Live on Bloomberg TV

00:00Professor Adams let me start with you because part of your class requirements is a semester long project where students create an index that can then be made into an ETF. And this is a competition as well. Tell us about how it works. So it's a competition but it's really not. And so what it's meant it's designed to do is to really take these students from theory to practice and it takes them through their required the semester project requires them to come up with an investment objective that takes weeks. And by the way they're put on teams they don't get to pick their teams they're put on teams so they're forced to learn some other lessons as well. So they have to come up with an investment objective they have to then get the data which for most researchers you know it's 80 percent of the work is to get the data and to prepare the data. So then they build the models they test it back test it tweak the methodology and then after doing all that they have to put together a pitch to industry veterans as if they're selling it to underlying ETF . So who is judging them. Who who who is determining whether this is a hit or miss idea. So I will say for the most part I am the biggest judge but I do bring in a panel of industry veterans who I've worked with over the years who understand the rigor of having to create an index first and one that meets the rules and regulations of the S.E.C. and the exchanges and all that it takes to underline ETF. So they are judging them on all of that the investment objective on the methodology the implementation and then of course their ability to sell it or understanding that these things are also marketed to a large extent. No wonder it's a semester long project. Let me bring in Ryan Smith because your team. You're one of four members on a team won this competition and your idea was a millennial fitness lifestyle index. Explain why you came up with this particular idea. Well people are starting to embrace the mindset of having an active lifestyle. They're starting to improve their quality of life actively and sort of passively waiting later in life to resort to medicinal or basic means to prolong their lives. And so with rapidly rising health care costs consumer behavior is changing. We wanted to make it index that's not like traditional health care indexes and aimed towards millennial trends in the market. And you call it grit right. That's the name of your index. And we see some of the holdings including Oxford industries Garmin herbalife nutrition . Talk about some of the human choices that go into designing this index on weighting rebalancing. How do you go about deciding on that. Well we wanted to make our ETF different than other sorry our index the other indexes in that we want to make it simple yet robust using a map to a multi factor sequential modeling technique where we would layer in the individual factors so momentum was used to rank 50 constituents in the index and then we used something different for weighting which we would take the inverse of the volatility index we use. We put into the low factor low volatility factor into the index that way. Professor Adis talk a little bit about some of the other ideas that were out there. I mean you had to pick one great one. What was the second place it was the third place . Yeah they were good. They were really very very good. The second place strategy was more of an active actually strategy it was a dynamic option strategy where they would write buy options and write options for generating income. So it was really designed to underline 10 not an ETF. OK but I accepted it because I liked the rigour and the quant side of it which was really important for these students that that's their focus so to speak. The third place was also very interesting. It was called fun and it was primarily a cannabis play which is a really big topic right now in a lot of students were looking at that getting a little bit crowded as well. Yeah. No students end up in the ETF industry. We do in different parts they actually end up at banks where they're working on equity market desks in fact one of the nice compliments we got from a student I got personally was she's working at. If you don't mind my saying Nomura on the desk and she knew everything about China shares and a lot of people don't learn that in school and so this class teaches as I said every aspect of index creation long before it hits an ETF and those things are used by the banks by hedge funds. We have students working at market data vendors . We have students working at exchanges. They really get to participate in the whole the whole spectrum the ecosystem of ETF and indexes .

No schedule data available.

Business School Students Compete to Create a New Passive Product

Ronnee Ades, professor of professional practice in the finance and economics department at the Rutgers University Business School, and Ryan Smith, a Rutgers business school student, talks with Bloomberg's Scarlet Fu about the school's competition to create a new index/ETF. (Source: Bloomberg_TV)

More From Bloomberg ETF IQ
All episodes and clips