If you took a look at the cover of Money Management Executive's Sept. 2 issue, you would see a story on Motif Investing, a do-it-yourself approach to portfolio construction based on social themes and causes that has people talking. You would read about how its then new tool called Build Your Own Motif has made it easier for investors to create their own ETF-like investment funds.
So far, some of the firm's investment themes range from Obamacare, designed to provide exposure to companies that may gain if the law rolls out as planned, weighted with pharmacy benefit managers (which started as a Twitter conversation) to 3-D printing. Others include corporations run by female executives (dubbed "No Glass Ceilings") to following the strategy of David Swensen, chief investment officer at Yale University ("Ivy League.")
In the first five months of Build Your Own Motif's existence, roughly 15,000 Motifs were created in the U.S. by people ranging from traders to long-term investors to those just dipping their toes in the market for the first time.
According to Motif Investing's co-founder and CEO Hardeep Walia, the company caters to the volatility and fast-paced buying and selling inherent in the day-to-day activity of traders and equally to the sit and wait approach of long-term investors.
The rise of Motif Investing reflects the tendency of investors to take up their own finances and demand transparency amid growing mistrust of the financial industry. It reflects the rise of DIY providers like Motif Investing that are eager to soak up this demand. "What people don't realize is that when you have five Motifs, you essentially have an index," says Motif Investing's CEO. "We're not telling people to own one Motif, we're telling them to have many," continues Walia, who personally owns a total of 30 Motifs at the time of publication. "With mistrust, we offer the ability for investors to change what they don't like ... the ability to empower people."
Vanguard Founder John Bogle, highlighted in this issue, however, is not nearly as excited about investors choosing to take an active approach on their investments or about the DIY providers catering to this audience. Rather, he views the DIY trend with a skeptical, wary, and doubtful eye.
Bottom line, according to Bogle: more market activity is bad. Investors should instead allow the market to work for them, based on the simple principle of long-term compounding. "My idea: buy the stock market, and then get out of the casino and never go back in again," he said from his office in Valley Forge, Pa., alluding to the idea that while Motif Investing may encourage transparency, it tests the ability of human beings to weigh thrill (playing the "casino") versus practical concerns (losing money).
In other words, Motif Investing and providers in general who cater to DIY investors promote trading, which loses in the long-run, he says.
Walia, meanwhile, does not doubt the merit of a low-cost approach to investing built on index-methodologies. "We say we're a Jack Bogle meets Peter Lynch," he counters.
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