If you missed it in the mix of all the other news, Motif Investing announced this weekend that it was closing its doors. I’ve had a few emails about this, so I thought I’d at least cover the impact this may have on investors in the Goldman Sachs products based on the Motif indexes.
A Bit of History
I first met Motif’s CEO, Hardeep Walia, a few years ago. He was a participant in a “what’s next” style roundtable at an ETF event, and he was challenging. I mean that in the best possible way: Hardeep’s modus operandi was and is to challenge the assumptions that underpin how financial systems work. I vividly remember him talking about the “end of ETFs” and what would be next.
His vision, which I eventually came around to, was that the “structure” of the ETF itself was irrelevant and that ultimately what mattered was the pairing of intellectual property with whatever the most efficient way to implement that IP was. One of those “efficient ways” was what was offered directly to Motif’s clients: thematic portfolios that could be implemented in fractional shares, commission-free. It was a big, bold idea that attracted over $100 million in private equity to make a dream come true.
But he also made a move to partner with Goldman Sachs on implementing some of Motif’s most popular themes in an ETF wrapper. Those five themes: big data (GDAT), Fintech (GFIN), human evolution (GDNA), next-gen manufacturing (GMAN) and new age consumerism (GBUY), were baked into indexes calculated by the equally disruptive Solactive A.G., the firm behind some of the most innovative products in the ETF space. This combo platter of innovators was, I thought at the time, destined to make some noise, and they did. While asset growth hasn’t been extraordinary, the finds have found their performance footing in many cases, and I’d suspect growth to continue.
But now Motif is closing up shop.
What’s That Mean for the ETFs? Well, we don’t know precisely, but today’s short press release from Goldman suggests they’ll simply absorb the index methodologies and run them in house. This is one of the advantages of partnering with a firm like Goldman… you now know they’ve got the customer’s back in the end.
Mechanically, I suspect this will be mostly a non-event. The methodologies for the indexes are extremely clear (just grab the prospectus, and you could rebuild them), and Solactive I am sure will keep doing the work they’ve been doing with the same level of excellence they’re known for. “Self-indexing” here — that is, the asset manager running the index they’re tracking — has actually become quite common, and shouldn’t raise any particular red flags. In fact, one of the advantages of being as rules-based as these funds are is that moving the methodology under a new roof really should be mostly a non-event.
I’m personally bummed to see what might be the first COVID-19-Adjacent casualty in the FinTech space. I like the idea of firms like Motif and guys like Hardeep pushing the envelope, but I’m 100% sure we haven’t seen the last of his disruptive ideas.
As for the ETFs? I’m confident they’ll be just fine.
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