Active ETF issuer Investlinx is plotting an expansion into Germany and the UK after debuting its offering in the Italian market last year, the firm’s CIO Samuel Smith has told ETF Stream.
The firm entered European ETFs by listing the Investlinx Capital Appreciation UCITS ETF (LINXC) and Investlinx Balanced Income UCITS ETF (LINXB) on the Borsa Italiana on 27 February 2023.
By the end of the year, the two strategies housed a combined $170m assets under management (AUM), according to data from ETFbook, seeing the firm break into the top 25 of ETF Stream’s ETF Issuer Power Rankings 2023 after little more than 10 months in the market.
The firm’s early traction can be attributed to offering bottom-up security selection at a competitive price point versus equivalent active mutual funds.
“We launched in Italy initially, which is a large and I would say inefficient market and it is home to some of the world’s most expensive funds,” Smith (pictured) said.
“When we think about our fees being 40% lower [than mutual fund equivalents], we believe that is the best place where we can add value for investors.”
However, Investlinx is now eyeing expansion beyond Italy to take its active ETFs to other European markets within the coming year.
“We have received quite a few enquiries from Germany and the UK, which are some of the largest ETF markets,” Smith continued. “What you will see at the latter half of this year, maybe the beginning of next year, that is where we are going to expand our offering.
“We do not have any plans to launch any additional funds at the moment. It is about focusing on geographical expansion and having a differentiated offering out to as many investors as possible.”
Long-term holders
Speaking on the firm’s management style, Smith said his team conducts fundamental analysis with a view to owning a narrow subset of the market for the long-term, with low portfolio turnover.
“There are quite a lot of active mutual funds that have been underperforming and we believe that is mainly because of their shorter time horizon and focus on high fees,” Smith continued.
“When we invest in equities, we are trying to find companies that are exposed to structural growth opportunities, which we believe will be less exposed to economic downturns or cyclical fluctuations.”
He added his team prefers companies generating excess free cash flow, those reinvesting back into their businesses and those with low leverage.
“We only invest in companies or businesses that we understand and so, for example, we would be highly unlikely to invest in a bank, which from the outside are very hard to understand.
“We also avoid exposure to highly cyclical areas such as energy or commodities. It is very hard to predict the future earnings of some of these businesses.”
Smith noted his team has the same approach within its multi-asset strategy, investing across government bonds and investment grade and high yield credit.
Despite having smaller drawdowns than its benchmark – the MSCI World – over its first year, Investlinx’s equity strategy has booked a sleepy start to life, with a 27% return over its first year and an 80% active share.
