In my initial review of new brokerage firm Motif Investing, I wanted to use this new brokerage structure to create cheap, custom ETFs – specifically, baskets of dividend-oriented stocks that for example match the S&P Dividend Aristocrat or Dividend Achiever companies that have raised dividends for 10-25 consecutive years or more. Motif asked if I had any specific questions, I sent some over, and here are the answers as provided by Tariq Hilaly, Motif Investing’s Co-Founder & Chief Investment Officer:
MMB: I’m specifically interested in dividend-oriented strategies. Do you offer any motifs that offer high dividend yields?
A: We sure do. As you know, a motif is a portfolio of up to 30 stocks reflecting a specific idea or theme. For starters, we have the Energetic MLPs motif, which is made up of master limited partnership stocks that have a current composite dividend yield of 7.20%. This motif comprises more stable MLPs because those with the highest debt-to-equity ratios were screened out. Motif members can find each company’s dividend yield by logging in to view the motif’s Overview page, clicking on the Detail Table, then clicking “Add Columns” and checking the dividend yield box. Like all motifs, this motif can be customized in order to meet the needs of the investor’s particular investment strategy.
Another motif, Office Space is made up of commercial real estate investment trusts (REITs) that have a current composite yield of 3.88%. This motif avoids REITs with more than 30% of their debt maturing in the next three years to control for refinancing risk.
Our Recession Resistant motif screens for companies with a low debt-to-equity ratio, high dividend-coverage ratios, and positive dividend growth, then ranks them by dividend yield – those stocks have a current composite dividend yield of 3.21%. These companies are known to carry the potential to survive even a deep recession without having to cut their dividends as quickly as many companies had to do during the recession of ‘08-‘09 (dividend cuts can often result in stocks taking a big hit). Note: The dividend yields provided above are as of August 29, 2012.
MMB: Are there plans in the future for me to be able to “share” a custom motif with others? Or at least name them and save them locally in my own account?
A: Yes, we plan to launch a feature later this year that will let our members share a motif they’ve customized by adding or deleting stocks– or change a motif’s weightings. In the future, they’ll also be able to name the custom motifs any way they want.
MMB: I figured a reason why Motif doesn’t really venture into this is that you can’t mention specific indexes without paying royalties, is that partially correct?
A: Yes, you’re correct. For us to replicate or mention an established index we have to license it. So at this point, we don’t mention specific indexes.
MMB: Does the motif ever “rebalance” in the future back to the original weightings to prevent drift?
A: Yes, we rebalance most motifs on a quarterly basis. On rare occasions, with longer-term investing strategies that take longer to play out, we rebalance once a year.
Since the motifs are designed to represent an idea, we update them according to the rebalancing schedule as the idea evolves, so that they continue to best represent the idea. For example, companies may enter or exit a market – this was the case in tablets, where Amazon entered and Research In Motion and Hewlett-Packard left. So in our Tablet Takeover motif, Amazon was added, and RIMM and HP were removed at the last rebalance. Another example is our Onward Online Ads motif — both Facebook and Yelp were added after their IPOs. That’s how we work to prevent idea drift in our base motifs.
I’m still not interested in any of their current motifs, but I am glad they are open to sharing custom motifs as that can encourage the making some good ones. I looked into the S&P 500 Dividend Aristocrats, but there are 51 of them. With a limit of 30 stocks, I’d have to do some additional screening (or make two baskets, but that would be double the commissions). I just think something could be done here to take advantage of the ability to trade 30 stocks at a time for only $9.95, with no ongoing ETF expense ratios eating into returns. Perhaps someone else can come up with a better idea.
Current Sign-up Bonus
Right now, Motif Investing is offering a $150 cash bonus when you open a new brokerage account with $2,000+ and make 5 trades. If you make 1 trade, you’ll get $50. 3 trades will get $75. Limit one account bonus per household.
The cash bonus offer applies to new, approved Motif Investing brokerage accounts opened after 9/1/12 and funded with at least $2,000. The new funds must be posted to the account within 10 calendar days of account opening, and must remain in the account for 45 calendar days. The total bonus will be based on motif trades made within 45 calendar days of funding, as follows: 1 motif trade will receive $50; 3 motif trades will receive $75; 5 motif trades will receive $150. A motif trade is defined as a completed purchase or sale of a motif for $9.95 commission. Individual stock trades will not be considered as part of this offer. The cash bonus will be credited to the account within 30 calendar days after the end of the 45-calendar-day period.