By: D. Bruce Johnston, President, DBJ Associates

Exchange Traded Funds (ETFs) have grown so quickly for so long, it is easy to forget that Erik Liik, the charismatic CEO and President of FocusShares was there at the beginning. Erik played a key role in the launch of the very first ETFs, the legendary Word Equity Benchmark Shares (WEBS), which provided access to international country-specific indexes in 1996.

Four years later, Erik co-authored with Financial Research Corporation, the landmark study “The Future of Exchange Traded Funds,” a prescient analysis of the challenges and opportunities confronted by ETFs. That document uncannily projected almost to the penny the asset growth that ETFs would experience from 2000 to the present. Erik’s passion for the ETF concept took a giant leap in 2008 when he and a small group of investment colleagues began building the groundwork for another, unique foray into ETF world. This time around Erik and company are setting out to build a first-of-a-kind, patented, principal-protected ETF target date series called FocusShares.

While pausing recently in his search for institutional funding, Erik met with me to discuss his views about the role social media marketing will play in launching his ETF program once funding is secured. He also shared his observations on Cerulli Associates’ just-released study.

DBJ                 When will you launch FocusShares?

Erik                As soon as we have completed financing and or strategic partnership, we are set to go. We have the marketing and sales teams in place and ready to move once the whistle blows.

DBJ                 Will anything be different your FocusShares’ launch as opposed to WEBS 13 years ago?

Erik                A few things will stay the same, but much will be different. We’ll have a simple, standard sales kit and broker selling guide. Beyond that, we intend to take maximum advantage of the many freeware or near-freeware tools available on the Internet to get the message out.

DBJ                 For instance?

Erik                We’ll use a very interactive press release approach to drive readers to our web site and blog which will be the centerpiece of our thought leadership marketing strategy. We intend to engage and build conversations with as many in our peer network as possible: individual investors, institutional investors, DCIO platforms, RIAs, wirehouses, the press and all who are looking for a better alternative to conventional target date portfolios.

DBJ                 How important a role will social media marketing play?

Erik                Tremendously important. In this economy, we cannot afford to overlook anything cost-efficient that can help us build a conversation about FocusShares. One area we will look at immediately is beefing up our presence on LinkedIn. Each of my partners has a contact page. Once we launch, we will have a contact page for FocusShares itself, too.

DBJ                 Are there any competitive ETFs doing something similar on LinkedIn?

Erik                Yes, AdvisorShares has a fairly high visibility on LinkedIn. They’ve done a good job of putting weekly podcasts and other information out there, although they seem to have lost a bit of interest in it. The last post up was in June.

DBJ                 That’s one of the problems with a social media strategy. You have to keep it current.

Erik                We know that going in. I told the team, we are all responsible in developing a one-to-one approach to establishing our thought leadership in this area and expanding our presence through social media efforts. It will be a lot of hard work and success won’t come overnight, but I believe we’ll have done the spade work to create lasting, long-term relationships with our clients.

DBJ                 On another topic. The new Cerulli Associates’ study came out called “Exchange Traded Funds: Threat or Threatened?” What do you think of it?

Erik                I think the title is a little cryptic.

DBJ                 It is a little cryptic. Cerulli, basing his survey on just 400 advisors, stated that 45% prefer using actively managed mutual funds in their clients’ portfolios rather than ETF products.

Erik                Well, that flies in the face of what most consider a mass exodus out of mutual funds to ETFs. It really contradicts a recent Schwab study that said 83% of RIAs prefer using ETFs in their asset allocation strategies. It would probably be helpful to have a better understanding of the advisor demographic Cerulli was referring to. Today’s ETFs provide passive exposure to markets, sectors and industry group. They are excellent tools for executing many investment strategies.

DBJ                 Will the use of ETF wrap products increase?

Erik                Yes. But wraps will not be the only way advisors and investors increase their ETF participation. Almost any investment objective can be offered in the ETF structure. To date the majority of ETFs are passive.

DBJ                 It appears that actively managed objectives and solution based objectives are the next step in the evolution of the ETF. Do you agree?

Erik                Absolutely. IndexIQ has launched a series of ETFs that actively seek to replicate various hedge fund strategies.

DBJ                 How is FocusShares positioning to meet the opportunities and challenges of tomorrow’s ETF market?

Erik                In 2008, we identified flaws in traditional target date mutual funds, which were exposed in the recent historic market collapse. Traditional target date mutual funds do not provide investors with protection of capital as an integral part of a retirement planning and nor do they provide transparency of fund investments. FocusShares, on the other hand, developed an investment methodology that would provide progressive capital protection within the ETF product structure.

DBJ                 Erik, these are exciting times for you. I wish you much luck with your new venture.

Erik                Thanks much Bruce.