential increase in humankind’s total knowledge.

    The Knowledge Effect is the tendency of stocks of highly innovative companies to experience excess returns. It results from investors’ systematic errors in evaluating companies that invest large sums of money in producing knowledge.

  2. A mandate by the US Financial Accounting Standards Board in 1974 which ruled that companies must expense knowledge investments in the period incurred. This deprived investors of relevant financial information on corporate knowledge spending at the dawn of this massive surge in the pace of knowledge production.

The effect is grounded in academic literature. It was first discovered in a series of studies in the 1990s where NYU’s Baruch Lev analysed 20 years of financial data and discovered an association between a firm’s level of knowledge capital and its subsequent stock performance.

Further research advanced the findings, and in 2005, Lev proved the existence of a market inefficiency attributable to missing information about corporate knowledge investments. This phenomenon leads highly innovative companies to deliver persistent abnormal returns.

It appears to be working as the ETF has posted some strong performance numbers. Since inception, it has outperformed the MSCI World Index by 2.81% and the Morningstar World Large Stock category average by 3.44% (as of 30 September 2017).

“Investors are seeking new and innovative ways to outperform the market,” said Steven Vannelli, CEO and CIO of Knowledge Leaders Capital.

“ETFs have the power to do much more for investors than simply track an index: they have the potential to capture outperformance and deliver excess returns in a tax-efficient package.”

As of 30 September, the total returns for the Knowledge Leaders Developed World ETF NAV and market price, respectively, were 17.40% and 17.06% (1-Year), 17.75% and 17.43% (2-Year) and 11.78% and 11.98% (since inception).

The expense ratio for the ETF is 0.75%.

Knowledge Leaders ETF

Asset Allocations as of 30th September 2017

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