While ordinary retail investors may have become disillusioned with the stock market’s volatility and fearful of a tilted playing field with regard to the Facebook IPO, a Silicon Valley startup is setting out to rekindle the public’s enthusiasm for investing by making it more natural and transparent.
Today, Motif Investing, an online broker based in San Mateo, Calif., introduced a novel platform for individuals that want to buy portfolios of stocks based on ideas or themes and share those ideas with friends. What’s interesting about Motif is that it gives the individual access to a portfolio of 30 stocks in a so-called motif, for a flat fee of $9.95 that they purchase at one time.
Motifs are groups of stocks that are carefully researched and weighted such as “Renter Nation,” “Mobile Internet,” “Caffeine Fix” and even the “Seven Deadly Sins”—a portfolio including tobacco, liquor and gambling stocks, according to the company. When investors buy a motif, they own actual shares of the stocks that reflect the idea. . The minimum to open an account is $1,000 and the minimum investment per motif is $250.
Some examples of trendy motifs that no doubt will resonate with investors are: “Too Big to Fail, Drill Baby Drill, and Kings of K Street, which is comprised of stocks of companies that lobby the most. As an example, Caffeine Fix, which contains companies like Coca Cola and Starbucks, has earned a one-year return of 7.7 percent as compared to a decline of 0.6 percent for the S&P 500 index. When investors click on these motifs they can see all the names of the stocks in the index; they can add or eliminate stocks and also adjust the weightings of the various constituents and instantly see the rate of return.
“Motif is all about intuitive investing – the essence of being human,” said Hardeep Walia, Motif’s co-founder and CEO on a visit to Wall Street & Technology’s offices last month. Motif empowers the individual investor to buy (or sell) a “thematically weighted index-based portfolio of stocks for $9.95,” explained Walia, who once oversaw investments and acquisitions for Microsoft.
The premise is not too different from a movement in the 1980s pioneered by Peter Lynch, the famous investment guru who managed Fidelity’s Magellan Fund, which is invest in what you know.
There is also a social component of Motif for it allows investors to link with Facebook to create circles of “investingfriends” within the Motif platform that can share in their investing ideas. “We allow you to bring your friends from Facebook or use an email and you create circles,” explained Walia, who said he has created one circle with his father.
Since investors are already discussing their ideas with family members around the kitchen table or investment clubs and bouncing ideas off one another via phones, these conversations are already happening, pointed out Walia. What’s important is they can understand and act upon ideas they believe in with this type of tool.
For example, if someone had invested in the most liked companies on Facebook, “You would have beaten the S&P 500 by almost 40 points over two years,” says Walia.
Some of the trendy themes tie in with our economy, culture and politics include Mobile Supply Chain, “Lots of Likes,” a portfolio of stocks representing most-liked companies on Facebook, and “Income Inequality,” a group of stocks including high-end and low-end retailers that reflect the growing divide between the “haves” and “have-nots.”
Although Motif Investing is not necessarily inventing anything new, it has made the user experience more intuitive and easier to implement than a traditional self-service online brokerage site, said Walia who cofounded the company with Tariq Hilaly, Motif’s chief investment officer. Hilaly was previously a VP of Alliance Bernstein’s $1 billion hedge fund, where he invested in sectors including technology, healthcare and financial services. As Monday’s New York Times/Dealbook notes, The company has also attracted attention from prominent Wall Street executives who championed the retail investor. Sallie Krawcheck, who led Bank of America’s wealth management division but was forced out last September in a management shake up, has joined Motif’s board of directors. Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission appointed by President Bill Clinton, and Jerry Gramaglia, a former president and chief operating officer of E*Trade, are both serving as advisers to the company.
“Part of the problem with online brokerage is they’ve automated an entrenched model,” says Walia. They’ve automated it by taking that person online but they didn’t think about how people naturally invest. We’ve replaced the physical broker with an online investing tool. We’re trying to say the investor has an idea, an epiphany,” said Walla.
The current catalog includes more than 50 theme-based motifs, with additional motifs being constructed on an ongoing basis. This year’s top-performing motifs include Biotech Breakthroughs (21.3 percent year-to-date return), Cloud Computing (20.9 percent), “Home Improvement” (18.9 percent), “Housing Recovery” (16.2 percent) and “Hot Retail” (15.4 percent).
Investors, “post-2008 are looking for a new way to invest that’s transparent, that’s low cost and that gives them diversification,” said Walia who is betting that investors want more control over their investments, especially since many distrust financial institutions. Through this intuitive technology platform, retail investors can pick many of the big ideas underlying our society and economy. It will be an interesting trend to watch.