Motif, the startup using machine learning to develop investment strategies for consumers and institutional investors, and Goldman Sachs, one of the world’s leading investment banks, have launched new technology-driven indices to power a series of co-branded exchange-traded funds.
“All these [current] indices are built with humans doing research to go in and figure out a methodology to give you exposure to an investment thesis,” says Motif chief executive Hardeep Walia. “And many of those indices are simple market-cap weighting.”
Walia says that Motif Investments is using data science and machine learning to build a better mousetrap for the financial services industry — and esteemed financial services firm Goldman Sachs has become the company’s first customer.
There is one critical question that financial advisors who are developing new investment strategies need to consider, according to Walia. And that’s whether the index that a financial services firm is creating is diverse enough to take advantage of all of the opportunities a certain thematic investment strategy may present.
To him, most strategies aren’t diversified enough, because they don’t include the breadth of public and proprietary research that Motif has scoured to create its indices.
“If you were to invest in a thesis and wanted to give your clients an opportunity to do that, you could pick the usual suspects,” Walia says. “We look at patent filings and academic papers… the difference is we’re doing it at scale.”
This morning, Motif and Goldman Sachs have launched a suite of five exchange-traded funds based off of thematic trends that Goldman Sachs researchers identified as critical.
“They gave us 25 innovations and we packaged them into five ETFs that have consistent relevance,” Walia says.
The two companies will jointly market the products, which are focused on trends like artificial intelligence, big data and cybersecurity; or the next manufacturing revolution, which includes companies developing robotics, new energy technologies and three-dimensional printing tools. Other funds will focus on the changing face of retail and the disruption of the healthcare industry, and even the ways in which technology is reshaping the financial services industry that Goldman has created.
“What we’re trying to do collectively is, instead of guessing when to buy low and sell high, we are trying to predict what are the things that are going to happen in the future that are going to drive disproportionate earnings growth,” says Walia.
Walia wouldn’t comment on the revenue split between the two companies, but said there would be a share of the profits on the 0.5 percent annual management fee that Goldman is charging on assets invested in the fund.
The new exchange-traded funds will be available globally and are the first time that Motif will be investing thematically across all major markets rather than just in the U.S.
“Through these products we have access to 11 global markets,” Walia says.
For Motif, the partnership tied together three trends in the financial services sector: the rise of passive investing; the collapse of the market for exchange-traded funds, thanks to their proliferation and popularity among investors; and finally, the growing numbers of Generation X (that’s me!) and millennial investors (that’s likely you!) in the customer base of the largest financial services firms.
Ultimately, though, it’s all about the data, says Walia. “Ninety percent of the data created since the dawn of humanity was created in the last two years and what I find interesting about this industry is that they’re still staring at the same Bloomberg terminal.”