A few things in the ETF world have caught my eye.
Earlier in the week, the credit rating agency Moody’s came out with a report showing investors are pulling money from actively managed U.S. stock funds this year at the fastest rate on record.
From the beginning of the year through June, Moody’s said $129.11 billion were pulled from actively managed mutual funds, compared with just under $100 billion for the same period in 2017.
Conversely, the amount of new assets flowing into U.S.-listed ETFs through June stood at $121.3 billion, according to FactSet data on ETF.com, and more than 75% of that went into plain-vanilla equity funds.
Moody’s also said the passive investment market share stood at 35%, slightly ahead of their projection of 34%.
While this won’t come as a surprise to anyone in the ETF industry—or mutual fund industry for that matter—the flow of money into passive investment vehicles only seems to get stronger. And that bodes well for ETF issuers and the industry in general.
The world of investing is definitely in flux, and the flow of money out of actively managed mutual funds continues to affirm the trend that market returns are good enough.
Goldman Sachs Teams With Motif
One of the most interesting ETF filings this year crossed the wire last week.
Investment banking giant Goldman Sachs is teaming up with Sacramento-area fintech firm Motif ($116 million in assets under management), as unconventional an advisory/fintech firm as they come. Motif incorporates traditional brokerage services, such as the ability to buy individual stocks, with a unique investment offering in the shape of “motifs,” or easy-to-understand themes people can invest in.
These include a wide range of themes such as Chinese solar, social networking, fighting Ebola, recent IPOs and income inequality.
Much like ETFs, motifs hold a basket of stocks. But unlike the stocks in an ETF—which are typically selected based on a traditional index—stocks in the motif basket are chosen based on a proprietary (and transparent) methodology to best reflect the theme in question.
The end result is a group of stocks that, in some cases, isn’t radically different from what you would find in an ETF wrapper, but in others, it can be very different. Each motif has a different weighting scheme, from market cap to—in the case of a precious metals fund—reserves.
As Hardeep Walia, co-founder and chief executive officer of Motif Investing, told ETF Report in the past, the number of motifs available far outstrips the number of ETFs on the market, giving clients the ability to invest in themes they would otherwise not have had access to.
So, the stalwart Wall Street investment banking giant teaming up with a cutting-edge fintech firm is worth keeping an eye on.
The five proposed funds are as follows; no tickers or expense ratios have been detailed:
- The Goldman Sachs Motif Data-Driven World ETF will seek to capture the performance of companies participating in the widespread increase in electronic data around the world along with its transmission, storage and analysis. The fund’s subthemes will include the internet of things, data infrastructure, big data, cybersecurity and artificial intelligence.
- The Goldman Sachs Motif Finance Reimagined ETF targets companies benefiting from the structural changes in how the financial industry delivers its services, including those involved in the digitization of finance, the migration to low-cost passive investments and blockchain technology.
- The Goldman Sachs Motif Human Evolution ETF will invest in companies that benefit from the development of new medical treatments and technology used to treat humans throughout their lives. The category includes the subthemes of precision medicine, genomics, life extension, robotics surgery and consumer health care.
- The Goldman Sachs Motif Manufacturing Revolution ETF covers companies involved in the use of new materials, energy sources and methods in the manufacturing process and also the manufacture of new products, including the subthemes of robotics, 3D printing, autonomous vehicles, drones and clean energy.
- The Goldman Sachs Motif New Age Consumer ETF will target companies that benefit from structural shifts in consumer markets that are caused by changing demographics, advances in technology and widespread preferences, including the subthemes of e-commerce, social media, online gaming, online music and video, experiences on goods, evolution of education, and health and wellness.
These are not your traditional sectors or themes, but Motif is not a conventional fund advisor, which makes this an interesting new wrinkle to watch.
Goldman Sachs is a midtier ETF issuer (18th-largest U.S. issuer) when it comes to assets under management—$8.9 billion—and has largely been expected to increase its presence in the ETF space.
Drew Voros can be reached at [email protected]