Fooled by Google

Fooled By Google

The Motley Fool adds two more

USA

The Motley Fool, the brokerage news website, is launching another two ETFs. The two will invest in stocks in the Motley’s “recommendation universe”.  This universe is built from TMF’s journalists and analysts, whose reporting decides which stocks go into the indexes. 

• Fool Capital Efficiency 100 Index ETF (TMFE) 
• Fool Next Index ETF (TMFX) 

TMFE will track an index of companies that most efficiently put shareholders’ money to work. This is measured using a proprietary scoring system that looks at things like returns on investment, equity and assets. The top 100 stocks are picked and then weighted based on market capitalisation. 

Looking at the fund’s holdings, it looks quite a lot like a FANG+ ETF. With the regular tech names – Facebook, Amazon, Microsoft, Nvidia, Google, Visa – taking the top spots.

TMFX invests in small and medium sized US businesses that grace TMF’s recommendation universe. It is called the “next” index because it takes the next largest companies after those in The Motley Fool 100 Index, against which there is already an ETF. The index is market cap weighted and holds 200-odd companies. 

Looking at the portfolio, it looks like a pretty standard small and mid-cap line-up.

The funds charge 0.50%. TMF now provides six ETFs.

Analysis – The power of Google

I don’t often read The Motley Fool. From what I’ve read in the past, there seems to be an article template that their content writers continually reuse. The website doesn’t really focus on original reporting or analysis. (Which costs money to produce. Just ask an investment bank like Goldman how much running a team of analysts costs, or Bloomberg how much running a news desk costs). Rather, it produces content based around what people are punching into Google, with a view to farming SEO.

I think this is a perfectly sensible media model. Most media companies have units or divisions within them that also try and maximise their Google footprint. But I’m just not fully sold that there will be any alpha to be found in TMF’s “recommendation universe”. There’s no good evidence that the best of the best analysts at Goldman, Jeffries, Morgan Stanley, etc. can consistently produce alpha. Why should TMF be different? And if TMF’s analysts were reliably producing good stock picks, wouldn’t they want to work at the investment banks, which pay better?

If these ETFs do take off and gather assets, I suspect it will just be yet more testimony to the power of Google.