Returns of the day

This new-era brokerage company thinks it can help people profit—literally—from the news

July 24, 2014
July 24, 2014

News you can really use: that’s the innovative plan of upstart online-trading firm Motif Investing. Based in California, the company, run by former Microsoft executive Hardeep Walia, says it is hammering out a deal with an as-yet-unnamed news organization, to which it will pay fees to drive customers to Motif’s concept-based investing platform.

Motif’s model is to let investors invest on the basis of “motifs”—ideas or themes—rather than in individual stocks. For example, an investor could choose to invest in healthcare companies that, say, benefit from Obamacare.

Using algorithms, these investment motifs can be fashioned in fairly limitless ways, similar to exchange traded funds. (Here’s a video of Walia explaining the concept on CNBC.) Motif’s plan for news organizations would link motifs to specific stories. Motif can use keywords in the story to create a a basket of stocks representing the thrust of the story. A basket of defense stocks might be embedded in an article on increased tensions in the Middle East, for example. News organizations will collect a royalty fee from Motif if an investor uses that specific motif, Walia explained to Quartz. The company already has a partnership with Investor’s Business Daily, offering an IBD top-25 stock tracking index, which investors can purchase.

Walia said he viewed the idea as a way struggling news organizations could generate revenue. “Imagine you’re reading a news article on an oil spill, on a web site or iPad, it might have an ‘invest-this’ button, where you can just pull up the [investing] motif,” he said.

The idea is not without its critics. Paul Argenti, a professor at Dartmouth College’s Tuck School of Business, told Quartz Motif’s planned arrangement with a news organization seems like an inherent conflict of interest. “What’s to prevent the news organization from being more biased in producing the story in order to make more money?” Argenti asked. Walia counters that linking Motifs investing tabs to stories should be no different from the arrangements media companies strike with advertisers; in most major news organizations, the business side and the editorial side maintain a separation to avoid advertisers influencing journalists.

Walia said some bloggers and news organizations already informally link to Motif investing themes on certain stories. For instance, a USA Today story on the Heartbleed computer virus included a link to a Motif portfolio of cyber-security stocks:

Tap image to zoom
Motif investments dashboard on cyber-security stocks
(Motif Investments)

Motif already offers a royalty program promising bloggers $1 per trade on motifs their readers use. But with large news organizations, the payments are likely to be bigger and more structured.

Motif has attracted investment from Wall Street heavyweights JP Morgan Chase and Goldman Sachs, and will shortly add more firepower to its board with the appointment of Kelly Coffey, deputy CEO of JPMorgan’s private bank, as well as naming a new CFO, Shane Mulron, formerly CFO at online broker E-Trade. Former eBay consumer marketing official Andrea Lodzieski also has been hired as a marketing executive.

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