Innovative ideas from Everett compete with Wall Street

Brian Evans has done something few people off Wall Street have accomplished.

Evans, of the Bauer Evans firm of certified public accountants and of Bond Street wealth advisers in Everett, has developed three exchange-traded funds available on the New York Stock Exchange: FWDI, FWDD and FWDB.

An exchange traded fund, or ETF, is an investment fund traded like a stock that holds stocks, commodities or bonds and typically tracks an index, like the S&P 500.

And that’s what got Evans interested.

He believes that most funds that follow the S&P 500, which covers the majority of large companies in the United States, are doing things the wrong way. He says they typically buy a bigger stake in the biggest companies.

He believes it would be better to look at how much a company is expected to earn in the next five years, check the price of its stock and buy bigger percentages in the companies that appear to be the best value.

“When you evaluate a business, you don’t do it on who’s the biggest, you look at the expected earnings,” Evans said.

That’s the approach he’s taken on FWDD, which looks at domestic stocks, and FWDI, which looks at international companies.

Evans said he also made some changes to rules followed by the typical S&P 500 fund, which include a look at fast-growing technology companies that aren’t making a profit. He said his funds don’t include any company without expected earnings within the next five years.

He said he went back 11 years to test his theories and found they made significantly more than the S&P 500.

If Evans is so smart, why hasn’t anyone else thought of this?

“No one wanted to challenge that line of thinking,” Evans said of the large-company approach.

He said that, more importantly, most funds were created when people didn’t have easy access to earnings estimates via computer, which is the case now.

“Five years or so ago, there was no way to get this information,” he said.

The third fund, FWDB, corrects what he believes is a flaw in how most total bond funds are created — the flaw being that they don’t come close to providing total bond coverage.

He said most funds calling themselves total bond funds include about half the 15 major bond categories, with a heavy emphasis on U.S. Treasury bonds. He added that foreign bonds or high-yield corporate bonds aren’t even considered.

“You’re not getting any global exposure,” he said.

So he added broader bond coverage to his total-bond ETF.

Evans said the three ETFs, which he launched on the NYSE in June through his company Madrona Funds, are doing quite well. He says there’s about $15 million invested in each of the three offerings.

Investors pay a fee for ETFs, as they do for mutual funds.

He said the ETFs already are pretty much paying their expenses and have attracted attention from some of the financial press. He has 24 people working at his company.

I’m not qualified to suggest whether you should invest in Evans’ ETFs — you’ll have to make that decision yourself. But it’s nice to hear that a local firm with some new ideas is up there competing with some much larger companies.

Mike Benbow: 425-339-3459; benbow@heraldnet.com.

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