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Quincy Jones ETF: Creative or Crazy?

Gone are the days when an appealing portfolio structure was enough to lure investors. Now, issuers need some key unique features to stand out in the crowd (read: Too Many ETFs Flying in the Market?).

In this vein, Exchange Traded Concepts LLC in conjunction with Vident Investment Advisory has taken an outlandish approach. The issuers are planning to launch a product on music and entertainment and for that they have licensed the name of music veteran Quincy Jones, as per Bloomberg. The name of the proposed fund is Quincy Jones Streaming Music, Media & Entertainment ETF.

The thematic fund, whose ticker code, QJ, was also after the name of the legend, was filed on June 22 (read: Thematic ETFs: Smarter Than Regular Smart Beta ETFs?).

We highlight the fund in detail.

Inside the Newly Filed Fund

The underlying index of the fund – the Quincy Jones Streaming Music, Media & Entertainment Index – looks to offer exposure to the performance of companies in the business of streaming music and media or broad entertainment. Allied sectors like media and entertainment, recreation, telecommunication, and internet get exposure to the fund.

As per the prospectus, “the fund may invest up to 20% of its total assets in investments that are not included in the Index, but that the Adviser or the Sub-Adviser believes will help the Fund track the performance of the Index.” The expense ratio is yet to disclosed.

“The company must have a market cap of at least $1.5 billion and a six-month average daily trading value of at least $5 million” to get a place in the fund. About 100 securities hailing from the said sectors and with the highest market cap will be chosen to constitute the index. “Index constituents are equally-weighted when they are added to the Index and when the Index is rebalanced,” going by the prospectus.

Is QJ Branding Strategy Irrational or Imaginative?

There are about 2,050 ETFs in the market right now. About 114 funds have already been launched this year among which active, smart-beta, low volatile, socially-responsible, thematic, diversified fixed-income or multi-asset ETFs are being launched in high proportion. In this vortex of ETFs, it is better to do something extra to make the product identifiable and make a killing (read: 5 Safer New ETFs Gaining Popularity).

But then, Quincy Jones appears somewhat aged for millennials or young investors.  As Bloomberg noted, “his best days as hit maker were from the 1950s to the 1980s. Since thematic ETFs tend to attract younger investors, it’s questionable how much appeal his name actually has among the fund’s audience. After all, he isn’t exactly Drake or Taylor Swift.”

Still, we believe that a product can see success if the portfolio is solid enough. Also, given that the issuers are trying to put the spotlight on music and entertainment and Quincy Jones can be a suitable nomenclature for the proposed fund.

Any Competition?

From the branding standpoint, the filed-product is likely to become a trend-setter and will hardly face any competition. Coming to portfolio construction, which is actually most important, the fund may face some peer pressure particularly from PowerShares Dynamic Media Portfolio ETF PBS.

Also, consumer discretionary ETFs like Consumer Discretionary Select Sector SPDR Fund XLY(XLY), Fidelity MSCI Consumer Discretionary Index ETF FDIS and Vanguard Consumer Discretionary ETF VCR can pose some threats, if the Quincy Jones ETF gets approval.

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SPDR-CONS DISCR (XLY): ETF Research Reports
 
VIPERS-CONS DIS (VCR): ETF Research Reports
 
PWRSH-DYN MEDIA (PBS): ETF Research Reports
 
FID-CON DIS (FDIS): ETF Research Reports
 
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