Picking a Portfolio for Every Investing Style

03/06/2012 7:00 am EST


Eric Esterkin

Director, Corporate Development, Covestor

Covestor offers a marketplace of asset managers for individuals to choose from—and they’re not just for wealthy clients. Eric Esterkin describes how the system works, and tells MoneyShow.com that long-short, earnings-related, and dividend strategies have been popular lately.

Kate Stalter: Today, I am speaking with Eric Esterkin of Covestor. Eric, you have an interesting asset model that is pretty different. Explain that to us today.

Eric Esterkin: What we have created at Covestor is a marketplace for investment talent, so we give retail investors the ability to comparison shop for investment management products.

This business model actually already exists in the form of separately managed accounts, which are offered to very, very wealthy people through their Goldman Sachs (GS) account or their UBS (UBS) account. We are trying to bring that idea down to the mass-affluent sort of retail investor, who has as little as $10,000 to invest. But we think that they should have the same choice and the same transparency, the same control over their money, as those with millions and millions of assets.

Kate Stalter: Explain how this works, because one thing I found pretty intriguing was all the different portfolio managers that you work with on the site.

Eric Esterkin: We work with about 140 different investment managers. We work with both professional, registered investment advisors, as well as non-professionals. So it could be someone who is just very good at trading oil stocks, but has no investment advisory credentials.

The way it works is, we license trading data from them. So all of these managers are trading their own real money and brokerage accounts, and we are watching that in real time.

When they place a trade, we scrub it for suitability, because at the end of the day, we are responsible for our clients. Assuming the trade is suitable, we will automatically execute it in the client accounts.

Kate Stalter: So it’s not necessarily the case that an individual investor at home has to follow one of these managers and imitate that person’s actions? Covestor is doing it for them?

Eric Esterkin: That’s right, there’s no manual intervention from the client unless they want to, of course, to unsubscribe to a manager or add assets to a manager. That portion is manual, but the actual trades are done automatically.

Kate Stalter: In your view, tracking the data, what are some of the more popular strategies that you are seeing at this juncture? We have had a lot of market volatility, and people are also concerned about income. What do you see?

Eric Esterkin: That’s right. Just generally, what we are seeing is people are most attracted to unique strategies that they couldn’t necessarily get in their retail brokerage account, that are not typically offered in a mutual fund or an ETF-type format.

So, strategies based on earnings announcements; that’s been a real popular one. We have several hedge-fund-like strategies that are long-short type strategies, but we don’t charge performance fees, so it is the straight asset under management fee. Those have also been very popular.

You know, we do accept IRA assets as well, so obviously those assets are not going into long-short models, but they’ve really focused on dividend-yielding-type models, and really income models that could be a basket of fixed-income ETFs, or like I said, high-dividend stocks.

Kate Stalter: One other thing I noticed on the Covestor Web site: You have a wealth management division. Tell me about that.

Eric Esterkin: That is Covestor Wealth, and that is designed for people who like the control and the transparency, but don’t really want to pull the trigger on managers themselves.

The platform was originally designed for sort of the do-it-yourselfer who likes that control and transparency, but doesn’t necessarily watch the markets all day. We have taken that to the next step for someone who wants a little more of a hands-off approach.

The minimum investment amount is $100,000, and basically the idea is, we will do a full in-depth suitability assessment. And our investment team will actually choose managers for you, and rebalance those managers accordingly. So it is more of a hands-off approach.

Kate Stalter: So regardless of what your personal investing style or objectives are, it sounds like there really are quite a few choices for every different style.

Eric Esterkin: Well that’s right. I mean, the whole idea of the marketplace is to offer a broad variety of strategies, and then choice within each strategy so that we could be appealing to just about anyone.

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