Motif, an investment site, tries to help small investors buy collections of stock based on long-term themes or trends

When Buying Stock in Gluttony Is a Good Investment

JAN. 31, 2014

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Clay Enos used the website Motif to make several themed investments

By PAUL SULLIVAN

ARTHUR LEVITT JR., the former chairman of the Securities and Exchange Commission, acknowledged that he found “The Seven Deadly Sins” irresistible — so much so that he plunked down $5,000 as an initial investment and has since put in more.

Sallie Krawcheck, the former president of Bank of America’s Global Wealth and Investment Management division, was a little less candid. She would say only that she was making some bets on something called “No Glass Ceilings.”

So exactly what are The Seven Deadly Sins and No Glass Ceilings? Computer games? Code names for undercover operations in spy films?

Neither. Both are collections of company stocks available to investors through an online site known as Motif, whose goal is to make it easier for small investors to do what more sophisticated investors have been doing — make investments based on themes or long-term trends. This is known, appropriately, as “thematic investing.” The concept has been around for nearly 20 years and has been used to avoid short-term volatility.

(The Seven Deadly Sins, by the way, is a collection, or “motif,” of stocks grouped by vices like gluttony, which includes the wine and spirits giant Brown-Forman, Philip Morris International and McDonald’s. No Glass Ceiling is a collection of companies headed by women.)

“I followed that very closely,” Mr. Levitt said from his Florida home about his collection of stocks in “sinful” businesses. “There came a point when I said to my investment adviser in Milwaukee that I wanted to put a more meaningful amount of money into this.”

Mr. Levitt has since put money into motifs with more sober-sounding themes: Rising Interest Rates, Bulletproof Balance Sheets, Energetic M.L.P.’s and Housing Recovery. (Rising Interest Rates and Bulletproof Balance Sheets have performed the best, both up about 30 percent over the last year. The Seven Deadly Sins posted a 24 percent gain over the same period.)

Both Ms. Krawcheck and Mr. Levitt are on Motif’s board. On Monday, the company plans to introduce a new platform meant to make it easier and cheaper for advisers to choose stocks based on themes for their clients.

Thematic investing is popular among large investment firms, and inexpensive exchange-traded funds also seek to invest in some of the broader themes.

But Motif is trying to do for thematic investing what discount brokerage companies did for stock-buying by making it available on a larger scale and for lower fees.

The simplicity of the site, and sometimes silly names of the motifs, belie the difficulty of investing thematically. For one, it’s expensive. Buying 30 stocks through a discount broker could cost as much as $300; Motif charges $9.95 to buy or create a collection with up to 30 stocks in it. It can also be hard for most investors to execute their chosen themes on their own.

“The problem that many of us experience is we can think about investing thematically, but it’s hard to do,” Ms. Krawcheck said. “You might think about investing in the changes brought about by the health care law. Then you’re left trying to figure out how to do it. And you end up buying a large-cap mutual fund.”

(Her investment in No Glass Ceilings is up 19 percent over the last year.)

Clay Enos, a commercial photographer in New York whose work has included the films “Watchmen” and “Man of Steel,” says he collects investing ideas as he observes the world and uses Motif to act on them.

“It is a world of ideas there,” he said. “They’re a validation of something you had in mind. I was watching a TED talk about robots and sure enough, there was a robot motif already built.”

One collection that Mr. Enos built and called “Tick Tock” — because it could take a while to show returns — included companies in solar, transportation logistics, biotech and apparel. “I try to balance a little bit of risk with a little bit of security,” he said. “I’m using it more like a discount brokerage where I can buy all these stocks for $9.”

Of the larger investment houses, AllianceBernstein has more than $4 billion invested in seven thematic portfolios, with names like NextGen Automation: The Rise of the Machines, and Web 3.0: Data Deluge. One of the advantages (or, possibly, disadvantages) of this type of investing is that it is not tied to a particular index or focused on one sector or region.

“When you think about opportunities, opportunities don’t care what country or sector you’re in,” said Dan Roarty, portfolio manager for global growth and thematic portfolios at AllianceBernstein. “With thematic investing, you’re free to color outside of the lines. You can take advantage of the themes.”

At AllianceBernstein, the minimum investment is $2,500, higher than Motif’s $250 but certainly not high by standards for nontraditional investments. The management fee is 1.2 to 1.5 percent.

While investors can buy one of Motif’s thematic strategies on their own with no advice — or by following what is popular, since the site has a social media component — Motif’s adviser platform will allow advisers to manage client accounts like other software providers and charge investment fees accordingly.

On a broader level, thematic investing can be a way to get away from the day-to-day noise of Wall Street.

“These ideas are tied to real shifts in demography and have staying power,” said Daniel Paduano, a managing director at Neuberger Berman who has been investing his clients’ money thematically for over 15 years.

Two of his big themes are global education and water — both finding it to drink and keeping it from flooding cities.

While thematic investing may sound interesting, it is by no means a surefire way to make money. A theme overlays the strategy, but someone is still picking stocks. Even if they are all related to the theme, they are not all going to perform well. The hope is that the trend is correct over the long term.

“What goes wrong is the ability of the company you have identified to execute rightly and correctly and well,” Mr. Paduano said. “That happens sometimes because you were dumb enough to buy the guys who can’t shoot straight or because circumstances overwhelmed things and you made a mistake.”

Another risk is that in the short run, the returns may not look as good as with other methods, particularly after 2013, when simply owning the Standard & Poor’s 500-stock index for the year got investors a 30 percent return.

Mr. Roarty, whose seven strategies own just 50 stocks, said the concentration could make the strategy fluctuate more widely than just owning an index. “The short-term returns can be worse than traditional equity strategy,” he said.

But the idea is that over the next decade, investors who put money into themes focused on increasing the supply of drinkable water around the world or new energy technologies will see better returns than those who invest in active managers with strategies reliant on regions or sectors.

Within Motif itself, there is a risk of being overly concentrated in a particular company, the way an investor would be after putting money into five mutual funds that all invested in Apple. Hardeep Walia, the chief executive and founder of Motif Investing, said the system allowed investors to see how much of an individual stock they owned and to sell it for $4.95.

Mr. Enos, the photographer, said the risk of investing in a trend seemed more manageable than trying to figure out what was hot and for how long. He spoke from experience, having ridden the dot-com bubble all the way up and then down. “I tasted multimillionaire,” he said.

Now he has a more patient view. “What’s a couple of percentage points?” he said after the market dipped this week. “That’s O.K. I have money in the big financial companies. I have money in solar.”

That’s a long-term view regardless of the platform.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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