Friday, June 8, 2012

Motifs: A Lower Cost, Customizable Alternative to ETFs?

An interesting startup launched on June 4th called Motif Investing. The idea behind this new online brokerage is that people can buy baskets of up to 30 stocks (Motifs) centered around specific themes for a single charge of only $9.95 (about what sites like E-Trade charge to buy 1 stock).

However, what makes the concept interesting is the customization of these Motifs. Before buying the "Motif" you can alter the stock weightings or completely delete or add stocks for no additional cost -- as long as these changes are made before buying the Motif. Otherwise they charge $4.95 to sell a stock or add to a stock in a Motif you already own. But if you want to sell the entire basket of stocks in the Motif it's just $9.95.

In essence, these Motifs are like ETFs but customizable to your particular preferences and WITHOUT the ongoing fees charged by ETFs. Don't want Bank of America in the Motif? Take it out. Don't like that Apple is such a large weighting in a Tech related Motif? Reduce it's weighting.

The site currently has 53 different pre-made Motifs with many more coming. While these are fully customizable, they also plan on allowing users to generate their own motives from scratch and, according to Forbes, these will include long-short portfolios (although I question the logistics of that). Also for an additional fee you’ll be able to harvest tax losses in these Motifs and then reinvest 31 days later, avoiding the wash-sale rules.

You can search for Motifs by Idea Type -- such as megatrends (pictured below)

Or Model Based (as well as many other ways)

Here is an example of the "Income Inequality" Motif. A combination of Luxury and Discount retailers.

Or their "Guns, Guards and Gates" Motif

While their pre-made Motifs are interesting. I think the power comes with the customization. The minimum for each Motif is $250 (miniumum account size is 1K or 2K for margin).

This will be interesting to see how this pans out. I think it is a great concept.....only I think this will prove to be a very "interesting" time to launch (they might want to speed up the implimentation of those long-short portfolios lol). This is a very innovative concept and as long as individual investors can control their behavioral biases (theme based investing can be very dangerous) -- I think this can be very good tool for investors.

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