Shark Tank's O'Leary On ETF Investing

July 06, 2017

Kevin O’Leary is best known as one of the hosts of “Shark Tank”—aka “Mr. Wonderful”—but beyond deciding what new entrepreneur to fund, he is the chairman of O'Shares, an ETF provider that launched its first fund two years ago. sat down with O'Leary to discuss his conservative brand of investing, as well as some current macroeconomic topics. Stocks are at record highs and volatility is near record lows right now. A lot of people are talking about how valuations for the equity market are stretched. As an investor, does that concern you, or change the way you position your portfolio?

Kevin O'Leary: No, because in my mandate, I'm invested 100% all the time. My job is to find ways to diversify my risk and reduce volatility. Exchange-traded funds—and particularly new smart-beta or rules-based ETFs—do exactly that.

I can get both sectoral and geographic diversification using ETFs. I’ve been an investor for a long time, and the reason ETFs have the fastest-growing fund flows of any asset class globally is because they’re serving investors so well.

What's happened over the last 15 years is we've gone from some very basic market-cap-weighted funds like the SPDR S&P 500 ETF (SPY), the PowerShares QQQ Trust (QQQ) and the SPDR Dow Jones Industrial Average ETF (DIA) into very sophisticated products that can be designed to do exactly what investors want.
A product like the O'Shares FTSE US Quality Dividend ETF (OUSA) de-risks the S&P. I'd rather own OUSA than SPY, because two-thirds of the stocks inside the S&P 500 I don't want to own. I'm very focused on de-risking my portfolio.

For example, I don't want companies that use sales accruals. I don't want companies that use debt to maintain dividends or grow them. I don't want companies that have slowing return on assets. Those are all rules incorporated inside of OUSA that protect me as an investor. Do you believe these factor-based products you have at O'Shares are superior to the traditional market-cap-weighted indexes?

O'Leary: I don't say they're superior; I say they achieve my objectives—which are far more conservative. I need to de-risk a portfolio because I don't have the option of going to cash. I'm always invested, so I would much rather own much higher-quality companies.

When the sell-off occurs, when you apply the rules I talked about, instead of suffering the entire drawdown of the market, you're protecting yourself. Maybe you only get 50% or 60% of the drawdown. On the other hand, you never get 100% of the upside.

These new products do a masterful job of protecting capital for long-term mandates and people who are extremely conservative investors.


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