More On Legal & Compliancefrom The Advisor's Professional Library
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- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
Just as the Treasury Department and Internal Revenue Service consider curbing corporate inversions, Motif Investing is hoping to ride the corporate inversion trend through its recently launched Tax Inversion Targets motif: a 25-stock tradable index of potential tax-inversion targets domiciled in tax havens.
Hardeep Walia, co-founder of Silicon Valley-based Motif Investing, a pioneer in ideas-based investing, wrote in a recent CNBC blog about the new motif that the inversion maneuver, which allows firms to buy a foreign competitor, relocate their headquarters to that jurisdiction and sidestep the 35% top federal corporate tax rate in the United States, has reached “a fevered pitch: In 2014 so far, there have been nine deals either completed or announced. Compare that to just two in 2010 and 2011 and six in 2013.”
Walia concedes that there are “risks” to this motif, the “biggest” being that President Barack Obama is able to change the tax code to make inversions impossible, “or public opinion sours on them and companies are pressured against inversions.”
Political aspersions on tax inversions aside, Walia told ThinkAdvisor in a Tuesday interview that Motif launched the tax inversion motif "from an investing perspective," because there's "a lot" of interest in corporate inversions. "There is no ETF or mutual fund that invests in tax inversions," Walia says. Motif, as a company, looks at "macro trends" that are "in the news" and creates motifs that allow retail investors and advisors "to look into these trends and act on them."
Walia writes in the blog that Motif Investing’s tax inversion motif focuses on sectors “which have experienced a lot of activity recently like health care and oil & gas; and on sectors we think are likely to in the future such as technology.”
Companies in the motif include InterContinental Hotels, ARM Holdings, TE Connectivity and Logitech.
Because the motif is “very new,” Walia says, it has a limited return history: its one-month return is 1.3% versus 1% for the S&P.
Walis cites research showing the popularity of tax inversions. “Twelve months after a tax-inversion deal, two-thirds of the companies involved in those deals outpaced the S&P 500 by an average of 13 percentage points, according to research from Empirical Research Partners; after three years, they’re ahead of the index by 22 percentage points.”