Crowd-Sentiment Weighted ETF Illustrates the Future of Fintech

When you think about fintech investing, digital currencies and mobile payments are what immediately come to mind. However the market for fintech goes well beyond these sub-sectors, even transforming how we think about investing itself.
Enter CrowdInvest Wisdom ETF (NYSEARCA:WIZE), the very first crowed-sentiment weighted exchange traded fund. Read on to hear CrowdInvest CEO Annie Wyatt’s views on the drawbacks of herd investing, the potential of crowd-based decision making, and where the fintech market is set to take us in the coming years.

What is CrowdInvest?

According to Wyatt, “CrowdInvest is an ETF, index, and app based off Wisdom of the Crowd theory. It tracks user’s bullish and bearish stock sentiment on the app, with the 35 most popular stocks building an index that then forms the monthly rebalanced ETF.”
The app allows “users to swipe long or short, bullish or bearishly, on their stock opinions. With a few hundred stocks inside the app, users can vote across sectors. Each individual’s process for how or why they vote on a stock, we do not gauge since it does not follow Wisdom of the Crowd theory.”

Market demand

The genesis of the app emerged after CrowdInvest “saw the under performance of portfolio managers.” Knowing the benefits of the Wisdom of the Crowd theory, the ETF took the bet that “users may be able to outperform what some portfolio managers are doing.”
Wyatt explains that “in 2015 we tracked the app to see how users were voting and at year-end, we outperformed the S&P 500 by 1.47%. Creating the ETF in 2016 was a no-brainer. We see the market demand due to how users have reacted to the app and we’re looking forward to seeing where we can take this user information in the future.” The ETF has been trading for two months now, since April 27, 2016.

Model for the future

Wyatt sees this sort of investing platform catching on in the long term. Indeed, the market has “already seen in the last few months two other ETFs start evaluating Wisdom of the Crowd theory. We have great confidence that this theory and model provides superior information.”
So what’s the most significant benefit of this model? “The greatest benefit we’ve seen so far is that the crowd is voting on where they think the markets will go. They are being proactive where currently the market is more reactive.”

Democratizing finance

Of course, there are some doubters when it comes to this model. According to Wyatt, “people ask the questions, ‘what happens when non-financial voters come into the app? Won’t this skew the data?’ With CrowdInvest and Wisdom of the Crowd theory, we are looking for those votes too.”
Indeed, “it’s important we have everyone on the app from all walks of life. We want the crowd, or the market, to truly drive the markets. With independent and diverse thought, as the theory demands, the superior information bubbles to the top.”

Future of fintech

Ultimately, Wyatt sees CrowdInvest as existing “at the heart of the FinTech boom. Companies, investors, consumers, everyone truly will begin focusing on the big data and sentiment that is derived from digital platforms.”
Much of this shift will be a reaction against the market’s current herd mentality when it comes to investing. She explains: “there’s a very negative connation to portfolio managers working within their herd mentality in regards to investing. We see the FinTech movement eliminating this concept. When things move online, biases are more prominently questioned and evaluated.”

Where the crowd is investing

So what has the ETF discovered so far? In general, Wyatt has noticed that the crowd chooses “stocks that fall within the consumer cyclical sector. . . . The financial services and technology sectors are also well voted on within the crowd.”
Currently, the ETF’s largest holdings are:

• Allergan plc Ordinary Shares (NYSE:AGN)
• Darden Restaurants, Inc. (NYSE:DRI)
• General Growth Properties Inc (NYSE:GGP)
• H & R Block Inc (NYSE:HRB)
• Morgan Stanley (NYSE:MS)
• Navient Corp (NASDAQ:NAVI)
• Oracle Corporation (NYSE:ORCL)
• VF Corp (NYSE:VFC)
• Bank of America Corp (NYSE:BAC)

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Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.