Kip Meadows, Founder and CEO of Nottingham, caught up with ValueWalk’s ValueTalks host Raul Panganiban earlier this year.
They discussed everything from Kip’s start in the investment business and outlook on the ETF industry, to his favorite books and hobbies.
Check out the below transcript of their conversation, which has been condensed for length and clarity.
RP: How did you get started and why did you choose this industry and profession?
KM: I was on the transaction side of the securities business as a broker with Robinson Humphrey back in the day. I got to know a number of investment advisors mostly on the East Coast in the MidAtlantic area and a lot of them said “We need a way to pool our smaller accounts together.” My dad is a tax attorney, so they said “Can’t your dad help us come up with a trust vehicle of some sort?” Mutual funds are too expensive, so we looked into it for a while and decided a mutual fund structure is the best way to do it. That’s what we did back in 1988.
RP: What drew you to the industry?
KM: I’ve always been interested in the securities and investment industry since I was in college, maybe even before that. I didn’t really like the transaction side – commissions for transactions, I thought that was a conflict of interest. I was very happy to find an area of the business that was more asset-based. I saw a demand out there and it didn’t look like the demand was being fulfilled. And that’s how it got started.
RP: What is the white-label ETF space?
KM: That’s kind of a term that has evolved in the industry. ETFs are very difficult to get started because of the exemptive application process with the SEC. It takes quite a while, but if you have a series trust, which we do, we can add a new ETF to our series trust and the time is significantly expedited to get a fund to market. White label is a vehicle that makes it easier and less expensive for an investment advisor to start their own ETF. We already have the relationships with the services providers, the custodian, transfer agent, market makers, APs, legal counsel, auditors – all the things that you need to operate a fund. If an investment advisor is really good at what they do, they don’t need to be diverting their attention to setting up a new business within their organization. If you try to do all these things yourself, it can be very daunting. So one of our goals is to help them do what they do best.
RP: Why did you want to get involved with ETFs?
KM: It’s really because of the way the markets were evolving. We’ve been dealing with open-ended mutual funds since the late ‘80s – I was involved when the market crossed $1 trillion. The open-end mutual fund industry is kind of mature as a market. Everybody who pays attention to the financial press knows that ETFs have been exploding over the last several years. We felt like that was the next market segment that was attractive and probably where a lot of the investment world will migrate in the next 10 years or so. I would be surprised if ETFs didn’t significantly outpace the assets in mutual funds over a period of time.
RP: What opportunities lie ahead for ETFs and what challenges do they face?
KM: Opportunities are to attract assets to a niche product or a product that’s got a good investment track record. It’s the same as any investment pool, it’s just a different way of doing it. The challenge is raising assets in a fund. You can have the best idea in the world, but if you can’t communicate that and convince people to put their money into your fund, than it’s not going to be effective.
RP: What trends do you see facing the ETF industry this year and beyond?
KM: I really do think the time for active ETFs is upon us. There’s a lot of momentum now that would indicate actively managed ETFs are the next wave for new fund registrations. In regards to index funds, how many more indexes can be created? There’s an index for just about everything now – there’s probably a tree leaves index for all we know. We feel actively managed or smart beta ETFs are the next opportunity.
RP: What is your investment philosophy and strategy?
KM: I’m somewhat contrarian. With things like bitcoin that’s gone up 25,000 percent, my philosophy is “trees don’t grow to the sky.” A tree gets 50 – 100 feet and doesn’t get any taller than that. At some point, it’s got to rest. If a style has been out of favor for a couple years, I’m more likely to say “Maybe this a good year to put some money in that,” because it tends to operate in cycles. I’m a little more value and contrarian than I am earnings momentum or the latest high-tech idea.
RP: What are your favorite books?
KM: I read a lot of investment articles online. I love reading a book more than anything, but it’s hard to find the time to do it. I like biographies. I love history– anything about Winston Churchill is interesting to me. I’ve got a bunch of books either by Churchill or about him. My wife has got a Master’s degree in creative writing and she teases me about my 8th grade outlook on fiction. Tom Clancy books, Grisham books, I love. Grisham is one of my favorite authors – I like legal intrigue.
RP: What are your hobbies and what do you like to do in your spare time?
KM: My passion is sailing. I like racing sailboats – I’ve been doing that since I was 10 or 11 years old, and that is really my passion. I’m also a pilot so I love flying airplanes. I don’t have one right now, but I’ve had several over the years. There’s nothing more enjoyable and liberating than being up in the air. I acquired my grandfather’s love of roses– we have a nice rose garden in the back and I love walking around, cutting some and bringing them in the house during the summertime.
Want to learn more about out CEO? Listen to Kip’s full interview with Raul here!