The Scoop on Motif Investing - dummies

By Paul Mladjenovic

For many investors, choosing a small cap stock or considering an IPO may be a daunting task. Fortunately, there are new innovative ways to invest in stocks today.

There are ETFs as well as mutual funds in small cap stocks. There are also investment vehicles called “motifs” that specialize in small cap stocks and in IPOs. A motif is a relatively new way to invest and offers an interesting twist on mutual funds and ETFs.

A motif is a basket of stocks and/or ETFs that mirror a specific idea, trend, or theme. Some motifs are designed to be very targeted and can fit any person’s outlook or expectation. The motif may be as few as 1 or 2 stocks and/or ETFs or as many as 30. It may be a predefined motif designed by the brokerage firm (also called professional motifs; as of January 2016, about 150–160 different motifs are available). You can create your own motif or modify an existing one (these are called community motifs because they are user-defined by customers).

Discovering what you get with motifs

When you look at the interesting variety of motifs, it will make you go “ooh!” Here’s a sample of available motifs:

  • Caffeine Fix: This basket of stocks is for those who want to profit from the public’s enjoyment of coffee and related caffeine products.
  • Rising Food Prices: If you expect (or see) rising food prices, this motif is designed to profit from that scenario.
  • High Spirits: Profit from owning stocks of companies that sell adult beverages.
  • Drug Patent Cliffs: Own stocks that benefit when drug patents expire.
  • Democratic Donors: Invest in those companies that are political contributors to President Barack Obama and that may benefit from his administration’s economic policies (there’s a Republican Donors motif too).

It seems like you’re limited only by your imagination and the types of securities available. These are the securities that can be in a motif:

  • Stocks (both large and small cap)
  • Exchange-traded funds (ETFs)
  • American depository receipts (ADRs), which are essentially foreign securities that trade on U.S. exchanges

Focusing on motif features

A motif is more than a theme-based approach to investing; it’s also a broker. You open an account with the company (at just as you would with any traditional broker. Here are the main features:

  • You can open an account with as little as $300 (cash account). For a margin account, the minimum is $2,000.
  • The cash account can be a regular account or an Individual Retirement Account (IRA) — either a traditional or a Roth. Margin trading is available only as a regular account.
  • You can choose a preexisting motif (and modify it if you like) or you can build your own on the company’s website. You can even suggest a theme for a motif and the company can create one for its catalog.
  • The transaction cost is currently a $9.95 commission to buy the motif (for the entire basket of securities).
  • You have to view a detailed profile (and the securities) of the motif at the site (the catalog) before you buy it.

Considering motif categories

All these varied motifs do fall into definable categories, so start your search there:

  • General: This is the catch-all for new and trendy motifs and those that may not be neatly categorized.
  • Values-based: If you want your investing approach to embrace a particular social cause or political theme, check out this category.
  • Sectors: Whether you like healthcare, technology, or financial services, you’ll find a suitable motif here.
  • Global opportunities: Want to invest in developed markets or emerging markets? Check them out here.
  • Asset allocation: Here you find motifs that try to emulate portfolios for a particular target date (such as for those retiring in a specific year, like 2030 or 2035).
  • Income strategies: If you want income from dividends or from bond interest (through an ETF), this category is for you.
  • Trading strategies: Want to trade with technical analysis or based on short-term events? Check out the motifs in this category.

Understanding the risks

Motifs sound pretty good, but what are the risks? A motif, much like an ETF or a traditional mutual fund, is only as good as the securities in the portfolio. All the risks of buying and holding stocks, ETFs, and ADRs are present in the motif, just as they would be in any other investment.

The risk with a motif is really tied to your viewpoint. If you believe that a certain scenario will play out, such as a bear market, inflation, or some other economic or social scenario, and it doesn’t materialize, then your motif’s performance will suffer.

For more details on motif investing, check out