As specified consumer financial products abound in the form of easy-to-access mobile apps, so too are retail investment products focused on a myriad of hyper-specific social or environmental points of view.
On the most basic level, one look through the LinkedIn feed will find thousands of companies ready to change a corporate logo to match whatever color scheme screams “same.” Most recently, it’s blue and yellow, to stand with Ukraine.
But some products are designed from the ground up, aiming to track a trend or an idea. From all-green points rewards to inclusivity-minded community banks, individualism at the consumer level runs circles around the carbon copy products and brands of the trad past.
It has even become more popular to give investors of all sizes exposure to an idea like fintech, marijuana, or climate change as an asset class.
One startup, born from young generation-Z entrepreneurs, hopes to capture the essence of the post-’90s with an actively managed fund they call Gen Z ETF that tracks the best and brightest firms ‘born’ after 1997, under the ticker “ZGEN.”
Born to be Z
Julian Feder, a 2000s kid currently in school, studying for college, came up with the idea for a Gen Z fund back in high school. He and a team of other Gen Z teens launched the fund on Dec. 16, 2021, under their startup Alkali Fintech, with initial assets under management of around $5 million.
As the fund’s sub-advisor, Feder said he keeps track of things by writing weekly reports while running the decision-making model to find new prospective investments.
According to the fund’s prospectus, the portfolio managers for GEN Z ETF are Feder’s father, Leonard Feder, Brandon Koepke, and Richard Shaner.
According to WealthMinder, Leonard Feder is an Investment Advisor Rep with 25 years in finance.
Feder said he and his Co-Founder, Eitan Prins-Trachtenberg, 17, wanted to offer a way to invest in a product identifiable to the younger generation and, most importantly, was easily tradeable.
Investing for years
Feder, who lives in L.A., has been actively investing since he was 13. He said that when he first met his co-founder right at the beginning of the pandemic, they saw Gen Z start to take investing seriously.
“There seemed to be this massive uptick in our generation’s interest in investing and finance,” Feder said. “Eitan and I had both been trading for years, and we felt like there weren’t any products that aligned with us. They were future-focused.”
They saw Gen Z trading altcoins and moon stocks, but the question was, could the age group aspire to more? Feder and crew thought so, based on demographics alone.
“Generation Z is the largest generation with 2.5 billion members,” Feder said. “In less than a decade, we’re going to be the highest-earning generation with $40 trillion [in earnings], and it will continue to grow.”
Feder said with population growth like that about to come to age as full-time wage earners; Alkali Fintech had to scheme out a system to pick companies that matter the most and offer them up in a liquid package.
How does the data work?
To get the ETFs list of 50 Gen Z stocks out of the estimated 27,000 U.S.-listed securities, Feder and the team applied a scoring system based on four core principles: how relevant is the security is to Gen Z; how disruptive; how innovative; and how valuable the firms core product is.
Feder said that any firm that IPOed before Jan. 1, 1997, Alkali strikes from the list, which narrows it down, too.
Unfortunately, the specific age restriction leaves some high earners that still affect Gen Z, like Apple and Microsoft, off-limits for the funds: talk about age-ism.
To account for some small caps without much growth, the securities they choose have to pass a volume test, with an average of at least $5 million in trading volume every day. Then, they graded for top performers and were left with the top 50 they owned when they listed on Dec. 16.
“We score all the companies, and basically, the highest-scoring ones are our first 50 stocks,” Feder said.
The portfolio’s top 10 holdings include Snap, Roblox, Coursera, Tesla, Shopify, Enphase, Duolingo, Square, Coinbase, and Unity. They initially constructed the ETF to have a price of $25 per share.
Since launch, the tech, fintech, and frankly young public company market has taken a noticeable hit. The fund is down about 24% since its launch in Dec.
“Right now, we’ve raised over $6 million, but obviously, markets haven’t been great, So that’s gone down,” Feder said. “Yeah, no, it’s it’s been a rough, rough couple of months.”
Working with ETF Architect, giving a generation a vehicle
But Feder said he was not pessimistic at all, and through the help of the professionals at the ETF Architect brand that services the fund, Alkeli Fintech is ready to capture Gen Z’s attention through the ups and downs.
“I think it was really during COVID that I realized that our generation is huge. We’re going to be the wealthiest generation,” Feder said. “It’s such a time of hyper innovation that I wanted to create something that would help my generation navigate it all, from a financial perspective.”
Alpha Architect, or under their newly rebranded name, ETF Architect, is a white-labeling ETF launching service that will take an investing thesis and turn it into a publically traded, actively managed ETF.
Feder said they are instrumental in navigating the space and selling up the fund- the ETF Architect team also helps guide Alkali, a registered investment advisory firm.
What’s been the most challenging part?
Feder said that the easy part was raising the money and setting up the fund itself as a theme. He learned that funds with themed investment elements have to work had to market their work; Feder said they’re not backed by billions from VC firms. The hard part was convincing and selling to people that his team, supported by advisors and the know-how of a white labeling ETF service, was capable.
“I think that up until a month ago, I didn’t think this would happen. This journey building this product to provide this sort of investment for generation started like eight years ago,” Feder said. “I think one of the big hurdles was, being in a healthy financial position to fund this project.”
Another challenge is the age gap itself. While investing and going to school, Feder has worked as a child actor and is no stranger to needing to draw in a crowd. However, he said that convincing a traditionally older industry was a challenge.
“We are quite young, in an industry that is dominantly older, and I think one of one of the biggest things was, you know, just getting to the front door, convincing people to listen to us to hear what we have to say, what makes us credible,” Feder said.
Though the fund is down in value, Feder said it’s only the beginning. Every day is a new struggle, a new compliance issue, especially in today’s market and reg landscape, but he is excited to be a part of a generation ready to bring change.
“At the end of the day, that’s what we’re trying to do. It’s not just profit but a mission to try and bring as much exposure to Gen Z’s financial prowess.,” Feder said. “We believe that by doing that, we hope that there’ll be more investments like ours that are relatable and future-focused. To help Gen Z, you have to give Gen Z as many options that are relevant to them.”