👑ROE: The Quality Kings ETF You Need to Know About

In an era where investment strategies constantly evolve, the Astoria U.S. Equal Weight Quality Kings ETF (ROE) stands out as an innovative approach to portfolio construction. It is an actively managed ETF that combines two powerful investment methodologies: equal weighting and quality factor investing. By maintaining a portfolio of 100 carefully selected large and mid-cap stocks, ROE offers investors a distinctive way to access the U.S. equity market.

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What is ROE?

The ROE ETF utilises an equal-weight methodology, allocating capital evenly across all its holdings instead of following the traditional market-capitalisation weighting. Additionally, it emphasises quality factors by selecting companies that exhibit strong business fundamentals and financial stability. This combination results in a unique investment vehicle that harnesses the advantages of both strategies while aiming to reduce their potential drawbacks.

🟰The Equal Weight Advantage

Equal weighting represents a significant departure from conventional market-cap-weighted indices, where larger companies naturally command a greater portfolio share. For example, the RSP is the equal weighting ETF of the S&P 500.

Under ROE's approach, each holding receives approximately the same initial allocation, typically around 1% of the portfolio. This methodology offers several potential advantages:

• Reduced Concentration Risk: Equal weighting helps protect against company-specific risks by preventing any single stock from dominating the portfolio. This strategy becomes particularly relevant in today's market, where many mega-cap technology companies can constitute a significant portion of market-cap-weighted indices.

• Mean Reversion Opportunity: The equal weight approach inherently involves selling stocks that have become relatively expensive and buying those that have become relatively cheap during periodic rebalancing. This disciplined process can capture the benefits of mean reversion in stock prices.

• Mid-Cap Exposure: Equal weighting naturally increases exposure to mid-cap stocks compared to market-cap-weighted indices. Historically, mid-cap stocks have demonstrated strong long-term performance potential while remaining large enough to provide adequate liquidity.

Quality Factors: The Royal Treatment🫅

ROE's "Quality Kings" strategy identifies companies with superior fundamental characteristics. The fund's management team evaluates potential holdings based on several key quality metrics:

• Profitability: High return on equity (ROE) and stable earnings growth.

• Low Leverage: A preference for companies with manageable debt levels.

• Operational Efficiency: Consistent cash flow and strong margins.

Focusing on quality is crucial in today's market. Companies with strong fundamentals show more resilience amid high interest rates and economic uncertainty. Historically, quality factors provide downside protection while allowing upside participation during market stress.

ROE at a glance

ETF Issuer: Astoria

Inception: 2023-08-01

Asset Class: Equity

Underlying Index: it is an actively managed ETF

Geographical Focus: U.S.

Expense Ratio: 0.49% (as of last data point)

Dividend Yield: 1.15% (as of last data point)

Distribution Frequency: Quarterly

Historical Performance

Though ROE is relatively new compared to long-established ETFs, its performance metrics thus far reveal:

• Steady Returns: It has shown resilience in both bullish and bearish markets, aided by its focus on high-quality stocks.

• Comparative Stability: Lower drawdowns during market corrections compared to broader indices.

• Performance vs. Benchmarks: While it may not always outperform during surging bull markets, ROE’s quality tilt provides a more defensive posture.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Enhanced Diversification: The equal-weight methodology benefits diversification by preventing concentration in a few large stocks. ROE's approach ensures broader market participation and potentially reduces concentration risk.

2. Quality Premium Capture: By focusing on companies with strong fundamentals, ROE positions investors to potentially benefit from the "quality premium" - the historical tendency of high-quality stocks to outperform over long periods.

3. Systematic Rebalancing Advantage: The fund's regular rebalancing process enforces a disciplined "buy low, sell high" approach. This systematic methodology, executed by experienced fund managers, captures value from the market, which means reversion.

Top 3 Reasons Not to Invest

1. Cost Structure: As an actively managed ETF, ROE typically carries a higher expense ratio than passive index funds. Investors should carefully evaluate whether the potential benefits justify the additional cost.

2. Trading Volume and Liquidity: As ROE is a newer ETF, trading volumes may be lower than established funds. Reduced liquidity could lead to wider bid-ask spreads and potential challenges in executing large trades efficiently.

3. Tax Efficiency: The regular rebalancing required by the equal-weight methodology may generate more frequent trading and potentially higher taxable distributions than market-cap-weighted alternatives.

💡Equal Weight, Superior Quality

The Astoria U.S. Equal Weight Quality Kings ETF offers a compelling combination of equal weighting and quality investing, appealing to those prioritising diversification and resilience. However, investors should weigh the benefits against potential drawbacks, such as higher costs and sensitivity to market conditions. As always, aligning your investment choices with your risk tolerance and financial goals is paramount.

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DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.