The Gavekal Knowledge Leaders Developed World ETF (NYSEArca: KLDW), the first exchange traded fund based on the so-called Knowledge Effect, has been an outperforming international play.

Since its inception as of July 31, 2016, KLDW has outpaced the MSCI World Index by over 5.5 percentage points. Over the past year, KLDW increased 7.4% while the iShares MSCI World Index Fund (NYSEArca: URTH) rose 2.5%. Year-to-date, KLDW increased 10.1%, compared to the 6.3% advance for URTH.

“The last 12 months proved innovation truly can be indexed and captured in an ETF,” Steven Vannelli, CFA, CEO and Chief Investment Officer of Gavekal Capital, said in a note. “In a year in which global markets were negative, stocks of Knowledge Leader companies performed as the academic research predicted: they outperformed relative to the overall market.”

KLDW tries to generate alpha through the little known Knowledge Effect anomaly. Specifically, investors should focus on companies that invest large sums of money in producing knowledge.

Gavekal has argued that analysts have not accurately accounted for R&D investments as a separate factor, which has led to many undervaluing the effect of knowledge investments on a company’s growth.

SEE MORE: An Outperforming, Overlooked Smart-Beta ETF Factor

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