Are Kittens Dangerous for Your Legacy?
A friend of mine called me all excited about a new video he posted on YouTube. It featured scenes of humans helping animals. “I’ve tried all kinds of videos,” he said, “but this one got the most views. It’s up over thirty-thousand! When I posted a serious video about business that took forever to make and cost way more money, I only got like five views …”
“But what’s the point of it?” I asked. “Does it give your business any legitimacy?”
“No. It’s just what people want to see.”
In the book, Trust Me, I’m Lying, I found myself reading through the crazy tactics used by media manipulator Ryan Holiday to get lies reported by big-name publications and learning about how he was able to get no-name brands coverage by using the right gimmicks. The legit side of me was appalled by the terrible monster the media has become; the conniving side of me wanted to try these strategies to promote my own business. But then it hit me: what is the point?
Once we consume all the flashy gimmicks, fake headlines, and throw-away stories, what are we left with? A sick void. It’s that same sick feeling you get after eating a bag of M&M’s instead of a salad. That feeling that you’ve wasted hours online clicking on headlines like “Is Trump a Baboon?” or “Could Housewives Become Extinct in 2019?” – leading you to stories with no valuable content and a dozen more tangents that link to more stories with no valuable content.
Just Add Kittens … It Gets More Views
In a world where everyone has the ability to generate an audience, how do we resist the temptation to let outside opinions dictate who we become? Seriously, do we just tinker with different ideas until we get a million hits on YouTube? Is that what is to drive what we will be publicly known for?
Your legacy is your impact on the world and those you love. For your friends and family, they will remember how you treated them. All those small acts add up to a life well lived. But what about the public component of your legacy? You may argue that you don’t have to worry about the public side of your legacy because you aren’t famous and aren’t interested in notoriety. I think you should reconsider. If you have any social media account — Facebook, Linkedin, Instagram, Twitter — you are sowing the seeds of your public legacy already, and it has a far-reaching impact. When you apply for a job, meet someone new, move to a neighborhood, go on a blind date, or meet with a potential client, guess what happens next? An internet search.
People who have never met you before want to know what you’re about. They want to know if they can trust you, and they will look for every clue online. They’ll see it all. Those Mardi Gras photos. Your political rant. That video series you posted about going on an all-pizza diet.
The Lure of Fame
Because we all want to be acknowledged by our peers and experience the chemical rush associated with seeing how many people reacted to our posts, it’s easy to get sucked into the fame-seeking vortex. I’m no stranger to it myself. I’ve noticed if I post articles on my personal Facebook page, no one cares, unless the article has a photo of me. And if I post photos of nature (especially mountain and beach scenes), I get a ton of likes. It’s easy to fall into the trap of grooming your online self to be the most-liked version for your audience. This just goes up the chain. Whether you’re presenting yourself to a few close friends on Facebook or have a YouTube channel with a following of several million, it’s all the same. People’s approval matters – a lot.
Although I would never insinuate that seeking connection with others is wrong, I would like you to ask a larger question: what is the intention of your interactions?
Being vs. Doing
There are two types of leaders. One wants to be great. The other wants to do something great.
The first seeks fame. She wants to be seen as special in some way. She wants her peers to think she’s smart or beautiful or creative or talented or maybe even supremely messed up (defined by problems, like being bipolar or dealing with struggle). Her focus is approval and how others respond either feeds or tears down her self-esteem.
The second seeks the pursuit of an idea or a calling. She wants her project to be successful. Her focus is the goal and her actions are dictated by achieving that goal. How others respond is still important, but only to further her cause. Martin Luther King Jr. isn’t remembered because he was handsome, a good speaker, and clever. Sure, he was all those things. But so are a lot of people. He is remembered because he furthered a cause. It was his dream of ending inequality that resonated with so many and became bigger than the man who represented it.
Your Public Mission
What is your cause? I’m not suggesting you become the next Martin Luther King Jr., but there are ways to make your public interactions align with your values and represent something more meaningful.
For example, let’s say your focus is on being a good grandmother and friend. Your cause, in this case, would be to spread love, support, and uplift. Think about how you can do that in both the online and offline world.
I have a dear friend who passed away from cancer a couple of years ago. She was a grandmother, and one of the last things she ever said to me was: “I’m so sick of the negativity in this world. I never talk about doom and gloom around my kids or grandkids. How could I do that to them? They need hope for the future.”
Her way of showing love and support was by sharing only positivity with her family. And she continued with that theme online – only posting uplifting messages and staying away from stories of lack.
My cousin and his wife lost their 2-year-old son a few years ago and, on the week of his passing, their family spends each day doing an act of service and remembering him. On Monday, they go out for his favorite food. On Tuesday, his siblings write notes of remembrance, and they visit his grave. The rest of the week sharing your artwork or involving others in creative thought exercises.
It’s easy to default to the norm of posting photos of cool places you traveled and reposting cute quotes or recipes. But what makes these posts meaningful to you? Are there ways to deepen your connection with those you care about?
Posting with Your Legacy in Mind
Sure, silly videos are fun. So are quizzes and games. A news story here and there is great. But what do your posts, as a whole, say about you and your personal mission? Take some time googling yourself. Look through your posts on Facebook or Instagram. Is this the kind of person you want to be perceived as? Who in your life do you care most about? Do your posts connect with these people? Or are your posts mostly spam or junk or trying to impress people you haven’t spoken with in years (if ever)?
As with anything, the most important part to your online legacy is intent. What is the intent of your posts? Do you want to look cool for your friends? Do you want to make everyone jealous about the vacation you just went on? Or look like you’re doing awesome things too? Is your intent to get the most likes? (Time to start adding some cute animals to your videos!) When your intent is less about keeping up with your peers and more about making sincere connections, it will change your paradigm. It may lead to less attention on the whole, but it will result in deeper one-on-one connections and a feeling of true engagement.
Escape the Matrix
Certainly, social media is a tool for connection, but you may want to consider how much impact you want it to have on your life and legacy as a whole. In other words, at the end of your life, do you want people to say, “Gee, Hermit Dan sure posted a lot of great anecdotes online! His pictures of crazy cookies are something I will always treasure”? Or do you want them to remember actually seeing you – in the real world? Perhaps the best use for social media is to invite people to dinner parties, real-world meetups, or even a video chat.
These genuine real-life connections are what build friendships. Your online posts are passive billboards that may attract attention, but, when all is said and done, I’d rather have a few close friends who I’d do anything for (and vice versa) than millions giving my video about animals a thumbs up.
And if I promote a noble cause that resonates with massive amounts of people, it’ll be the cause that matters. Not the gimmicks I use to obtain fame for myself. At least that’s my hope. The lure of fame is pretty strong, and the temptation to do something solely for the novelty of it – to get more clicks – is a trap I hope to avoid. Only time will tell.
ETFs: The Importance of “Looking Under the Hood"
Written by: Doug Sandler, CFA, Global Strategist at Riverfront Investment Group
The growth of the ETF industry has been a boon to investors, providing access to new asset classes and time-tested investment strategies at a competitive cost. However, the industry’s rapid growth has also brought its own set of challenges with one of the biggest being how to ‘make sense of it all’.
With thousands of ETFs in existence and new offerings becoming available every day (see chart below), it has become increasingly important to thoroughly research an ETF before buying it. Most ETFs are not as alike as their naming conventions or category classification might imply. Only by ‘looking under the hood’ can an investor truly assess the unique features and risks that ultimately impact the performance of an ETF in varying economic environments.
Many of the investment professionals at Riverfront have been building ETF portfolios for nearly 15 years and we are fortunate to have a number of proprietary and third-party tools that enable us to easily identify and quantify the risks in every ETF we invest in. However, since these tools can be expensive and difficult to develop, we often see investors relying on simple points of comparison like expense ratios or size/trading volume when choosing between several ETFs.
This lack of in-depth analysis means that investors can be unknowingly comparing ‘apples’ to ‘oranges’ and making a purchase decision based upon which is cheapest or which is most popular. In this article, we share a framework to help compare ETFs and properly assess their key features and risks.
We believe that the three most important characteristics to consider when comparing ETFs are: 1. Universe Definition, 2. Selection Criteria and 3. Weighting Methodology.
1. Universe Definition:
Every ETF is built from a defined universe of stocks. A universe can be defined broadly, like all companies in the Wilshire 5000, or narrowly, like all biotechnology companies in the S&P 500. What a universe includes or excludes can have meaningful performance implications, and thus should be an important consideration when comparing ETFs. Below are a few examples of universe differences that are often overlooked by investors.
A. Europe Example: What one index provider defines as European companies may differ from the definition used by another provider. One important distinction is whether they are including companies that are members of the European Union (EU), or members of the European Monetary Union (EMU). The EU is comprised of 28 countries that have agreed to principals governing interactions including trade and immigration. The EMU, on the other hand, is made up of only the 11 countries that utilize the Euro as their common currency. A number of countries like Germany and France are members of both the EU and EMU; however there are a number of countries like the UK, Switzerland, and Norway that are members of the EU and not the EMU. The countries in the EU but not in the EMU represent nearly 50% of the EU index and their exclusion can be expected to impact an ETF’s performance. This difference may become increasingly relevant as the UK faces its own unique challenges navigating its exit from the EU (Brexit).
B. Emerging Market example: The two largest emerging market (EM) ETFs have one key difference, the inclusion of South Korea. South Korea is the 2nd largest country weighting in the emerging market index as defined by MSCI, currently representing roughly 15% of the index. The FTSE emerging market index, which is the index behind the largest EM ETF in the marketplace, does not consider S. Korea as an emerging market country and thus does not include it in its index. The dissimilar treatment of S. Korea can have material performance implications on the two ETFs, as it has so far in 2017, with S. Korea significantly outperforming other emerging market countries. Investors worried about escalating tensions with North Korea, or believe that these fears are overblown, need to consider these differences when choosing their EM ETF.
C. Technology Example: Some indexes define technology more broadly than others. A key area of differentiation is with regard to how they define Internet Retail. Some index providers classify these companies within the technology sector, while others view them as members of the consumer discretionary sector. Similar varied treatment can be found with regard to the media and the electric vehicle industries. With Internet retail, media and electric vehicles comprising a significant portion of some technology indexes, the performance implications can be profound. Those that believe companies in these industries represent the future of technology should consider an ETF that is built on a more inclusive index.
2. Selection Criteria:
The next characteristic to consider, in our view, is the ETF’s selection methodology. ETFs with a selection methodology based on criteria (i.e., ‘factors’) other than ‘market capitalization’ are often referred to as ‘Smart-Beta’. A factor is a characteristic like ‘share-price volatility’ or ‘dividend yield’ that is used to screen or rank securities within a defined universe. With over 2,000 listed ETFs, there is likely an ETF to satisfy the needs of even the most discerning ‘stock-picker’. An ETF’s selection criteria can be simple, utilizing just a few static factors, or sophisticated like those that employ dozens of variable factors.
A. Number of Criteria (Factors): Every selection methodology has the potential to introduce biases into an ETF that may not be entirely transparent or intentional. For example, an ETF that selects its constituents using a factor like ‘value’ will also likely impart significant sector overweights and underweights into the fund. Many “value”-based indexes, for example, are currently overweight financials and underweight technology and healthcare. Investors who are bullish on technology and bearish on financials should steer clear of value ETFs with these structural biases. A general rule of thumb is that ETFs that employ a small number of factors (four or less) tend to have more biases than those that have more complex factor selection methodologies. While there is nothing inherently wrong with a bias if it’s what an investor intended, it is important that those biases are known ahead of time and not a ‘surprise’ later. We like to say: ‘Every ETF has a bias, never make a purchase decision before you find it.”
B. Factor Definition: Selection methodologies can also vary in the way they define a factor. For example, the ‘value’ factor can be defined differently by different index compilers. One might use a company’s price/book ratio while another uses price/earnings or price/sales. To complicate things further, one provider may only include the constituents with the most extreme ‘value’ rankings and another might include a broader group of companies with attractive ‘value’ rankings. This can lead to significant cap, sector and industry weighting differences between two similar sounding ‘value’ ETFs. For example, as of 11/30/17, the two largest value ETFs as determined by ETFdb vary in their small and mid-cap exposure by ten percentage points. Just like you should not judge a book by its cover, it can be dangerous to judge an ETF by its name alone.
C. Static or Variable (Active): Active ETFs differ from traditional ETFs in an important way. Active ETFs do not follow an index and as a result have the flexibility to adjust their selection criteria, as opposed to traditional ETFs that follow indexes whose selection methodology is set at the time of the index’s inception. There are pros and cons to each methodology. One advantage of active ETFs is that they have the ability to evolve and adapt to a changing investment climate. Some might view this advantage as a disadvantage, since the ETF’s biases will be dynamic and less predictable. For example, an active US equity ETF that falls under a mid-cap classification one day, may become more large-cap focused three months later.
3. Construction/Weighting Methodology:
The third important differentiating characteristic, in our view, is the ETF’s weighting methodology. The weighting methodology not only has the potential to introduce additional biases, but can also dilute or amplify the selection methodology.
A. Capitalization Weighting vs Non-Capitalization Weighting:
- Size Bias: ETFs that utilize a market capitalization weighting scheme will tend to contain a size bias that favors large-caps, while a non-cap weighted methodology will tend to have greater exposure to mid and small-caps. This can be particularly important at various market stages. For example, it is not unusual for small and mid-caps to outperform in the early stage of a bull market due to their greater leverage to improving business conditions, while large-caps often outperform in a bear market when investors demand stronger balance sheets.
- Concentration Bias: Market-cap weighting methodologies can also introduce concentration risk to a portfolio, where a handful of securities comprise a significant portion of the ETF. A popular South Korean index, for example, is cap-weighted and dominated by a single company that comprises more than 23% of the index. Concentration issues can undermine an objective to diversify risk, particularly in higher risk areas like biotechnology or emerging markets. Ultimately, an unintended concentration bias can turn the ‘right’ idea into the ‘wrong’ outcome if not monitored closely.
B. Factor-Weighted: Factor-weighting methodologies assign the greatest weights to the stocks that have the highest factor scores. For example, the largest constituents in a factor-weighted momentum ETF will be the stocks displaying the strongest momentum. A factor-weighted ETF can be expected to perform differently than one that simply identifies the 100 strongest momentum stocks and weights them equally. Factor-weighting methodologies have the potential to amplify returns positively or negatively.
One could argue that buying an ETF is similar to buying an automobile. A car buyer rarely makes their purchase decision based solely on price. Instead they consider the vehicle’s design, drivetrain and safety features to determine if it meets their unique needs. In most cases, the decision to purchase an ETF should also not be made solely on the fund’s expense ratio, since there are likely other distinguishing features that will be more impactful to the fund’s performance. By understanding the construction and drivers of performance in an exchange-traded product, investors can minimize the potential for surprises down the road.
Important Disclosure Information:
The comments above refer to generally to financial markets and not RiverFront portfolios or any related performance.
Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve positive returns, avoid losses, or experience returns similar to those shown or experienced in the past.
Information or data shown or used in this material was received from sources believed to be reliable, but accuracy is not guaranteed.
Exchange-traded funds (ETFs) are sold by prospectus. Please consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus and summary prospectus, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest. As a portfolio manager and a fiduciary for our clients, RiverFront will consider the investment objectives, risks, charges and expenses of a fund carefully before investing our clients’ assets.
ETFs are subject to substantially the same risks as those associated with the direct ownership of the underlying securities owned by the ETF. Additionally, the value of the investment will fluctuate in response to the performance of the underlying index or securities. ETFs typically charge and/or incur fees in addition to those fees charged by RiverFront. Therefore, investments in ETFs will result in the layering of expenses.
Actively managed funds are subject to management risk. In managing a fund’s investment portfolio, the sub-advisor will apply investment techniques and risk analysis that may not have the desired result.
Diversification does not ensure a profit or protect against a loss.
Technology and Internet-related stocks, especially of smaller, less-seasoned companies, tend to be more volatile than the overall market.
Small-, mid- and micro-cap companies may be hindered as a result of limited resources or less diverse products or services and have therefore historically been more volatile than the stocks of larger, more established companies.
Investments in international and emerging markets securities include exposure to risks such as currency fluctuations, foreign taxes and regulations, and the potential for illiquid markets and political instability.
Beta measures volatility relative to a benchmark. A result greater than 1.0 implies that a security is more volatile than the benchmark; a result less than 1.0 suggests that the security is less volatile than the benchmark. Betas may change over time.
RiverFront Investment Group, LLC, is an investment adviser registered with the Securities Exchange Commission under the Investment Advisers Act of 1940. The company manages a variety of portfolios utilizing stocks, bonds, and exchange-traded funds (ETFs). RiverFront also serves as sub-advisor to a series of mutual funds and ETFs. Opinions expressed are current as of the date shown and are subject to change. They are not intended as investment recommendations.
RiverFront is owned primarily by its employees through RiverFront Investment Holding Group, LLC, the holding company for RiverFront. Baird Financial Corporation (BFC) is a minority owner of RiverFront Investment Holding Group, LLC and therefore an indirect owner of RiverFront. BFC is the parent company of Robert W. Baird & Co. Incorporated (“Baird”), a registered broker/dealer and investment adviser.
These materials include general information and have not been tailored for any specific recipient or recipients. Accordingly, these materials are not intended to cause RiverFront Investment Group, LLC or an affiliate to become a fiduciary within the meaning of Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, as amended or Section 4975(e)(3)(B) of the Internal Revenue Code of 1986, as amended.
Index Definitions (You cannot invest directly in an index):
The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States.
The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries*. With 838 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The FTSE Emerging Index is a free-float, market-capitalization weighted index representing the performance of around 850 large and mid cap companies in 22 emerging markets. The index is derived from the FTSE Global Equity Index Series.
The MSCI Europe Index represents the performance of large and mid-cap equities across 15 developed countries in Europe. The Index has a number of sub-Indexes which cover various sub-regions market segments/sizes, sectors and covers approximately 85% of the free float-adjusted market capitalization in each country.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
Copyright ©2017 RiverFront Investment Group. All rights reserved. 2017.298
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purpose. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.
J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.
J.P. Morgan Asset Management and JPMDS are not affiliated with RiverFront Investment Group.
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