Tobin McDaniel: ETFs to Play a Crucial Role in SoFi's Growth

When SoFi was founded in 2011, it was originally a student loan refinance company. Since then, it’s “evolved dramatically” to offer an array of products and services, including ETFs, through an investment management business, according to Tobin McDaniel, head of SoFi Invest.

“Our goal is to be a top-10 financial institution, and that means having all the products and services someone needs,” McDaniel told VettaFi. “You’ve got to have lending, checking/savings, financial planning, investing, and investing products.”

SoFi launched its first ETFs in 2019: the SoFi Select 500 ETF (SFY) and the SoFi Next 500 ETF (SFYX). The two index ETFs with no management fees were launched to provide “building blocks for portfolios for customers,” according to McDaniel.

Since launching those two ETFs, SoFi has listed roughly two funds per year. Now, the firm has eight ETFs with more than $500 million in assets.

These eight ETFs are grouped into two categories of four: There are the core ETFs (index- and income-oriented), and thematic funds. While the ETFs in the former category “are those portfolio building blocks” that McDaniel previously mentioned, the thematic ETFs are designed to “appeal to our investors’ interest level.”

“We’ve got all the data on what they invest in, we do lots of research, we see what they’re excited about, and so we try to find the themes that we believe are aligned with a growth area in the economy and have an appeal to our customer base,” McDaniel said.

And while SoFi’s ETFs are available to all investors, McDaniel added that the company launches thematic ETFs that it believes will “appeal to our core member base” of more than 5 million members.

“It’s important to start with what’s going to appeal to our core member base,” he said. “That’s the place to start.”

“We Look at What Our Members Are Investing In”

SoFi’s thematic ETFs include the SoFi Be Your Own Boss ETF (BYOB), which centers on companies that help individuals be their own boss, and the SoFi Web 3 ETF (TWEB), which provides exposure to companies in the Web 3.0 space.

The SoFi Smart Energy ETF (ENRG) is a clean tech ETF focused on companies that provide services and products that lean towards energy production and storage at the point of consumption. This includes solar panel and battery charging companies.

“So rather than an ESG ETF that looks to avoid oil producers… [ENRG] just focuses on the companies building new technology that could and should be part of a green revolution,” McDaniel said.

But the first thematic ETF that SoFi launched was the SoFi Social 50 ETF (SFYF), which tracks the top 50 U.S. stock holdings in SoFi’s self-directed brokerage accounts. The fund is rebalanced monthly to reflect what the firm’s members are investing in.

McDaniel pointed out that SFYF has holdings one would expect, like Apple, Amazon, and Tesla, but it also shows how sentiment is changing. For example, Berkshire Hathaway has recently moved up the list, while Pfizer, Moderna, and Coinbase have dropped.

“This is a finger on the pulse of the retail investor,” he said. “Every month we look at what our members are investing in and recreate this index of where they’re investing.”

ETFs “An Important Part” of SoFi’s Growth

SoFi has many businesses that are in different stages of maturity. Its investment business is one of the company’s newer business lines. As SoFi looks to grow its asset management business, ETFs will play a crucial role in that growth.

“Providing investment products as part of that business is a long-term strategy we’re working towards,” he said. “It’s an area that we’re focused on.”

Added McDaniel: “If we fast forward to five or 10 years from now and we are all that much bigger as a financial institution, this is an important part of that.”

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