‘Shark Tanker’ O’Leary On Why His ETFs Are Different

Founder of O’Shares stresses a longer-term mandate that focuses on the best balance sheets.

Reviewed by: John Swolfs
Edited by: John Swolfs

Hear from Kevin O'Leary and more than 120 speakers at Inside ETFs 2017, which runs Jan. 22-25 in Hollywood, FL. See the agenda and register here now for the world’s largest ETF conference.

Kevin O’Leary is best known for his role on ABC’s “Shark Tank,” but few know he’s owned and operated an asset management business for years, and is an ETF issuer as well.

In a quest to better manage his family’s trust and assets, O’Leary has turned his attention to ETFs. His firm’s unique ETF offerings are rules-based noncap-weighted ETFs designed to preserve wealth.

Ahead of his keynote speech at the 10th Annual Inside ETFs conference in Hollywood, Florida on Jan. 24, O’Leary sat down with Inside ETFs’ John Swolfs to discuss the reasons behind his conversion to ETFs, his focus on balance sheets and why Inside ETFs is a must-attend for him.

Inside ETFs: In a crowded marketplace, what drew you to ETFs, and why did you feel the need to create your own?

Kevin O’Leary: Having had the challenge of managing a family trust with a simple mandate, I found over time—and this is really the essence of the ETF story—that active managers, while they're great, more often than not go flat or blow up and cause a heck of a lot of problems.

Inside ETFs: So why did you create your own ETFs, when there are nearly 2,000 options available?

O’Leary: We looked at all 49 ETFs in the market at the time that paid dividends. Almost all of them were market-cap-weighted and breached one of the trusts mandates.

We tasked FTSE Russell with building a new index that has a 5% max and a bunch of our rules in it. Those rules govern the family trust and are the basis of our ETF lineup.

Inside ETFs: At a quick glance, your ETFs appear to be a dividend-focused approach. Is that an accurate characterization?

O’Leary: No. What's different about a product like O’Shares is the concept. We focus on balance sheets and low volatility. At the end of the day, you're finding great long-term strategies, because, for me, this trust has to work for the next 100 years.

I’ll always want to own the best balance sheets. When people ask me about OUSA [O'Shares FTSE US Quality Dividend ETF] and why it works, it’s because you own the best balance sheets all of the time. I don’t think owning the best balance sheets will ever fall out of favor, regardless of what the market is doing.


Inside ETFs: It’s no secret your funds employ a bottom-up approach. Why?

Kevin O’Leary: Our focus is not on what happens this quarter, or what company has just gone public; these are core holdings. No matter what geography I'm in, the bottom-up approach leads me to the good balance sheets. For me, it’s more about managing the long-term mandate. We feel a bottom-up approach gives us the best chance to meet that mandate.

Inside ETFs: Earlier you mentioned you went to FTSE Russell to build these strategies. Do you personally manage these ETFs at all or have any influence on the buy-and-sell decisions? Were you intimately involved in putting the rules together?

Kevin O’Leary: I was involved in the original design, and the structure. These ETFs are managed by 150 people who maintain a database, which is a dream for me. I have people all around the world downloading every balance sheet and every income statement every quarter, making sure they’re tracking all the rules we covered inside the ETFs.

Inside ETFs: Do you know who’s buying these products? Where do you see the assets coming in from?

Kevin O’Leary: In the beginning, it was very much retail. Performance, particularly the volatility metrics, started driving institutional interest, and it’s now available on UBS and Morgan Stanley platforms. We hope to see continued adoption by pension funds and sovereign wealth funds.

Inside ETFs: Why would you encourage financial advisors and people in the ETF industry to join us for the 10th annual Inside ETFs conference?

Kevin O’Leary: The truth is that most of us in the industry are in the very early days of ETFs and actively managed ETF solutions. People are excited because they're watching where the money’s going into actively managed ETFs. This is a massive innovation. It’s brand new and so exciting to discuss at the conference. I won’t miss a day.

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