Motley Fool Asset Management Advisor Call

Transcript

Hello, everybody. This is Bill Mann. I'm the chief investment strategist for Motley Fool Asset Management. This we are here for the quarterly advisor call for the first quarter of twenty twenty five.

I'm joined by Tony Arsta, the chief investment officer, and I'm gonna kick things over to Kelsey Mowery, the president of Motley Fool Asset Management. As a reminder, you see in front of you us, but then over to the right, you will see a, a a box for Slido where you can put any questions that you would, would like answered. We will try and get to those, towards the end of our talk. So, with that, I'm gonna send it over to Kelsey for an update for where we are and what's happened in a very exciting first quarter of twenty twenty five.

Thank you, Bill. I wanna take a moment and welcome Bill Mann, our new chief investment strategist. While Bill is new to this role, he's been a part of our overall parent organization since nineteen ninety nine and also served as our inaugural CIO for asset management. So welcome back, Bill.

I also want to give a well deserved congratulations to Tony Arsta, who has gracefully stepped in to the role of chief investment officer. Tony has been with our firm since inception and has played an integral role in our entire product suite.

So welcome, and hello. I'm personally, thankful to be working with this team. Bill and Tony have been alongside me essentially since the beginning of my own career, so I'm thrilled to have them, in their new positions.

I wanted to take a moment and highlight that our flagship ETF, TMFC, still holds its five star morning star rating and surpassed a billion dollars in AUM this past fall. TMFE, our capital efficiency ETF, also holds a five star morning star rating now that it's past its three year anniversary.

We were busy in March. We joined and onboarded all six of our ETFs to LPL's no transaction fee platform, and we also remain on Pershing's no fee platform as well. This means if you're an LPL advisor or if you clear through Pershing, you or your clients don't pay a transaction fee. And then lastly, for me, our team has been on the move. We recently attended both citywide and exchange. And for upcoming events, we're sponsoring Synergy as well as Wealth Management Edge, which are both in Florida.

At Edge, we'll be hosting a private golf tournament. If you'll be there, please let us know. And then, also, if you're curious about when we'll be in your area, don't hesitate to reach out to any of us. Back over to you, Bill, and thanks, everyone.

Okay. We are going to go through, an update for each of the funds for from Motley Fool Asset Management. This is, I'm gonna turn things over to, to Tony Arsta. We're gonna start with one of our two five star morning star funds, TMFE.

Tony, it's been a very I mean, I guess, you know, may we live in interesting times. The first quarter of twenty twenty five has certainly been interesting.

Yeah. The the first quarter was interesting and is almost entirely out of people's minds at this point. By the time we were a week into the second quarter, the first quarter did not seem nearly as relevant.

However, the first quarter was very important. We we had a quarter that that followed two years of the market going nearly straight up, led by those mega cap names such as NVIDIA, that are really building on that AI revolution. The market hit its peak in late February. It's hard to believe that now after the the turmoil we've seen in the last few weeks.

But as of mid February, we we were at all time highs. The economy was going along fine. And, we we saw in the first quarter a lot of rotation already beginning away from those mega cap tech names, away from NVIDIA, away from Apple and Microsoft, and into some of these other large cap names that that just haven't gotten quite as much attention over the last two years. So you can see on on the slide here the winners and losers we had for for the quarter.

Visa, UnitedHealth Group, and CVS Health are three companies that were not talked about these last couple years, whereas Alphabet, the comparative Google, Apple, and Amazon are are the names that everybody knows and has followed during this AI revolution.

And you'll see that across all our funds, across all the products, across the entire market that this shift was happening in the first quarter. And, again, since then, other trends have happened, other things have started, but that's really what what's driven this quarter's performance.

The the Motley Fool capital efficiency index, that this ETF is based on does have a position limit of four point eight percent per position at each quarterly rebalance. It's, would be much easier if I could just say it's five percent, but we have it at four point eight percent to make the, logistics a little bit easier to manage. Regardless, there's that cap there, which makes this fund a little bit more balanced and a little bit less top heavy than you'll see with our other fund TMFC or you'll see with other pure market cap weighted funds.

So we did have some names come in and out of the fund.

Excuse me for one second.

But overall, this, this quarter's performance was driven by just a, fairly normal breadth of market expansion during q one.

Tony, really interesting, to talk about TMFE, and we did lead with this one on purpose. And we're gonna talk about our flagship, ETF, TMFC, in a in a moment, which probably even if you just go by, assets under management is the one that people are most familiar with.

This one, we've we we we have seen a a, yeah, interest in this type of strategy, I would say, given given the fact that we have come into a time in which, there is there's more uncertainty for people who are not necessarily as interested in, in a more, volatile ride that you can have with less cap constrained, portfolios.

Yeah. This one is interesting. There's really the two key features that set it apart. The easy one to talk about is that five percent or four point eight percent cap, which proves prevents you from owning way too much Apple, NVIDIA, Microsoft relative to to what your preference may be. But the other thing is really this capital efficiency metric, which is really the the secret sauce of this fund.

And that is a a profitable growth metric that looks at how a company can can invest its capital in an efficient manner over time. And it looks at the profitability of a business. It looks at the growth of that profit, and it looks at the stability over time. If you have large spikes, a lot of volatility that can be less valuable in the market than a steady business.

So by combining that stability, the growth, and the overall profitability into that capital efficiency metric, We use that metric then to augment the weights of each position in in the index. So it starts as the market cap weighting, but then those weights are augmented by that metric. And that really does give you a little bit of a of a taste, hopefully, for companies that have higher quality and are able to outperform the market over the long run. That's at least what our goal is with that product.

Yeah. That quality measure is something that you will hear a lot when we talk about when we talk about all of our funds because it's kind of at the center of what Motley Fool asset management is. I do want to remind everyone who has joined us today. One, again, to say thank you and our gratitude for your spending this time with us. We do have Slido open on the right of the page that, that that that you have open. If you do have questions, now is a good time to put one in. So why don't we move on to the next, the the next fund, which is TMFC.

Again, it's the largest of our of of of funds by assets under management. Our oldest fund by, in in terms of its current formulation. Tony, what can you tell me about what's happening with TMFC?

Yeah. This fund, should be pretty easy to explain. It's the ideas from our sister company, The Motley Fool LLC, from their research publications and their analyst database called Fool Intel.

And it's simply a list of the best ideas, either from those active recommendations or the top picks within that database, put into a universe, and then TMFC is The Motley Fool one hundred index ETF that owns the one hundred largest companies within that that universe of eligible companies.

And it it's really effective because it's market cap weighted. It's very similar to just a plain index fund, but it will only hold companies that The Motley Fool has vetted and believe are high quality businesses.

There's no other constraints as far as needing to be on a certain exchange, for example, like other funds might have or anything like that. So we'll have things you can see the top performers here are Berkshire Hathaway, Visa, and T Mobile for the for the quarter.

Berkshire Hathaway and Visa are both listed on the New York Stock Exchange.

One product that people often compare our fund to is the Nasdaq one hundred ETF, and that product, only includes companies listed on the Nasdaq Exchange, which makes sense for them, but frankly doesn't seem to have a whole lot of investing sense behind it.

Yeah. I mean, one thing I would say one thing I would say about that is that, obviously, over the last year when you're talking about when you're talking about the Motley Fool one hundred, we you know, our sister company has been invested in a lot of the the the the the magnificent seven, I guess, you could call them.

So it has tracked closer and closer to the QQQ, but that is something that is is more by happenstance than by design. And I would not expect over time for it to remain so simply because the way the market has shown rotation over time, and we have a flexibility with with TMFC that the QQQs do not.

Yeah. Whenever you have a market cap weighted index, that's the hundred largest companies. There's going to be very high correlations, but there is enough difference in those names. For example, Berkshire Hathaway, Visa, any financial company is excluded from the QQQ.

So, there is enough that that we feel, in addition to the fact that these are all ideas vetted by the Motley Fool analysts. So they're not just the largest companies, but the largest companies that that that sister company likes. Yeah. I will point out here that there's a little bit more new names entering this quarter than than usual.

We have seven names on this list.

Interestingly, four of these seven are companies that were already in the universe and grew to be large enough to make it into the top one hundred into the full one hundred index. We have another fund that we'll get to next, the next index, which is everything after the top one hundred.

And there is a buffer, so we don't have undue, turnover every quarter where names go in and out. But there's four names here that just grew so much in the last several quarters that, they've kind of forced their way into this index. Though, that's Alnilam Pharmaceuticals, Axon, CloudFlare, and Take Two Interactive. All four of those have been long time companies within our investment universe that have graduated up into this, this tier of of our products.

I would have said Alnilam.

You are probably Yeah.

Yes. I mean, it's it's it's a very important consideration. You do see a little bit more, more rotation and within the names in TMFC than we have traditionally over over, over the last few years. But that's that's precisely why, you know, in in terms of market cap purity, we do take that very seriously. And so the fact that we have a the the TMF x, which is the next when we will, we'll get to that in a moment. These, I guess, you would describe maybe as graduates from TMF x into TMFC, which is a good thing.

Okay. Let's, move on to our next fund, which is t m f x.

You can see a lot of activity here, which is, which is perhaps unsurprising given that the given the more mid cap, component and, you know, and function of this portfolio. But, Tony, what can you tell me about about, the companies that have moved in and out? Or tell me tell me what's going on with this fund.

Yeah. This fund is interesting. It is everything that is not within the, full one hundred index within TMFC.

There's no set number of companies that can belong to the fund. It's usually around two hundred companies, but you see a lot going in and out based on the index methodology and how the analysts feel about companies.

I believe there are a few less companies this quarter than we had last. It's right around one hundred ninety five this quarter.

And those companies are, again, based on the same philosophy that our other products are based on. They're the ideas that are either active recommendations within The Motley Fool's newsletter products or have been ranked within the top one hundred fifty of the internal database.

When you add that all up, it gets you to around three hundred companies, hence the reason for around two hundred companies within this index.

There's a lot of names here that that are familiar to to people that follow the small and mid cap space, that the Motley Fool analysts are as high on as the names within the full one hundred index. They're just a little bit of a smaller set of companies.

Excuse me. I think one of the more interesting things about, you know, about this space is that in a lot of times, you'll see, for example, in the bottom the bottom right of the slide that a number of the companies in this space, were were purchased over the quarter, which is, I mean, it's more than you would normally see, but that's the type of, that that's the type of, of of rebalance and, you know, and, movement that you'll see in this space much more so than in the large cap space.

Yeah. You'll you this quarter was especially active for those acquisitions. We saw several happen in the first quarter. Also, within those new names, you'll see a company called Kyndryl Holdings, which is a spin out from IBM. They're finally separating a few parts of their business.

So we see that kind of thing lead to these smaller companies as well. So companies with long term, track records that that are able to start smaller as fresh companies, but still have that ingrained long term success behind them.

Yeah. The, spin offs is an area that, that that that, that our sister company has focused on for a very long time, and it's an area where we have found plenty of interesting names over over over time and Kyndryl, amongst them.

Okay. Let's, let let's let's move to our three, active funds.

We have, TMFG, which is our go anywhere fund, TMF, which is mid cap, and TMFS, which is small cap. So, Tony, what can you tell me about what has happened with with these funds and and how we might go about thinking about them as they fit into portfolios?

Yeah. TMFG is our global opportunities go anywhere fund. And if you look at our benchmark as of the end of the quarter, it was right around sixty percent US investments.

Back when we started the predecessor of this fund in two thousand nine, the US was about forty nine, fifty percent of the overall, market for a benchmark. The fact that it's grown to be over sixty percent is quite remarkable, and it showed just how dominant the US has been over these last fifteen or so years. We have, for the last year or two, really been overweighting our our exposure to other parts of the world, specifically in Europe. And we weren't doing that for any sort of reasons that are driven by current events, like tariffs.

Twelve months ago, nobody had any idea that that would be on the table. But we are just seeing a big valuation difference between what we have in the US and and what we see in the rest of the world. And there's some great businesses globally that, if we could invest at a a lower valuation simply because of where that company is headquartered, that makes a lot of sense to us. So we have been underweight the US within this fund for a while now, and, I believe to date it has still hurt our performance, but, we we like how we are positioned right now.

Yeah. It's an it's an argument that I would describe as an ought to argument, and we have held this ought to argument for some time that, that the US has had, price to earnings ratios as measured by the S and P as high as thirty three, which has been historically expensive for, you know, for the US market and makes it one of the most expensive just on the statistics. Now there's a lot else that I would put into this, you know, to determine whether an a market was actually expensive or not. But you have you have markets in Europe and in Asia that have that come at an a tremendous discount to the US, and you have companies in these in these markets that are very high quality companies that are available at a at a cheaper price.

So let's move on to TMFM, the mid cap portfolio.

We had a number of companies that came into the portfolio and not much that has gone out, Tony. What what can you tell me about it?

Yeah. Again, we've seen over these last couple years really a lead within the mega cap names. The magnificent seven is what everybody's talking about, that was pushing the market higher for a couple years. But you also saw it within other, segments of the market. So within mid caps, you saw the largest mid cap names were really pushing up that index relative to the rest of the market.

So it's been interesting trying to find opportunities within the market.

We were just talking moment ago about how the US is relatively overvalued versus the rest of the world, but there are still plenty of companies we're finding that that are trading at decent valuations that have great potential in front of them. So it's been interesting trying to pick those out and and find the companies that, maybe are flying a little bit under the radar or not getting the love that that we feel they deserve.

So in the first quarter, we actually saw some financial companies starting to, have returns, that that we feel reflect the quality of the business. It was interesting that in the first quarter, our top three performers for the fund were all financial companies.

Those have all done very well. Strangely, our fourth best performer is a company with financial in the name Broadridge Financial, but that is technically not a financial company.

It's an information technology company for the financial industry.

Yeah. Yeah. They make all their money based on, taking it to a whole lot of the financial businesses, and they're very good at it. So, yes, it's it's a great market to try to find companies that have that little bit of an edge where they can really establish their their dominance and take market share. And what we like about the companies we've been buying is regardless of what happens in the short term, we feel these are all companies that are able to grow share to keep expanding their businesses over time and are starting at a small enough base that, there's plenty of room for them to continue their plans.

Super. And finally, TMFS, our small cap fund, looks like two complete transactions in the quarter.

Very interesting, very interesting thing about, the small cap fund, TMFS.

Very low beta since inception, which, you know, we we and a very high active share versus its benchmark. What what can you tell me about TMFS?

Right. So that is obviously versus the benchmark of very low beta.

It's still small caps, so it still is a little bit more risky than other segments maybe.

But it it is a fund that has done well, in my opinion, based on what we're trying to do with, how we're structuring and building that product. So the the lead manager for this fund, one of our our teammates here is, Charlie Travers.

He was with us with the launch of this fund back in twenty eighteen, and the fund had a couple good years.

He then went on and did other work for another part of our business before returning to the fund in twenty twenty three. And, really, his leadership on this fund is is what has helped it, get off to a strong start and then, resume that start over the last couple of years. So I'm I'm really excited what he's been able to do there. His background is in, medical research, so he he has plenty of knowledge of what these biotech companies are doing. AlphaTek, for example, is a a small biotech company that is, I won't even try to to tell you what they're working on right now, but it it is a company that Charlie knows very well. Mhmm. And, it's exciting to be able to have those types of companies within this fund alongside more traditional, small cap names that, that someone like me can understand.

Fantastic. Well, that's the that's the update for the funds through March thirty first of this year.

I suppose that we aren't alone, and I suppose a lot of the people who are joining us on the call have recognized the fact that literally the moment that the first quarter end it ended, the entire environment around investing has, you know, has has changed. And, you know, there are a lot of reasons for it. A lot of it has to do with the policy goals of of of of the administration. We see, we see the rise in tariffs.

We see a real turning of, of of backs in a lot of countries around the world from global trade, and a reshuffling of of priorities. So it has, in fact, been, incredibly disruptive for the markets. We we we do believe as, you know, from a pure market basis that a free and open, you know, trade is better. And also stability is better.

And I think that's, you know, that that's something that is perhaps underappreciated right now as a, you know, as a factor in in in in in the market dropping. So, Tony, it's been it's been a rough, gosh, two weeks, two and a half weeks. Feels much, much longer than that. But why don't we talk a little bit about how we go about both both putting these types of events into context and what it is that we at Motley Fool asset management might be doing.

Yeah. So this slide here, it looks pretty scary with that big leg down. This chart was as of April seventh, so following two days of, just brutal market performance.

It's enough to make people question what they're doing investing in the markets, where they're putting their money. If you look at this as context, it does look pretty scary. Mhmm.

That's why we don't like to look at these types of charts, and make decisions based on them. Obviously, you don't bury your head in the sand, but there's a difference between being aware of the situation and letting the circumstances around you drive your decision making. But we are long term business focused investors, and we will continue to be long term business focused investors.

Being a long term focused investor doesn't mean that you'll have every quarter go your way or not go your way, but over time, if you're doing things the right way, following the right process, they will tend to, pan out the way that that we would expect them to.

Yeah. So we go to the next chart. This one looks a little bit better. That's a that that's a three year chart.

You've yeah.

You're still erasing a couple years of gains in that chart or about eighteen months or so of gains, so it looks a little bit painful. But, that's what happens when you invest. That's why you get the long term performance that you see in the markets. Yeah. This one is showing ten years and, yeah, if you've been investing in the markets for the last ten years and you woke up today, you'd you'd be pretty happy regardless of what's happened in these last few weeks.

Yeah. I might describe it, you know, I might describe it this way, and it really gets at the the core of how Motley Fool Asset Management goes about its business. We do focus on finding high quality companies. And, obviously, every company that, that that exists is dependent on the economy around it. Like, it would be foolish of us, foolish with a small f to suggest that that is not the case. But if you are adequately and accurately assessing the quality of a company in terms of its ability to generate cash flows, they really should be much more immune to the real whipsaws from a business standpoint. I mean, you know, they're they're the stocks will do what the stocks will do.

And one way that I tend to think about these types of events is these are the times that decisions that you will make are going to be the ones that generate the most long term wealth. The times in which you really have a choice. You can, you know, you you can react by panicking and selling. You might feel very smart for a while, but I know very, very few people who are capable of selling to beat a drop and then finding the right time to buy back in. It's just a very hard thing to do.

Our our brains aren't really built that way.

And, you know, it's it it it really is it to me, that context and that framing and then matching the philosophy with action really, really matters. We are long term investors for a reason.

It means that we make less decisions as we go. The fewer decisions you make, that means the, you know, the the the more that you are focused on each decision that you do make. And I think so many people, particularly in times of stress and uncertainty, their time frame shortened so much, and they become very, very anchored on on the price being the end decider whether where for whether they're right or not. You know, I go back to the famous Bill's Bill Parcells quote.

Eventually, you are what the market says you are. So you've got to make long decisions over the long term that are right. But in the short term, prices can be and are wrong all the time. And so when we think about risk, Tony, you know, we we we tend to think of it as being slightly different from the way that the academic models think about risk, which is volatility.

Now, obviously, volatility is, is is definitely a component of risk, and it rarely happens in the market that you see a company that is lower risk from a business perspective that happens to be higher volatility, although it does happen.

But we believe that over the long term, making fewer decisions and being a long term investor gives you that edge over, other market participants.

Right. The reason that the capital asset pricing model uses volatility as a measure of risk is there's a chance that you might have to sell your asset for a lower value. And the more volatile the stock, the more time it may trade at a lower value than than what you expect. There's other types of risks such as your expected value being totally wrong, for example. So it it's not the only thing to be looking at. But when it comes to volatility and the risk of being forced to sell, when things are a little bit cheaper than than you would like, there's an easy way to handle that. That is to not look at daily volatility or monthly volatility, but look at years and and even longer time frames.

You still need to get all the other parts of investing right. You still need to value the businesses correctly. But if you're doing that, the the gyrations of the market matter much less.

I could try to say more about it, but Warren Buffett, as he always does, has already summed this up nicely. He he said back in nineteen ninety six that he would rather have a lumpy fifteen percent return than a smooth twelve percent return.

That's really the bottom line here is, the lumps that that happen over time, the the bumps in the market are what allows for the, market risk premium to exist in the first place.

If you're not buying risk, if you're not investing in risk, there's no reason to get a return above and beyond a a safe asset. Yeah. The only reason we get these outsized returns is because we are willing to make bets on things that are partially unknowable.

Yep. One of my favorite things to think about when I just think about putting current risk into context is, Tony, do you remember in the beginning of two of twenty eighteen, like, literally the first market day, the market started collapsing, and it dropped nineteen point nine percent. I'm I'm making up the number which I really shouldn't do, but it but by the S and P five hundred, it it dropped substantially.

If you go back and look at that ten year chart, you can't see it. It does not show up. And the factors that made the market drop at that time were just as real as the ones that have made the market drop now.

They're obviously different. You know, the the history the, you know, history does rhyme. It does, you know, it doesn't repeat itself.

But, you know, I'm confident this too shall pass. And, you know, and so focusing on the long term and for, you know, for for people out there who are panicking or have, you know, have great concerns, it's it's hard to do. It is it is absolutely hard to do, but it is the framework by which we try and put every decision we make into.

Tony, we've got a number of really, really great questions.

Should I just you want me to spit them out to you? And if you want, if you wanna take it, you can or I can?

Yeah. Actually, before we get to the questions, I would love to talk about one topic that's been on my mind. Back in twenty sixteen, you loaned a book to me, believe it was the big book of predictions or something like that. Can you Yeah. Yeah.

Explain that that book?

So the big book the the big book of predictions. So people who are of a certain age will remember a very famous book that came out in the late, in the late seventies called the book of lists, and it was, David Wolachinski, Irving Wallace, and Amy Wallace put together these various lists. It was fantastic.

A much less well known book came out a year later that and it was called the book of predictions. And it was early nineteen eighties that this happened, that this came out. And it was just they went to they went to thinkers. They went to people who are willing to give them predictions, and they and and and and they cataloged them. And one of the most fascinating sections sections to me and, you know, and they asked, you know, they they asked, I guess, what, you know, the the equivalent of the World Economic Forum to give their predictions about US Soviet relations. And, again, this is nineteen eighty. And there was exactly one person out of the dozens that they spoke to who suggested that maybe the Soviet Union was at the end of its days.

Every other person. And we're talking about something that happened nine years later, didn't have that on their, you know, on on on their viewfinder. So the world, I guess you could say, Tony, maybe best, the world happens in ways that we don't expect.

The one guy who got it right, oddly enough, was a, was a pastor from Arizona. It wasn't, you know, anyone doing anything having to do with statecraft. So it is a great book. You can find it, in used bookshops.

They didn't sell many of them, I don't think, but it is one of my favorite ones to, to remind me of, you know, the the folly of predicting.

The reason I I bring it up is, selfishly, there's two points I want to make based on that book that I think are very relevant today.

One is, speaking of the Soviet Union, they were asking people in the book to make long term predictions about where the world was headed. And to figure out what types of predictions you would see in this book, you can just go find newspaper from the early nineteen eighties talking about, the cold war, nuclear strife, all all sorts of things. What the current events of of the day of publication were is what people were predicting for the next several decades.

So it's very hard as humans to get outside of the mindset of what's happening right now and what will happen in the future.

The thing on everybody's minds right now is tariffs, global trade, for good reason, and that will have an a decided impact on the economy for a long time.

But a decade from now, two decades from now, will we remember it in the same way as being a permanent existential threat?

Likely, no.

I was interested to know how you were gonna answer that rhetorical question, Tony.

But, yeah, it's it's interesting how our minds are just so driven by what's happening in the moment and how you need to take that step back, take take a deep breath, and really see what's what's going on in the bigger picture.

It's easy to say you have a long term focus, but unless you truly step out of the role you're in right now and in out of that situation, it's hard to do. And then the second point from that book before we get to the questions, a lot of the predictions I I went through the book and made a list of the predictions that actually came true and were good predictions.

And I I did some research and looked at the timing of it, and it turned out the people that had the best predictions were predicting trends that had already started a few years earlier. They weren't predicting things that had yet to begin, but things that already were showing the early signs but had a long run ahead of them. So in that light, I would say if if I had to predict what's coming in the future, I would say something like maybe AI.

And I know it's been a couple years now that that's been in the news and everyone's been talking about it, but the the point from that book that that really stuck with me is if that is truly what is going to drive the future, we haven't missed anything yet. Yep. We are still so early in the game that a couple decades from now, it it will be forgotten, like, the difference between twenty twenty, twenty twenty two, twenty twenty five.

Just like in the early nineteen eighties when you were talking about personal computers in the home, the actual year that somebody got a computer in their home isn't relevant to the broad stroke of history there.

Yep. They should have renamed that book. They should have called it the the big book of extrapolations instead of the big book of predictions, I think. So, Tony, that's, that has been a, you know, a a a great conversation.

We do have a couple of questions to get to, and so why don't I start from why don't why don't I start from the top? And we can, we we can run through them. So the first of which, comes from, how much overlap, if any, is there between TMFE and TMFC?

That's a great question. There is, quite a bit of overlap because they are driving deriving from the same universe. So all three of our passive products, TMFC, TMFE, and TMFX are all based on the work of the Motley Fool analyst community, that full intel database.

So the full one hundred index, TMFC, is the one hundred largest companies within that universe.

The TMF x ETF, the Motley Fool next index ETF are the companies after that top one hundred. So there's no overlap there between TMFC and TMFC.

But those two ETFs combined will give you the entire universe of companies that that fit within that that database.

And then TMFE, the capital efficiency one hundred, index ETF takes the one hundred best companies sorted by market cap, from from that entire universe. So TMFE is made up entirely of things that are either in TMFC or TMFX.

Mhmm. The difference you'll get though is that you're you're drawing from both. There's a it's not purely market cap weighted. It is augmented by that capital efficiency metric, and then there is that cap at each reconstitution of four point eight percent per position.

So if you wanna talk about active share, for example, you're looking at about a fifty one percent active share between the two funds. So there is quite a bit of difference you'll get there, but, also, they are very correlated. They're drawing from the exact same universe of names.

Yeah. And just to just to rephrase, fifty one percent acts active share is a way of talking about the diversity between the two, the the where they don't cross over.

Right. Where the weights are different.

Yeah. Even if they may be the same names or similar names.

Okay. Fantastic.

So question two is a question about the difference between or how we would compare TMFE to MSCI's quality, factor, ETF?

I'm sorry. Let me say that correctly. The iShares MSCI USA quality factor index ETF.

I haven't spent a lot of time looking into that particular ETF, but, generally, the way those ETFs are are managed is by a quantitative approach looking at, a lot of factors you can get from financial statements, looking at the, capital efficiency of a business, the return on equity, the, earnings growth, what whatever the the factors may be that that particular index provider chooses to use. When you have the word quality, it gets a little bit confusing because everybody defines it differently. Mhmm. Some people think quality is a good price to book value. Some might think it's a high gross margin, high earnings growth. What whatever the case may be, there's there's a lot of different ways to define it.

What all of the Motley Fool products do, the the passive products, the TMFC, TMFE, and TMFX are based on the universe of names that have been recommended by The Motley Fool LLC's, analyst team. So those are ideas that are actually vetted by by analysts that have done the work of looking at a company from a bottom up fundamental basis, looking at the business quality, the long term dynamics of that business, the management teams, the the factors that could deliver future performance for the company. So rather than looking at the reported figures, which, of course, the bottom up analyst will look at that, but it's not an index based solely on that. It is based on the work of of these analysts, that are putting their best ideas into the database.

Excellent.

Question. Are we available on Cetera's platform?

The answer is yes, because, Cetera clears through Pershing, so there is no transaction fee.

Next question, Tony.

UnitedHealthcare was exited in both TMFC and TMFE.

Can you do can you expand on the decision behind that?

Honestly, not really.

No. Next question.

Yeah. Again, with these passive products, it is driven by the The Motley Fool analysts, that's our sister company, and the great work that they do for their research publications and their internal database.

I have no real ability to to put my finger on and drive what those analysts are doing. It it's a hands off approach so we can get the honest opinion of those analysts.

And since it was removed, that tells me that it is not an active recommendation in the newsletter, and it has fallen out of the one hundred fifty highest conviction ideas within that database.

A a little bit about that database. It is the ideas of the analysts, and then there's a quant team, at at the company that, kind of uses algorithms to look at the the factors and the signals that are being derived from each analyst and rate those companies, based on on on the ability of of the analyst. So it's not just a list of, what one analyst who might have a big ego is able to push up to the top of the list. It's based on actual, track records of of the people putting IDs into there. So, I don't have any specific reason about what made those analysts change their minds on that company or move it further down the list, but it, no longer was high enough on the list to remain in the universe.

Yep.

Question five, I can take. How would you justify the expense ratio of fifty basis points versus other cheap ones, cheaper ones, say cheap, cheaper ones. So one of the things to keep in mind about, about the The Motley Fool ETF products is that they are based upon, the analyst stock picking at The Motley Fool, our sister company. Historically, The Motley Fool has had about two hundred basis points in annualized outperformance, for for a twenty year period of time.

That is no guarantee for for what happens going forward, but, there we we there is a very good reason that, you know, that that we have relied upon our sister companies acumen and stock picking, as part of our process for these passive funds. So they are not necessarily as passive as, as other funds that might simply take an index that is, you know, that is formulated by Standard and Poor's by Wilshire, or other, competent, index providers. So that is that's really the difference in terms of what we are providing at Volley Fool asset management versus what you can generally get with, with with other ETFs that might come at a slightly, lower, annual fee.

And then, finally finally, Tony, this will be interesting. Which ticker would you say is best to pitch right now given the current market and economic conditions?

Yeah. That is interesting.

It depends so much on the individual. I think, going back to our discussion on long term investing and and really looking at, what you can hold on to Warren Buffett's quote about a lumpy fifteen percent versus a smooth twelve percent.

That smooth twelve percent looks pretty nice for someone that just cannot tolerate the lumpy fifteen. There's there's nothing wrong with with being that person that that says I'm happy with twelve percent. Yeah. Twelve percent is a pretty good number.

Know who you are.

Yeah. Yeah. So so the big thing is know who you are as an investor. If you're an adviser, know who your clients are and what tolerance they have.

And and I I think we have six products here, and I think all of them fit for various reasons.

TMFC is just such a a clean market cap weighted, large cap growth sleeve of of an investment portfolio that should give you that that return that you get from that asset class.

It's driven by the biggest companies in the market, and it is companies that have been vetted by those Motley Fool analysts. Mhmm. If you wanted something a little bit different, TMFE, the nice thing about that, again, it uses that capital efficiency metric. So, interestingly, when you talk about the magnificent seven names and how those have driven performance, Tesla was one of those names. Tesla was never in TMFE because the capital efficiency metrics made it look not as good as the other companies.

So I just pick on that For that portfolio. To many people For that portfolio's mandate.

Yeah. Yeah. One thing that I would say, Tony, is that is that if you have clients who are calling up and asking about the current environments, they they they probably do need. They probably are people who might benefit from having, having a portfolio that is a little bit calmer, and that is, you know, TMFE versus TMFC.

The other one that I would that I would really point to is our portfolio that is, sixty two percent or fifty eight percent, excuse me, invested outside of the United States of America, which is, TBAC g. And, you know, that that's been something that people have been asking about as of as of late. And, you know, we are we are not in the game of making predictions, but it you know, if people are asking about, about it and specifically worried about the things that so many people seem to be worried about. Those are two very good options.

Yeah. The global opportunities ETF, TMFG, that's, the one I was going to get to as well.

There's just so much to to like about the companies we own there.

The performance, over time, we we hope to to do well with that fund, but, again, we're long term investors looking at, companies that we believe will outperform in the long run. We have some companies in there that that just have such great brands, such great, competitive advantages that they're building. And it's during market disruptions, market turmoils that you see those types of companies actually taking share and growing their franchises, above and beyond the companies that are just struggling to, survive in the environments. So, yeah, owning a a focused portfolio that that has less holdings and is only investing in in those high quality businesses, that's yeah.

I I That's the game. Right? Yeah.

All the companies Yeah. All all the funds that that we manage, so it's hard for me to pick one.

But yeah, you you need to know yourself and your risk tolerances and, get in there.

And, again, if that's what you're being asked, that's probably what they're worried about. And that's that that's that's what I might suggest to address those concerns.

So, Tony, that's all the the time that we have for this quarterly update.

Really good to see you, and thank you so much for everyone for taking the time to spend this time with us. And, also, thank you for your faith in in Tony and his team and for all of us here at Motley Fool Asset Management. And we will see you here again in three months' time, and we are honored to spend this time with you. Thank you so much. Take care, everybody.