If anything, upstart motif Investing offers a fun, fresh––if not cool––way to invest. And according to its CEO, the four-year-old company represents a disruptive force within the financial services industry, thanks to its thousands of motifs that make it cheap and easy to build and/or buy a basket of stocks or ETFs with one click. The degree of Motif Investing’s disruption factor is debatable, but the fun factor of its product isn’t.
What’s Motif Investing? Better yet, what’s a motif? As defined on the company’s Web site, a motif is a collection of stocks or ETFs that reflect a specific idea or trend. Users can invest in a basket of up to 30 securities built around a concept––from Caffeine Fix and Cash Flow Kings to Online Video and Obamacare. These are just four of the 145 off-the-shelf motifs created by the investment team at Motif Investing, a San Mateo, Calif.-based online broker.
Beyond that, Motif’s rapidly expanding customer base has created more than 35,000 additional motifs that have their own particular investing themes and portfolio holdings. For an initial investment of as little as $250 or as much as you want to invest, you can buy an existing motif as is, buy an existing motif and customize it or build one from scratch for a total commission cost of $9.95. It also costs $9.95 to sell a motif.
After you own a motif, you can buy or sell individual stocks or ETFs within that portfolio for $4.95 per security. Motifs don’t have any management fees or expense ratios.
Jaime Harpst, president and investment manager at Infresh Financial Network in Findlay, Ohio, has created seven of his own motif strategies that he uses for clients at his small, fee-only RIA firm. “Motif saves clients money regarding transaction costs,” he says. “If you bought 30 individual stocks at a Fidelity or Scottrade, you’d pay more than $200 to be invested in them.”
Another thing he likes about Motif is that it’s a cost-effective way to serve clients with small accounts and provide them with sophisticated equity portfolios typically reserved for wealthier clients at larger firms.
Earlier this year, Harpst was one of roughly 100 financial advisors who participated in the beta launch of Motif’s new platform aimed specifically at financial advisors. That platform had its coming out party in early May, and Motif sees the financial advisor community as another growth market beyond its original retail audience.
“We’re an online broker with a bit of a twist in that we don’t want people to buy individual stocks because it’s expensive,” says Hardeep Walia, Motif’s CEO and co-founder. Motif’s twist is that it enables investors to find their own inner portfolio manager by turning their ideas into investment products for just $10. In a sense, it lets people combine the best of legendary Fidelity portfolio manager Peter Lynch (buy what you know) and Vanguard’s equally legendary founder John Bogle (put it in low-cost product and buy it on the cheap).
Walia, 41, comes from Microsoft, where he was general manager of the company’s $2 billion enterprise-services business. He also served as director of corporate development and strategy. He speaks with a boyish enthusiasm about his company’s product, describing it as “super easy” and “super efficient” to use. And it’s hard to argue with those assessments.
You can essentially build a motif based on any concept that tickles your fancy. And chances are there’s already an available motif for that. If you’re into organic foods, type “organic foods” in the search bar on Motif’s Web site and the “Healthy and Tasty” motif appears. This motif was designed by Motif and contains 20 holdings in the food producer, grocery and nutritional supplements segments that have an organic––or at least a health-foods––bent.
The page displaying this motif delineates the holdings by segments, along with market cap, dividend yield and one-month and one-year returns for each stock. A more detailed table provides additional data on the weighting and p/e ratio of each holding listed in sortable columns. And there’s a “What Others Think” tab where the Motif community can discuss this particular motif (as of early May, 65% of reviewers gave it a thumbs up versus 35 giving it a thumbs down).
This particular motif had a one-year return of 3.6% as of May 9 despite the huge hit taken by Whole Foods––the largest holding at nearly 18%––after its disappointing first quarter earnings report. If you feel you can improve this motif, click on the “customize motif” box and use a slide bar to adjust the weightings either by segment or individual stocks, or click a box to add stocks to the portfolio.
You can buy this motif as is or buy the version you’ve tweaked. Or, if you prefer, buy the “Junk Foods” motif that’s listed as a related motif. That portfolio sported a one-year return of 11.7% as of May 9. Or just build your own portfolio––investors who create their own motifs can make them open to all or can keep them private.
As part of Motif’s creator royalty program, people who put their self-created motif into the community catalog get $1 every time someone buys or rebalances the motif they made.
The Motif site is intuitive, fast and easy to use. Walia says Motif’s technology and product development were done in-house. Along with hiring talented people to help on the back end, Motif has attracted notice from some heavyweights in the financial services industry such as former SEC Chairman Arthur Levitt and former Wall Street executive Sallie Krawcheck, both of whom sit on the company’s board.
Other members of Motif’s leadership team include former executives from E*Trade, Wells Fargo Securities and Ronin Capital. The company’s early financial backers included Goldman Sachs, and Motif last month announced a $35 million fund raising from JPMorgan Chase & Co., Wicklow Capital and Balderton Capital. Balderton, a U.K.-based fund, said it will help Motif expand operations into Europe.