PIMCO Drama Helped Create Vident ETF

December 09, 2014

ETF.com: Let’s talk about the rules-based rubric that’s front and center in the three securities you’ve worked on with Vident. It sounds like you’re less concerned what the market benchmark is returning relative to your rules-based securities. What you seem to care about is that the rules embedded in those securities will produce fairly predictable returns and are consistent with your values. Is that fair?

Birley: Everything except for that last word “values.” I don't think it’s about values as much as being about what we think is valuable to having growth and meeting accumulation goals. So, the only reason we have the principles is we believe they’re what drives growth.

We aren’t saying these are necessarily reflective of any Christian values or anything. We think that those are the principles of the drivers of what will help our clients meet their accumulation goals.

ETF.com: At the risk of sounding flippant, it sounds like the underlying assumption here is that the good guys are going to win, right? Societies and companies that embrace rule of law and democratic values are going to outnumber the North Koreas and the Saddam Hussein Iraqs of the world?

Birley: Yes, that is the best chance. We don’t presume, based on our diversification, that we know which countries are going to be the best. But we think it’s the best chance when you have those sort of principles embedded in a leadership and in a society and you buy them at a reasonable price. You have the best chance of having sufficient growth to meet your accumulation goals.

ETF.com: So what is a relevant benchmark in all this? It seems like you don’t really care if you come in shy, say, of the S&P 500, as long as the accumulation value you see in the system is being expressed over the arc of time?

Birley: Yes. One of the big changes we made in 2009 as a firm is the benchmark was not a relative index. A benchmark was an absolute goal that our clients needed to fund their financial plan to the finish line.

ETF.com: Does that mean that the notion of a benchmark is broken down into many benchmarks reflecting the various goals of the 14,000 accounts that you have?

Birley: Well, I think the benchmarks are pretty helpful to give you some guidance as to how you're doing relative to different benchmarks as a guide. But trying to beat one leads you to decision-making that generally is very tightly tracking to the benchmark with a few bets to hopefully beat it.

ETF.com: So the ETFs you’re championing with Vident are their very own benchmarks?

Birley: Yes, they're benchmarks for us.

ETF.com: Is there any part of Ronald Blue that will indulge clients in alpha-seeking on a limited basis?

Birley: Well, the degree to which you do that, and why you do that, matters. But we would always say that wealth is created through those sorts of concentrations—and wealth is preserved through the diversification element. So you have to decide what you're trying to do with your wealth. That's back to the purpose, the client’s goals.


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