The Motley Fool Jumps Into ETFs

February 08, 2018

Bryan HinmonAs an investor, chances are you’ve heard of Motley Fool and read some of its research and analysis on Fool.com. What you might not realize is that Motley Fool does more than writing. The company also has an asset management side that’s behind three mutual funds and, now, a brand-new ETF, the Motley Fool 100 Index ETF (TMFC). Bryan Hinmon, chief investment officer of Motley Fool Asset Management, gives us the rundown on what makes Motley Fool tick, and what its footprint in the ETF space will look like.

ETF.com: What’s Motley Fool's business model?

Bryan Hinmon: Motley Fool has been in existence for 25 years. Since the beginning, we've sought to help investors achieve financial freedom. Initially, it took the form of writing about investing and personal finance, eventually morphing into Fool.com, a website that gets millions of unique visitors each month.

Then people started asking us for more help, so we began publishing stock-picking newsletters where The Motley Fool would highlight a stock or two a month that they thought, if bought and held, would achieve market-beating performance.

Our track record was strong, and that led us to open up Motley Fool Asset Management in 2008. We saw, as the market was crashing, that individual investors were not always well-suited to handling big downturns, and we thought they’d benefit if we could help them more directly manage their investments.

In 2009, we launched our first mutual fund, and have since launched two more. Those are the Motley Fool Global Opportunities Fund, which is our flagship; the Motley Fool Small-Mid Cap Growth Fund; and the Motley Fool Emerging Markets Fund.

A couple years ago, we took it a step further, and opened Motley Fool Wealth Management, where we offer separately managed accounts through that business. Today, in all, we help clients manage more than $2 billion.

ETF.com: There’s a lot more going on than the website.

Hinmon: Yes. Motley Fool is still best known for its website and those stock-picking newsletters and investment services. However, we want to help investors invest better, whether that’s done by providing ideas, or through mutual funds or an ETF or separately managed accounts. We can meet them on their own terms.

ETF.com: Is there any concern about conflict of interest in this model? On one side you’re writing about stocks; on the other, you’re selling a service, offering mutual funds, an ETF.

Hinmon: Yes, it's of paramount concern. Reputation is paramount. We take great pains to not jeopardize our reputation as a beacon of truth and someone who can be trusted. We have a very strict wall built between the regulated asset and wealth management businesses and the publishing business.

However, since the beginning of the Motley Fool, we've always said we’re investors writing for investors. So, we very much subscribe to the belief that we should be eating our own cooking.

ETF.com: Why launch an ETF now?

Hinmon: First and foremost, we’re responding to what customers are asking for. We kept hearing that this vehicle would be a great way to package some of Motley Fool's insights. The second reason is that Motley Fool recently formed an internal organization called Investing Intelligence.

That group is responsible for harnessing the investing intelligence coming out of the publishing business. With the various stock-picking newsletters, different teams doing research and writing things for more than two decades, there was a lot of big data floating out there that wasn't being harnessed as well as it could.

That group saw how an index could be pulled together to better measure performance of the Motley Fool's recommendations. As soon as we saw that in our asset management business, that that ETF was coming to fruition, we leapt at the opportunity to partner and turn it into an investable vehicle.

ETF.com: How does this ETF capture the ethos, the principles of what The Motley Fool is about?

Hinmon: A lot of the traditional financial firms are big into factor investing and smart beta. The problem is, retail investors don't speak the language of factor tilts; they speak a simple language. The Motley Fool has always embraced that and simply looked for high-quality companies.

In investing parlance, that means companies that have higher profit margins, greater returns on assets and healthy balance sheets—strong competitive advantages. If you look at the roster of companies in this index, it’s chock-full of high-quality businesses, led by strong management teams, and in many cases, founders, with strong competitive advantages—qualitative factors we’ve been focusing on for years.

ETF.com: I have to ask about the price tag. This is an index-based U.S. large-cap equity fund for 0.50%, which is not a competitive fee in this segment. Are you concerned about that?

Hinmon: Absolutely, but there's a couple of things I'll point to. First, the underlying index consists of individual stocks selected by The Motley Fool analyst team. In that sense, this is closer to an actively managed product than it is a passively managed product.

Yes, the implementation is obviously passive. However, the stocks inside the index are fundamentally chosen by human beings. To us, that gives investors the best chance to beat the market, even with that price tag.

ETF.com: So, you consider this ETF to be quasi-active in a way? That’s your approach.

Hinmon: The Motley Fool was founded on stock selection, and we feel like the Motley Fool 100 Index and the Motley Fool 100 ETF are really true to our roots as stock-pickers.

ETF.com: Should we expect to see more ETFs from you?

Hinmon: We've been thrilled with the reception of the Motley Fool 100 ETF. There's clearly demand for easy, instant diversification, and high-quality companies that have The Motley Fool stamp of approval. Our first foray was into large U.S. companies, but we’re known for small- and midcap growth investing. That would be a natural extension.

It’s also worth pointing out that two of our three mutual funds invest internationally. We have growing international expertise that we might consider looking for ways to harness. But we have no immediate plans.

Contact Cinthia Murphy at [email protected]

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