Behind A Disruptive Index Provider

October 10, 2018

Jane Edmondson

EQM Indexes is a small, young, woman-owned index shop behind some of the market’s most disruptive benchmarks and ETFs. The firm’s lineup of indices underly funds such as the Amplify Online Retail (IBUY), the Brand Value ETF (BVAL), and the Tactile Analytics ETF (ARVR). Leading the push to break new ground in the index front is Jane Edmondson, co-founder and CEO of the three-year-old firm, and a former portfolio manager and quant. Edmondson offers here a look into the art and science of creating a new index. How did you first get involved with the index business?

Jane Edmondson: I've been in the industry over 25 years. Prior to EQM, I was a quantitative portfolio manager with Allianz Global Investors. Building quant models is very similar to what we're doing on the index side—building a rules-based screening approach to indexes and portfolios.

I first got interested in ETFs when I was doing a consulting job with an ETF client. I came away with the feeling that this is where innovation is going to be in the financial industry. I was very excited. So, we regrouped and thought, “How could we be a part of this?”

That’s when I came up with the idea for the Online Retail Index, which we put together and then sought a partner for: Amplify and its first ETF, the Amplify Online Retail (IBUY). The rest is history. We now have six indexes, all in that disruptive thematic area. Index methodology and brand are big parts of ETF due diligence. How do you tackle the challenge of gaining presence for EQM?

Edmondson: We're not trying to compete with the S&Ps of the world. We're trying to carve out a niche in disruptive thematic indexes. Ultimately, we're looking to partner with ETF sponsors. Either we'll create an idea, or people come to us. Sometimes it's advisors that have a great idea for an ETF index. We help put them together.

We've partnered with some of the smaller, boutique ETF sponsors, like Amplify, Exponential ETFs and Toroso. We've tried to partner with smaller firms that are a little more entrepreneurial. But we worry less about brand name than what we're actually doing in the industry. We’re trying to be disruptive. We're not the biggest player out there, but we play above our size as far as the exposure we get and the products we're involved with. How are new index ideas born?

Edmondson: It’s like a think tank. We sit back and look for exciting areas that don't already have a product associated with them. It could be a disruptive technology or it could be some sort of disruptive theme.

For example, the brand value index is not about a disruptive tech, but it’s a disruption where not all assets appear on the balance sheet. We look for intangible assets such as data, brand and intellectual property. That’s what we're capturing there.

Obviously, not every idea is going to be investable. You can't just have a theme for a theme's sake. There's got to be an economic rationale behind it. What's the craziest index idea you've ever shepherded through or turned away?

Edmondson: We've had some crazy ideas. I’d say it was the “Simon Says Index.” There is a randomizer that tells you what to buy, like Simon Says: Simon Says buy Apple. Simon Says … you get the idea. That’s a perfect example of how we distinguish between what is random and luck-based, versus economically sensible, and rules-based.

It's funny because some of the craziest ideas sometimes end up being good ideas.

Two years ago, when we got started, there were product people coming to us with the idea for a cannabis ETF. At the time, most of the companies were penny stocks, very illiquid, and it just didn't translate well to a product [for us]. Now, it's one of the hottest things out there. So, sometimes crazy ideas can morph into real ideas down the line.

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