ETF Intel Q&A: KKM Financial

Gabrielle Vennitti, Lead Product Manager of ETF Listings at Nasdaq, joins Jeff Kilburg, Founder & CEO at KKM Financial, to discuss the firm’s Essential 40 Stock ETF (ESN), its upcoming 351 ETF exchange launch, and why equal weighting and diversification remain key for investors navigating today’s markets.

1. Could you begin by sharing some insights into KKM and the firm’s overarching approach to investment solutions?

KKM works with wealth advisors, financial institutions, and family offices globally. KKM served as a portfolio consultant to both Incapital and Nuveen Investments. KKM offers portfolio management solutions and provides risk mitigation solutions via research-based products utilizing dynamic stock selection, ETF model portfolio strategies, and option overlay programs. The Essential 40 Stock ETF (symbol: ESN) seeks to provide investors a broadly diversified portfolio of U.S. stocks that we deem essential and vital to the U.S. economy. This is our “Peter Lynch 2.0” portfolio that we like to call a “Buy What You Need” equal-weighted basket of forty stocks. We are committed to delivering distinct and uncommon investment solutions designed to support long-term capital appreciation while creating a smoother risk profile.

KKM’s next (Nasdaq-listed) investment solution is a 351 ETF exchange which will seek to address complex and complicated realized-gains issues, specifically for our RIA or Family Office clients that have highly appreciated positions and have concentration concerns. We aspire for a 2025 launch. 351 ETF exchanges allow investors to contribute highly appreciated securities to a newly formed ETF in exchange for ETF shares, without triggering immediate capital gains taxes, assuming special rules and diversification requirements are met. Ultimately, investors are able to achieve diversification while preserving and deferring their unrealized gains. The 351 ETF exchange vehicle is a great tool for tax aware diversification that complements our goal of delivering to our clients both high quality and distinct investment solutions.

KKM also offers several distinct ETF model portfolios that lived in research format for decades and are now investible on numerous TAMPs (Turnkey Asset Management Platforms).  KKM also offers a suite of Risk-Based ETF model portfolio solutions offered at no cost.  Our firm was founded by prominently recognized and respected CNBC Contributor Jeff Kilburg and is headquartered in Chicago, IL.

2. Looking more specifically at your ETF offering, how does the Essential 40 Stock ETF (ESN) integrate into investor portfolios, and what are its primary objectives?

The equal-weighted Essential 40 Stock ETF (ESN) serves clients as a large cap core holding. Categorized as Large Cap Blend by Morningstar, this distinct basket of forty seeks to mitigate downside risk during times of volatility while aspiring to capture long-term capital appreciation. The U.S. stock market has become increasingly concentrated in just a few names, and KKM believes now is the time to equal weight. The Essential 40 portfolio is a long-only basket of forty indispensable and tangible blue-chip names. Many investors may already own twenty or even twenty-five of these critical companies but, KKM believes by owning all forty necessary names, a client can achieve improved diversification. Although the Essential 40 Stock ETF (ESN) owns seven of the top ten S&P 500 names, owning these larger firms in an equal-weighted manner is a stark contrast to the typical market cap weighted exposure many advisors own these same companies.

We have seen the actively managed Essential 40 Stock ETF being utilized to complement advisors’ existing large cap core exposure in other ETFs such as RSP, FTCS, and NOBL. The Essential 40 also serves as an additional risk-mitigating spoke of the wheel to advisors’ building their own growth and value large cap core exposures. Lastly, we see advisors use the Essential 40 as a “catch-all” for their smaller accounts due to its low minimum and diversified U.S. equity exposure.

3. How do you define the term 'essential,' and how is this concept applied within the context of your ETF?

Per Merriam-Webster dictionary, the word essential means of the utmost importance: basic, indispensable, necessary, critical. 
With a renewed focus on owning quality companies that Americans know and use in everyday life, we feel the essentiality theme is best positioned to outperform in a potential market dislocation. As a core component of a portfolio, The Essential 40, aims to deliver a highly liquid opportunity to maximize upside participation, while mitigating potential downside risks by investing in stocks that have sustainable business models with optimal margin and profit growth.
Essential 40: The Essential Portfolio of the U.S. Economy and American Way of Life

• The Essential 40 portfolio is an equal-weighted, large-cap core strategy for investors taking a long-term view.
• The portfolio attempts to identify the best franchises specific to being essential to the U.S. economy and the American way of life, not necessarily the most undervalued stocks.
• The main undercurrent of the Essential 40 is to create a large-cap blended basket of companies while seeking to provide investors a more thoughtful sector exposure.
• The portfolio was built upon the foundation of “Buy what you Need” which we believe is possibly a step further than famous investor Peter Lynch’s theory of “Buy what you Know”

The Essential 40 model utilizes a quantitative & qualitative approach that seeks to own forty stocks essential to the U.S. economy and the American way of life. The Essential 40 is often referred to as the modern-day version of the Dow Jones. The Essential 40 portfolio is designed for a tax efficient 12 month holding period. The Essential 40 is an equal-weighted basket of forty stocks that are typically rebalanced annually, on the second Monday of January. During this annual rebalance, all forty stocks are brought back to a 2.5% allocation. This rebalancing mechanism allows for the portfolio to harvest gains on securities that have advanced while also adding exposure to those securities that have underperformed. In a world of extreme analysis and complexity, the Essential 40 Stock ETF (ESN) represents an elegant investment theme that is simple yet historically effective.

4. Finally, as activities ramp up post-summer, what is one key consideration you believe investors should focus on for the remainder of 2025?

Investors globally felt the vulnerability and the additional risk associated with broad market-cap weighted U.S. equity exposure; this was quite evident in April (2025) when historic volatility overwhelmed markets in the wake of trade tariffs being reintroduced to the U.S. economy. KKM believes in the strength of the U.S. economy and the continued U.S. exceptionalism as a paramount investing theme carrying investors swiftly into 2026. We think investors should take the time now to de-risk portfolios by embracing equally weighted portfolio construct. Headed into year end, diversification should also become more and more important as we see the continued grappling between growth and value headed into year end alongside the Fed’s interest rate cutting campaign seemingly resuming.

ESN serves as a great solution for investors globally who are looking to participate in market appreciation while still anticipating a broadening out of the current market rally. ESN can be considered a core equity holding or even fit right in with existing core equity positions for advisors building their own bespoke models.

ESN is currently available at Altruist, Allworth Financial, BNY Pershing, Carson Wealth, Charles Schwab, E-Trade, Fidelity, Interactive Brokers, Janney Montgomery, LPL Financial, Oppenheimer, Raymond James, Robinhood, Stifel, UBS, Vanguard.