Kevin O’Leary
A CONVERSATION WITH...
For the S&P 500, I use the O’Shares FTSE U.S. Quality Dividend Fund (OUSA), which means when you apply the rules to the 500 stocks in the S&P 500, only 150 make the cut. And I own those 150 for a year, and then we look at it again, and then we cast our net and we put the rules to it, and then another 150. They’re generally the higher quality, and what happens is they’re less volatile and they pay 40% more yield. The S&P is paying about 1.8%. OUSA pays 2.4%. With the O’Shares FTSE Russell Small Cap Quality Dividend Fund (OUSM), I did the same thing for small-cap stocks, of which there’s 2,000 in the Russell 2000. Nobody can manage that, but if you apply the rules, you get 339, which yield 3.2%. And they’re the ones with good return on assets, average size, $4 billion. I don’t like strategies that are single-factor because nobody buys a stock on a single factor like low volatility. Those are two exchange-traded, actively managed funds, OUSA and OUSM, and I own them because that’s how I can decide which stocks to own year in, year out. They’re the highest quality. Q: You have your personal assets in those ETFs? KEVIN O’LEARY: I look at it this way: How do I preserve my wealth? I create my own indexes with people like FTSE Russell to maintain a 5%-plus
distribution to my family and the charities I support and everything else. And I go to sleep at night not worrying about which stocks I own because they all have to pass the rules. I have my family trust in them. I designed them for my family, and yes, I own the manager, that’s true, but I also eat my own cooking. That’s probably the best analogy. I don’t pick stocks anymore. I let FTSE Russell decide every quarter what I’m going to own with these indexes because I know the rules were built to maintain and preserve my capital as best they can. So there’s no more individual stock picking for me. Q: For people who either haven’t been successful managing their own money or who don’t want to be bothered with the hassle, I think those are two great alternatives. What are the fees with those funds, do you know? KEVIN O’LEARY: Yeah, sure. They’re 48 basis points. So if you look at a mutual fund, they tend to be more expensive. That’s what I used to use. They’re generally 90 to 120 basis points and 1.2%. Forty-eight is sort of right in the middle of where actively managed exchange funds trade. You can get a lot cheaper indexes, like you can buy SPDR S&P 500 Fund (SPY), which is only 11 basis points. The trouble is there are no rules. You just own all the stocks. And two- thirds of them, I don’t want to own. I much prefer an active-managed strategy, and I’m willing to pay a little bit more for it because the yield almost makes up for the difference.
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74 | November 2017
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