Terminator 2

We’ve spent some time talking about the trend toward robo-advisers and the challenge it presents for real life wealth managers. In this email we’d like to discuss another robo-trend that may also have important implications for traditional financial intermediaries.

We call it computer-assisted, DIY, trend investing. It is spearheaded by Motif Investing (Motif), an innovative tech/discount brokerage started by an ex-Microsoft executive. Motif facilitates the creation of investment portfolios that reflect specific market trends or themes. Investors identify trends that they think have attractive investment implications. Motif then selects and purchases a basket of securities that are expected to benefit from the trend. A menu of trends is provided by Motif, but trends can also be created by individual investors or investor groups through social media. Motif does the stock research, analytics and implementation legwork that requires technical expertise, leaving the big picture thematic judgment to the investor.

We believe that the Motif approach may have legs.

• First, in this age of specialization, information, and heightened social awareness, trend-spotting has become a pervasive cultural pastime. Motif takes advantage of this by enabling non-financial professionals to attempt to realize the financial potential of their own knowledge and intuition. This is a compelling proposition to those investors who have lost faith in professional asset managers but not in the promise of active management or their own world experience.
• Motif also enables investors to work with peers by using social media tools to improve the trend spotting process. Crowd sourcing/vetting trends allows investors to share the investment experience, in turn instilling investor confidence and encouraging use.

The success of DIY trend investing, and the companies that provide the service, may depend in large part on the investment success of early adopters. If favorable, and the results hit social media, the challenge to professional advisers and asset managers may be more profound than originally expected.