The Underappreciated Utility of ETF Investment Cases
If you’ve been in the ETF industry for any length of time, you’ve probably already become familiar with a little document that lives on most, if not all, ETF fund webpages: Fact Sheets. Typically data-heavy, and often featuring technical language lifted directly from an ETF’s prospectus, these documents fulfill an essential role for potential investors curious about investing in a given product, but frequently amount to a missed opportunity when it comes to sales and marketing. This is where investment cases come in.
An investment case is an ETF issuer’s opportunity to make their case to website visitors about why they should invest in their particular ETF. While it can provide some basic information about the fund—the “what”—where they really shine is explaining the “why”—the reasons that this ETF could be the investment solution the investor is looking for, and the ways in which it seeks to deliver those solutions to the investor.
Investment cases can best be thought of as a conversation of sorts between an ETF issuer and a prospective investor, which helps communicate the main selling points in plain language that takes nothing for granted on the part of the reader. We find it’s best to formulate investment cases in a loose “question/answer” format, so as to preserve the conversational tone of the piece. If done right, investment cases can anticipate all of a prospective investor’s most pressing questions and address any lingering concerns they might have before taking the plunge and making an investment. If poorly executed, investment cases can amount to an intimidating “wall of text” for a reader, chock full of incomprehensible financial jargon that causes a reader to disengage.
In other words, the devil is in the details when it comes to producing an effective investment case. For starters, most ETF issuers are “too close” to their funds when it comes time to begin the marketing and messaging process. At this stage, it can be difficult to take a step back and look at the ETF with a fresh pair of eyes, but it’s absolutely necessary. This is an excellent opportunity to have someone (or better yet, a number of outsiders) unfamiliar with the ETF take a look at it and share their questions and thoughts; it could be a member of another team, or it could be an outside vendor that is producing the ETF’s marketing materials on the issuer’s behalf. In any case, this lack of familiarity with the fund is crucial when deciding what to include in an investment case, as it helps encapsulate the experience an investor might have when they first learn about the fund.
A hybrid investment case/fact sheet, sometimes referred to as an “enhanced fact sheet” is another option ETF issuers can consider. Enhanced fact sheets will typically include the required performance and index data that ordinary fact sheets usually contain, but will go a step further, laying out the fund’s main selling points in just a few concise sentences or bullet points, using plain language as devoid of financial jargon as possible.
Simplicity, natural language, and taking nothing for granted will all be helpful when crafting these pieces. By going a step further in their ETF marketing materials with an enhanced fact sheet or investment case, ETF issuers stand a better chance of connecting with prospective investors and educating them on their funds to the point where they could feel comfortable making an investment.
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How to Treat Your Investments Like Private Equity
Treating Your Investments Like Private Equity
Private equity consists of investments in private (non-traded) companies. They are often available through limited partnerships to institutions and high net worth investors. The partnerships require large buy-ins and have significant restrictions. These constraints create a challenge for average investors to participate in private equity investments. But that doesn’t mean we can’t incorporate some of their characteristics to increase our investment returns.
Most investors value both liquidity and real-time information. Both of these are lacking in private equity investments. However, investors can utilize these strategies in their public investments to enhance overall investment return.
Create a Liquidity Constraint
Investments in public companies are mostly liquid. We can buy and sell them at any time. While on the surface, this can be viewed as a positive, the reality is that liquidity may actually cause worse performance. Behavioral economists believe that having some sort of commitment period or locking into an investment for a period of time could be beneficial for our long-term performance. I see two reasons why this may be the case:
1) If we know we can sell an investment at any time, we may not thoroughly consider our buy decision. Most investors buy because they expect some security to go higher; there is seldom conviction behind any purchase. If we were to instill a minimum hold time for each security purchased, we would likely put a lot more thought into why we are buying something to begin with. That exercise alone could help us make better investment decisions.
2) If we can’t get out of an investment, it takes knee-jerk trading decisions out of our hands. It prevents us from acting on emotional impulses. And this could be very beneficial for us. Case in point. Let’s assume we were going to buy a security and wanted to treat it as private equity. We restrict ourselves from selling it for 10 years. We purchase the S&P 500 Index (SPY) on Mar 1, 2008. Because of the financial crisis, just one year later the investment would have lost 34%. Things were looking very bleak. If we could have sold, we probably would have. But our hands were tied. And thank goodness. By the time we could sell on Mar 1 2018, our return would have been 207%, and that is not even accounting for dividends. Most investors have long-term goals, the problem is that we get so focused on short-term outcomes that we don’t allow the long term to occur. Creating a self-imposed liquidity constraint may help.
Don’t Look at Prices
Because investments in private equity are private, prices aren’t readily accessible in the marketplace. So when we invest in private equity, we really don’t have any idea of the value at any given point in time. Together with the liquidity constraint, we just go about our day and hope that when the investment fund matures, it will have increased in value. There is little temptation to abandon or second guess private investments on a daily basis because prices are not known.
The stock market is a constant quotation machine. We can know how we are doing relative to yesterday and that plays with our emotions, and ultimately may influence our decisions. The bottom line is that we, as humans, are influenced by change. It is in our nature. So the best antidote to this, is to simply not look. It is your choice to turn on the financial media and look at your portfolio values. Or you can choose to “set it and forget it.” There have been ample studies showing that the best returns at brokerage firms had something in common – those investors had forgotten about the accounts. They set it and literally forgot about it.
Easier Said Than Done
There may not be an easy way to transform a public equity investments into private ones to protect yourself from yourself. But if your end goal is to make more money, it may be worth your time. I suggest partnering with someone to create and adhere to a durable process. Have some accountability. Just like going to a gym. Some people need a trainer to hold their hand when times are tough and keep them accountable. The same thing can be said in the financial industry.
Remote Employees: To Be Or Not To Be
With research studies attributing positive results to employees working remotely, you may be wondering why you aren’t assigned such a schedule.
You’re not alone with 80 percent to 90 percent of the U.S. workforce saying they would like to telework at least part-time. And forty percent more U.S. employers offered flexible workplace options than they did five years ago. Still, only 7 percent make it available to most of their employees.
These statistics are good news if you plan on generating a case “to be a remote employee.” And yet wherever there is controversy, there is an equally persuasive argument to the “not to be a remote employee” discourse.
Large companies such a Yahoo, Aetna, and Bank of America are eliminating telecommuting positions from their employment rosters. Recently IBM withdrew a considerable number of remote employees from their ranks—not to mention Apple and Google who chose never to be the mix. In fact, data from the Bureau of Labor Statistics American Time Use Survey shows the number of U.S. workers who worked partially or fully from home dropped to 22 percent in 2016.
Research attributes many of the corporate headaches originate from process breakdowns. Yes, people are part of the problem; however, when you drill down, lack of systems is the real culprit. Three reasons companies point to remote position failures:
- Poor policy rollout
- Immaturity of workers
- Restricts collaborative relationships
Let’s address proactive overcoming tactics to shift corporate attitudes:
- Environment Commitment:
- Workspace: Create a designated office in your home to produce a productive environment for yourself. It should be a quiet, interruption-free space.
- Desk-or-not-to-Desk: What is best for you? Some prefer stand-up workspaces; others favor sitting at a regular office desk; while still others aren’t keen on a desk at all. Choose what will have you feeling comfortable and productive.
- Accountability Commitment:
- Production: Initiate dialogue around the expectations your company has of a remote employee with explicit descriptions connected to each. Then, record it, so you, your boss, and human resources have a copy. And update it regularly as assignments are modified or added.
- Accessibility: Managers typically lead through proximity check-ins. It’s your responsibility to stay connected, so your boss never questions your allegiance and contribution. Be proactive too much is never too much!
- Relationship Commitment:
- Success is always about relationships—it’s even more imperative when you’re working remotely. Staying out of the office isn’t entirely an option. How often do you intend to drop-in to be considered emotionally—not merely on paper—a team member?
- Make video conferencing your friend. Building trust and connection with employees is essential to your continued success. It has to be a priority on your calendar. How frequently with whom?
The bottom line is you’re accountable for becoming a boon to your business. And the success process begins as you think through how you, as a remote employee, will benefit your company—not just your lifestyle. Intentionally plan what systems you need to put in place that will lead to advantages for your company as well yourself. And then connect, connect, connect at all levels of the organization to garner a “can’t do without” status.
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