Completed Motif Portfolio Experiment

01 Jan 2018 16:29
Tags

Back to list of posts

EXPERIMENT_4.png

I know it has been a while since I last posted an update on the portfolio experiment but please forgive my laziness as reporting monthly was becoming a bit of a drag so I decided to hold off until the final month. Excuses aside let us jump to the experiment results and conclusions!

BACKGROUND

The last 5 years has seen new investing platforms extremely different from traditional investment brokerage houses. With so many new tools available to investors it could be confusing as to which one to use. To investigate further we kicked off an experiment in December 2016 to invest a fictional $10,000 using the popular Motif Investing platform.

Motif investing was launched in 2012 by Hardeep Walia, a former Microsoft Executive, who founded the platform to help investors gain more control over what they can invest in. Motif offers a theme-based approach for investors to pick an idea to invest in and in a low cost way. It is important to note that Motif is not a true trading platform as it does not allow for trading of options or futures.

The uniqueness to Motif Investing is that you can create a basket of stocks or ETFs (max of 30 different stocks) with assigned percentage allocations. It is kind of like making your own ETF or mutual fund. When you invest in the basket it will buy all of the shares, including fractional shares, at the percentages you defined and all for just a small transaction fee of $9.95. If a basket of stocks is not to your taste the platform does allow you to buy and sell individual stocks with a $4.95 commission per trade.

We went forward and created the following custom Motif portfolio for our $10,000 investment and actually tracked two versions pre-retirement and post-retirement. The difference between the two portfolios is that all dividends paid in the post-retirement would be distributed and not reinvested. The rules for the experiment were pretty simple, we would not adjust the portfolio or re-balance but instead let everything just ride.

The following table is the initial basket that was created using a combination of individual stocks and ETFs:
BASIC MATERIALS - 4%
Compass Minerals CMP 4%
CONSUMER DISCRETIONARY - 12%
Wal-Mart WMT 4%
General Motors GM 4%
Cracker Barrel Restaurants CBRL 4%
CONSUMER STAPLES - 12%
P&G PG 4%
Archer Daniel Midland ADM 4%
Petmed Express PETS 4%
FINANCIALS - 10%
Travelers Insurance TRV 5%
Canadian Imperial Bank CM 5%
HEALTHCARE - 10%
Johnson & Johnson JNJ 5%
Merck MRK 5%
INDUSTRIALS - 10%
3M MMM 5%
Emerson Electric EMR 5%
REAL ESTATE - 15%
Omega Healthcare Invest OHI 5%
STAG Industrial STAG 5%
W.P. Carey WPC 5%
TECH/COMMUNICATIONS - 13 %
Apple AAPL 4%
AT & T T 5%
Microsoft MSFT 4%
UTILITIES - 6%
Artesian Resources Corporation ARTNA 3%
PPL Corp PPL 3%
BONDS & INCOME - 8%
iShares iBoxx $ High Yield Corporate Bd HYG 2%
iShares iBoxx $ Invst Grade Crp Bond LQD 2%
iShares 20+ Year Treasury Bond TLT 2%
iShares S&P US Pref Stock Idx PFF 2%

RESULTS

Benchmarks
2017 S&P 500 Total Return 21.83%
2017 Avg Inflation Rate 2.12%
30 yr Bond as of 12/2017 2.76%

-

Pre-Retirement Portfolio
Starting Portfolio Value Ending Portfolio Value Gain
$10,000 $12,210 22.10%
Projected Annual Dividend Income Actual Annual Dividend Income Income Increase
$397.06 $420.17 5.82%
Post-Retirement Portfolio
Starting Portfolio Value Ending Portfolio Value Gain
$10,000 $11,785 17.85%
Projected Annual Dividend Income Actual Annual Dividend Income Income Increase
$397.06 $416.46 4.89%
PR_Port.png
R_port.png
Sector Performance
Sector Gain/Loss
BASIC MATERIALS -7.37%
CONSUMER DISCRETIONARY +16.93%
CONSUMER STAPLES +35.21%
FINANCIALS +18.26%
HEALTHCARE +8.42%
INDUSTRIALS +30.09%
REAL ESTATE +10.14%
TECH/COMMUNICATIONS +30.53%
UTILITIES +6.87%
BONDS & INCOME +3.89%

-

Final Sector Allocations
Sector Original Post-Retire Pre-Retire
BASIC MATERIALS 4.00% 3.14% 3.13%
CONSUMER DISCRETIONARY 12.00% 11.91% 11.80%
CONSUMER STAPLES 12.00% 13.77% 13.58%
FINANCIALS 10.00% 10.03% 9.94%
HEALTHCARE 10.00% 9.20% 9.09%
INDUSTRIALS 10.00% 11.04% 10.92%
REAL ESTATE 15.00% 14.02% 13.85%
TECH/COMMUNICATIONS 13.00% 14.40% 14.20%
UTILITIES 6.00% 5.44% 5.37%
BONDS & INCOME 8.00% 7.05% 6.97%
CASH 0.00% 0.00% 1.15%

Portfolio details http://dgi.wikidot.com/xportfolio
S&P 500 benchmark source https://www.marketwatch.com/investing/index/spxt?countrycode=xx/
Inflation source U.S. Labor Dept http://www.usinflationcalculator.com/inflation/current-inflation-rates/


OBSERVATIONS

Reduced Fear - When the experiment was first started there were about 15 equities I thought were fully valued or over-valued and if I was buying individually I would not have immediately bought them. However, being part of a basket of stocks removed my hesitation and good thing it did. 2017 was a banner year for stocks and I would have missed out on some large gains.

Portfolio Monitoring - This element caught me totally by surprise. For my whole investing life I have tracked and monitored individual stocks. Within the first couple of months I found tracking sector allocations within the basket was easier and less stressful.

Post-Retirement Portfolio - The post retirement portfolio performed to expectations with the intent to provide dividend income that was better than the 30 year U.S. Treasury Rate and growing dividends that beat inflation.

The portfolio initially had a yield of 3.97% and in the end actually yielded 4.16%. The 30 year treasury at the start of the experiment was 3.06% and ended 2017 at 2.76%. The portfolio handily beat the 30 year treasury rate.

The portfolio annual income grew 4.89% over the course of the year and this does not even reflect dividend raises announced that would not take effect until Q1 2018. Considering that 8% of the portfolio was tied up in Bond & Preferred Stock ETFs this is a pretty solid growth rate. Our 4.89% growth rate easily beat the 2017 average inflation rate of 2.12% and even the highest month of inflation in February 2017 when inflation hit 2.7%.

If Total Return is more important to you than income the portfolio had a total return of 17.85% versus the benchmark S&P 500 total return of 21.83%. With 8% of the portfolio allocated to Bond & Income it was not a surprise that it under performed.

Pre-Retirement Portfolio - Like the post-retirement portfolio the pre-retirement portfolio easily beat our income benchmarks with an ending yield of 4.2% and dividend growth rate of 5.82%.

From a total return perspective the portfolio grew 22.1% which included a reduction for a $9.95 commission to reinvest dividends in the month of September. The 22.1% gain beat the S&P benchmark of 21.83% and is pretty commendable considering the 8% allocation to Bonds & Income ETFs.

Overall the portfolio could have performed better in both income growth and total return if Motif had a free DRIP (Dividend Re-Investment Plan) policy. I find it amazing that they have yet to implement a DRIP as that has been the number one complaint from investors since day one of the trading platform launch in 2012. If the platform had a free DRIP the income growth would have improved to just north of 6% and our total return would have improved by 0.52%. I realize a half percent does not sound like much but if this was a $100,000 portfolio that equates to a lost $500.

Motif Resources - An area greatly lacking in the Motif platform is the area of investor education. If you are a novice investor there is little material to material to help you understand how to evaluate investments. Even simple concepts and definitions like dividend yield, price-to-earnings ratios or price-to-book ratios are nowhere to be found.



CONCLUSIONS

If this was still 2012 I would have been screaming from the mountain top that Motif is a great low cost tool but alas it is 2017 and the landscape has changed. New platforms such as Robinhood or M1Finance offer lower fees. Also in this time period traditional brokerage houses have changed, companies such as Fidelity and Schwab have lowered their trading fees to $4.95 and offer a plethora of free trade ETFs and provide investor education tools as well as access to trading options and futures.

Overall I would recommend using Motif for seasoned investors looking to invest a lump sum such as a 401K rollover or other windfall just before or during retirement and wishes to live off of their dividends. The use of baskets is an efficient way to quickly invest and diversify with one simple trade.

For new investors, investors slowly building a nest egg, or retirees looking to sell down holdings (in-lieu of dividends) I would not recommend Motif. If Motif implements a free DRIP program I would change my tune to some extent but until that time there are better options available today.

Comments: 0

Add a New Comment
or Sign in as Wikidot user
(will not be published)
- +

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License