When the ETF business makes you laugh, it’s a sign that you shouldn’t invest.
And a lot of fund-industry watchers were laughing recently when registration papers were filed to create the Quincy Jones Streaming Music, Media & Entertainment ETF, named for the legendary music producer responsible for, among other things, Michael Jackson’s hit “Beat It.”
Beating the rules – or at least skirting them – is what the fund’s sponsors seem to be doing in connecting their ETF to the music icon, but if the ETF attracts assets you can bet it the idea will be duplicated by others on a big, flashy scale.
For now, at least, this is not the kind of ETF that appeals to traders. It’s hard to picture a trader like Raging Bull’s Jason Bond talking about “the Quincy Jones” the way he currently discusses small-caps. Still, ETF sponsors creating this junk want it to gain a following, and they don’t care if someone as buying a celebrity-based fund long-term or a leveraged power tool for the day so long as they create volume and draw assets.
Let’s dig into the Quincy Jones Streaming Music, Media & Entertainment ETF (proposed ticker QJ, for short).
It’s being created by Exchange Traded Concepts, which creates ETF-in-a-box turnkey options for money managers who want to start new funds.
The money manager (technically, the sub-adviser) is Vident Investment Advisory, a Georgia-based firm that runs its own eponymous ETFs (the Vident funds have well over $1 billion in combined assets) and acts as a sub-advisor for a bevy of other ETF operators. Vident runs “thematic products” like the $715 million Robo Global Robotics and Automation ETF (ROBO); skeptics and cynics call them “gimmicks.”
The QJ is Vident’s latest thematic ETF, but it’s the man behind the initials that makes it stand out.
While Quincy Jones – worth a reported $400 million – has more Grammy nominations and awards than anyone alive today, he has never been a money manager, and isn’t becoming one now.
The paperwork immediately states that “Quincy Jones is not the issuer or a sponsor or promoter of the Fund and does not offer, sell, or recommend any investment in shares of the Fund.”
The great man’s participation is limited to lending his name and likeness to the index the fund will be based on.
He wasn’t involved in picking the stocks for the index, he’s not saying the index is a good investment, and he disclaims all liability and obligation to fund shareholders.
It’s an odd mix of star-power and fund, given that thematic funds tend to be popular with younger investors, and Quincy is in his mid-80s. He’s a bit dated.
But it’s an interesting trial balloon to see how the Securities and Exchange Commission feels now about endorsements.
Regulators have never allowed stars to simply endorse investments – otherwise, we’d have funds and ETFs for every star in showbiz – but the agency has been allowing some social-media endorsements to be used by advisers in the last few years.
The QJ seems to be a way to let stars in the back door.
There are plenty of quirky indexes out there looking for traction where the sponsor might think an endorser can do the trick. You have to wonder if the old, unloved Stock Car Stock Index fund, for example, might have avoided its crash-and-burn if it had been the Dale Earnhardt Jr. Stock Car Index ETF.
Industry sharpies must be drooling at the prospect of mega-stars knowledgeable in sports, business and entertainment creating benchmarks they can build funds on. Think the LeBron James Sports Index or the Derek Jeter Players Tribune Index (the former Yankees star is founding publisher of thePlayersTribune.com site). Likewise, what would be better than the Taylor Swift Index – dedicated to her sponsors and promoters – to draw her young fans into investing?
You get the picture.
Like Quincy Jones, stars could just license their name to an index provider. The fund industry is banking on the fact that the public doesn’t read fine print to know that their role is so limited.
If the QJ draws assets, there will be copycats; traders may laugh them off, but someone somewhere will be left holding the bag any time there’s a fund based more on marketing than market acumen.
Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnis and is the host of “MoneyLife with Chuck Jaffe”(moneylifeshow.com). He does not trade ETFs and has no plans to invest in QJ or anything like it, ever. You can reach him at firstname.lastname@example.org.
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