‘Shark Tanker’ O’Leary On Why His ETFs Are Different
December 5, 2016 by John Swolfs
Kevin O’Leary is best known for his role on ABC’s “Shark Tank,” but few know he’s owned and operated an asset management business for years, and is an ETF issuer as well.
In a quest to better manage his family’s trust and assets, O’Leary has turned his attention to ETFs. His firm’s unique ETF offerings are rules-based noncap-weighted ETFs designed to preserve wealth.
Ahead of his keynote speech at the 10th Annual Inside ETFs conference in Hollywood, Florida on Jan. 24, O’Leary sat down with Inside ETFs’ John Swolfs to discuss the reasons behind his conversion to ETFs, his focus on balance sheets and why Inside ETFs is a must-attend for him.
Inside ETFs: In a crowded marketplace, what drew you to ETFs, and why did you feel the need to create your own?
Kevin O’Leary: Having had the challenge of managing a family trust with a simple mandate, I found over time—and this is really the essence of the ETF story—that active managers, while they’re great, more often than not go flat or blow up and cause a heck of a lot of problems.
Inside ETFs: So why did you create your own ETFs, when there are nearly 2,000 options available?
Kevin O’Leary: We looked at all 49 ETFs in the market at the time that paid dividends. Almost all of them were market-cap-weighted and breached one of the trusts mandates.
We tasked FTSE Russell with building a new index that has a 5% max and a bunch of our rules in it. Those rules govern the family trust and are the basis of our ETF lineup.
Inside ETFs: At a quick glance, your ETFs appear to be a dividend-focused approach. Is that an accurate characterization?
Kevin O’Leary: No. What’s different about a product like O’Shares is the concept. We focus on balance sheets and low volatility. At the end of the day, you’re finding great long-term strategies, because, for me, this trust has to work for the next 100 years.
I’ll always want to own the best balance sheets. When people ask me about OUSA [O’Shares FTSE US Quality Dividend ETF] and why it works, it’s because you own the best balance sheets all of the time. I don’t think owning the best balance sheets will ever fall out of favor, regardless of what the market is doing.
Inside ETFs: It’s no secret your funds employ a bottom-up approach. Why?
Kevin O’Leary: Our focus is not on what happens this quarter, or what company has just gone public; these are core holdings. No matter what geography I’m in, the bottom-up approach leads me to the good balance sheets. For me, it’s more about managing the long-term mandate. We feel a bottom-up approach gives us the best chance to meet that mandate.
Inside ETFs: Earlier you mentioned you went to FTSE Russell to build these strategies. Do you personally manage these ETFs at all or have any influence on the buy-and-sell decisions? Were you intimately involved in putting the rules together?
Kevin O’Leary: I was involved in the original design, and the structure. These ETFs are managed by 150 people who maintain a database, which is a dream for me. I have people all around the world downloading every balance sheet and every income statement every quarter, making sure they’re tracking all the rules we covered inside the ETFs.
Inside ETFs: Do you know who’s buying these products? Where do you see the assets coming in from?
Kevin O’Leary: In the beginning, it was very much retail. Performance, particularly the volatility metrics, started driving institutional interest, and it’s now available on UBS and Morgan Stanley platforms. We hope to see continued adoption by pension funds and sovereign wealth funds.
Inside ETFs: Why would you encourage financial advisors and people in the ETF industry to join us for the 10th annual Inside ETFs conference?
Kevin O’Leary: The truth is that most of us in the industry are in the very early days of ETFs and actively managed ETF solutions. People are excited because they’re watching where the money’s going into actively managed ETFs. This is a massive innovation. It’s brand new and so exciting to discuss at the conference. I won’t miss a day.
For OUSA’s most recent performance click here.
Before you invest in O’Shares Investments℠ funds, please refer to the prospectus for important information about the investment objectives, risks, charges and expenses. To obtain a prospectus containing this and other important information, please visit www.oshares.com to view or download a prospectus online. Read the prospectus carefully before you invest. There are risks involved with investing including the possible loss of principal.
Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. The funds may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. The funds' emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund's purchase of such a company's securities. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in U.S. securities. Exposures to foreign securities entail special risks, including political, diplomatic, economic, foreign market and trading risks. In addition, unless perfectly hedged, the Fund’s investments in securities denominated in other currencies could decline due to changes in local currency relative to the value of the U.S. dollar, which may affect the Fund’s returns. The funds' hedging strategies may not be successful, and even if they are successful, the funds' exposure to foreign currency fluctuations is not expected to be fully hedged at all times. See the prospectus for specific risks regarding the Fund.
The securities of small capitalization companies are often more volatile and less liquid than the stocks of larger companies and may be more affected than other types of securities during market downturns. Compared to larger companies, small capitalization companies may have a shorter history of operations, and may have limited product lines, markets or financial resources.
Past performance does not guarantee future results. Shares are bought and sold at market price (not NAV), are not individually redeemable, and owners of the Shares may acquire those Shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, consisting of 50,000 Shares. Brokerage commissions will reduce returns. Shares are not individually redeemable and can be redeemed only in Creation Units. The market price of shares can be at, below or above the NAV. Brokerage commissions will reduce returns. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time (when NAV is normally determined), and do not represent the returns you would receive if you traded shares at other times.
O’Shares Investments℠ funds are distributed by Foreside Fund Services, LLC. Foreside Fund Services, LLC is not affiliated with O’Shares Investments℠ or any of its affiliates.