ETF index disruptor hopes to boost innovation through first-of-its-kind community website.

EQM Indexes, an index provider which specialises in thematic indexes such as online retail, international ecommerce, blockchain, battery metals & mining, brand value, and global cannabis, has launched a first-of-its kind website to host further index disruption. SRP spoke to the firm’s CEO and co-founder, Jane Edmondson (pictured), about the new hub as well as the firm’s thematic offering and how structured products can be efficient vehicles to deliver thematic investments.

The EQM Index InQubator site aims to be the spotlight for new index ideas that are incubating and/or those still available for licensing. The EQM InQubator will also act as a marketplace community for third parties to create and showcase index ideas.

“Visitors to the website can hire EQM Indexes to help them create their index idea, accelerating the timeline and simplifying the complexity of bringing an index to market. For a nominal monthly fee, indexes will be showcased on the InQubator site,” says Edmonson, adding “interested parties can also use the site as a destination to license EQM’s available indexes as a way to create their own investable product, supplement industry research, as a benchmark, or as a universe for an actively-traded concept”.

The alternative index provider is seeking to create “a global marketplace community for the exchange of index ideas in order to inspire and advance further innovation in the industry”.

Market environment

While 2018 was a disappointing year for the US markets with the sharp selloff in Q4 due to the threat of interest rate increases, the impact of tariffs, and signs of slowing global growth, the market made an abrupt V-shape recovery in Q1 of 2019. 

“Investors that stayed the course have been rewarded as the market now sits at new highs,” said Edmonson, noting “while the US-China trade wars endure, the Fed has reversed its course on interest rates”. 

“There is now a high probability of a 50 bps rate cut in July. Other central banks around the world like the EU have also signalled they will be more accommodative, reassuring investors that a recession can be avoided despite slower economic growth and the headwind of trade wars.”    

Beyond the launch of the InQubator site, EQM plans to launch direct indexing and ETF model platforms by the end of the year.

“Our pedigree is the institutional asset management (EQM Capital) and quantitative sides of the business,” says Edmonson. “This industry background flows through to our index construction process and our index products are designed to perform as well as provide explicit exposure to thematic opportunities. The members of our firm also have a strong background in marketing. We view ourselves not just as an index provider but as a partner in the marketing process.”

Edmonson is quite bullish about the markets in a declining interest rate environment which should benefit both stocks and bonds, while a trade deal could fuel a nice summer rally should negotiations at the G-20 go well. However, fee compression remains one challenge the entire ETF industry is facing. 

Thematics

“Thematic indexes and those products that offer unique, innovative, and/or high-performing approaches should still command higher fees, however,” she says. “Thematic indexes offer diversified exposure to enduring growth trends. Ideally, to be good long-term investments, these themes cannot be fads, but instead must give exposure to long-term secular trends.”

From a structured products perspective, these thematic products can be bundled to provide multi-asset exposure to many disruptive themes.

“Some of the most successful thematic products have been in the area of technological disruption and ESG,” says Edmonson. “Investor expectations have shifted to the extent that they demand thoughtful construction which gives them true exposure to the theme or in the case of ESG, their unique set of values.”

Going forward EQM Indexes is looking at specific markets such as the cannabis and ancillary businesses as they are emerging themes as it becomes legalised globally and utilised medically.

“I would also not be surprised to finally see cryptocurrency ETFs in the near future,” says Edmonson. “We view EQM as a financial technology company, not just an advisory firm or index provider. We believe that investors and advisers are looking for solutions, not just products. That is the foundation for everything we do, to provide investors and advisors with unique solutions that fulfil their unmet investment needs in the marketplace.”