We want to deliver active-like strategies via passive management with passive-type of pricing, Motif

In the second part of an interview Hardeep Walia (pictured), Motif Capital's chief executive talks about the firm's plans to expand beyond the US market and points at thematic investments driving activity in the US market, how these themes fit into the structured products segment, and why technology is democratising access to investors.

According to Walia, the added value of Motif's offering is that investors can pick all the themes it offers individually or in combination with others, and wrap them as a separate managed account (SMA), structured note or certificate of deposit (CD) via any custodian bank.

Thematic models
There are a number of structural themes which are driving significant activity in the US market and can add an edge to Motif's offering with the use of unique data sets, according to Walia. "One of the themes for instance, 'ageing population', includes real estate and medical assets," says Walia, underscoring that Motif's models will provide investors with exposure to several sectors linked to a given theme. "Big data and US national defense are two other themes that are getting increasing traction."

Walia notes that the latest Goldman Sachs tranche linked to the National Defense 7 ER Index in late June is a theme linked to the pressure on the Trump administration to sustain the global military leadership and includes a number of companies that showcase that theme.

Another theme is 'next generation consumer' which is very different form the traditional consumer, and has changed the way people look at consumption; as well as Artificial Intelligence and robotics which is also an area of focus at Motif, according to Walia.

As a technology company these areas are natural to us," he says. "AI was brought up almost in every session during the SRP conference and that is testimony of the interest around this theme although very little people know how this is evolving as an investment thesis."

Infrastructure is also "huge in the US" because there is a need to revamp the infrastructure of the whole country, according to Walia. "This is not about companies working on the electrical grid but on areas where people don't usually invest," says Walia. "We're talking about how important the US energy independence is going to be that will transcend different administrations as well."

The advantage of Motif's models, says Walia, is that "all of a sudden" investors have a more granular perspective of their exposures. "I think this can help educate investors as well as give them certainty about where their money is invested," says Walia.

Technology
According to Walia, technology is enabling access to investment areas that were accessible to a limited number of investors in the past. "In the retail market people are trying to solve the problem of access by dummying down investing as we are seeing with robos," says Walia, adding that he is not a big fan of robos because they don't really provide advice and they are "four times more expensive" than a target date fund although they're marketed as cheaper than a human adviser.

"These tools are promoting a concentration of products in investors' portfolios and the only difference is the weighting in each of those portfolios," he says. "Instead what we are trying to do is to launch sophisticated products that are accessible to everyone because they are simplified and universally accessible. We want to replicate in the retail market the innovation we see in the institutional space, and use technology to accelerate that process. We have strong ideas as of how technology should evolve to accelerate developments in the institutional space which will then be trickle down to the retail space by making them more intuitive."

According to Walia, the robo trend is somehow another marketing fad because "it's no more than online banking".

"This is not a business line but a feature or functionality within the asset management segment," he says. "Everybody is doing the same. We are taking a different approach. We want to bring products to market that are different and make them interesting and simpler through the use of technology."

Despite the advances on technology, according to Walia, there is still a lot of people working with spread sheets in the institutional segment. "We want to change that by writing algorithms that can process data faster," he says. "The structured products market is an interesting place for us because thematic investments lend very well to this kind of wrapper as you can have a bullish or a defensive view on a particular theme."

Structured products
There is significant value in managing risk and the different wrappers in the structured products market can provide just that, according to Walia.

"We are also very confident that our models can add value as underlying assets because they can be deployed in different ways," says Walia. "We also think that in [uncertain] times like this structured products are a very good vehicle to manage risk effectively. I have been an investor in structured notes for the last 10 years because I believe in managing risk and I'm happy to pay for the management of risk."

Walia also believes that its Motifs will also help investors understand what they are investing in as opposed to just deploying a market cap index or a generic strategy and hope it performs.

"We want to empower people to deploy assets in their investments that respond to their convictions," he says. "We want to apply our nine models to structured notes and are in the process of doing so. Our Motifs are so flexible that we can deploy a very simple thematic underlying or a more elaborated strategy."

Motif is working with Goldman Sachs on the launch of another two notes. "Now that we have gone through the startup issues (regulatory scrutiny and so on) we're ready to go full swing with Goldman," says Walia, adding that the firm's set up also provides scope for collaboration with index providers in the development of new underlyings.

"Our partnership with MSCI is an example of how we can deploy data from an index provider to inform our models," says Walia. "We're not seeking to replicate what is already out there but to use the research and the data to implement strategies in an automated way in models that can drive performance. We see index providers as a good complement to build our models and we will continue to look for opportunities to develop new strategies."

Performance
Walia notes that it is not about alpha and beta anymore but about delivering thematic beta. "We want to capitalise on that and leverage our technology to deliver active-like strategies via passive management with passive-type of pricing," says Walia, adding that the firm can also deliver bespoke models that are outperforming their benchmarks.

"We are very excited about these performances because it is testimony to what our models can deliver," says Walia. "We're a one-year old company and providing a track record is very positive to make a case with investors, as our models don't fall under the category of traditional indexing."

According to Walia, the firm's robotics strategy's actual performance versus back-testing is at 53.2% (one year) compared to the performance of the S&P 500 during the same period which was 18%, and is outperforming any robotics gauge out there. The firm's cyber security model is also up by 40.9%.

"The punch line is that this stuff works," says Walia. "All of our models are beating their benchmarks and even our core equity where we roll all our models into one is outperforming the S&P 500 by six points."

Motif is not only working to leverage the performance of its themes and expand its thematic offering but its geographical reach too, and is in discussions with a number of other structured products issuers regarding the firm's launch in Europe, Asia-Pacific and Latin America.

"We are now testing the ground to launch in Europe," says Walia. "We have the technology, the expertise and the models so it is only a question of time [we launch in other markets]."

The 36 structured notes linked to the two Motif's flagship indices, year to date, marketed by Goldman Sachs have sold over US$74m.

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