The world of exchange-traded fund (ETF) innovation is dynamic, especially when exploring the unique frontier of thematic investing through the lens of music. Scott Martin, Managing Editor of the Wealth Advisor, and David Schulhof, the pioneering force behind MUSQ LLC, recently sat down to discuss the burgeoning music industry sector, offering a fresh perspective for advisors and broker-dealers on the strategic integration of thematic ETFs into diversified portfolios.
Sometimes, recognizing innovation as it happens is difficult. That is not the case with MUSQ, a pure-play music ETF. Schulhof, Founder and CEO of MUSQ LLC, introduces us to the first pure-play music ETF, designed to harness the expansive growth and innovation of music companies worldwide. Schulhof’s proposition rests on the conviction that music offers a significant market opportunity, as it is relatively cheap compared to other forms of entertainment such as streaming services.
Music remains an undervalued asset compared to its media counterparts, accounting for only 50% of what consumers pay for platforms such as Netflix, Hulu, HBO’s Max, or Disney+. With the backing of evaluations such as JPMorgan’s, which heralds music as the “best content story in media history,” Schulhof presents a compelling investment narrative centered on music’s unique value proposition.
Music consumption is experiencing a paradigm shift, transitioning from the era of record stores to the digital age dominated by streaming and live events. Schulhof highlights the seismic change toward streaming, which now commands 84% of the U.S. music consumption market. This transition is not just an evolution in medium but signals a golden age for the music industry, propelled by advancements in artificial intelligence and blockchain technology. Such innovations afford creators unprecedented avenues for musical exploration and distribution, heralding a new era of creativity and accessibility.
Driving this consumption is the remarkable resilience of live music, particularly in the aftermath of the COVID-19 pandemic, Schulhof notes. The live music segment has experienced staggering recovery and growth, with revenues escalating tenfold since 2020 and ticket prices for premier artists soaring. This resurgence underscores the inelastic demand for live music experiences, presenting an attractive avenue for investment amid fluctuating economic conditions.
The MUSQ ETF is more than a thematic play. Beyond this topical allure, MUSQ can be seen as a potential stand-alone alternative asset class, boasting growth rates and stability that rival those of traditional investments. Schulhof’s vision positions music as an indispensable component of daily consumption, advocating for a 5% to 10% allocation within investment portfolios. His stance is supported by music’s robust growth trajectory, anti-inflationary characteristics, and universal appeal.
Addressing practical engagement, Schulhof shares anecdotes of advisors leveraging MUSQ to foster deeper connections with their clients. The story of an advisor introducing his son to investing through recognizable music companies such as Spotify and Live Nation highlights the ETF’s role in bridging generational divides and personalizing investment strategies. This approach underscores the practical application of thematic ETFs in enhancing client relationships and portfolio diversification.
Schulhof’s insights illuminate the burgeoning potential of thematic ETFs, particularly within the music industry. MUSQ exemplifies how niche markets can offer both growth opportunities and stability, challenging traditional investment paradigms. For advisors and broker-dealers, MUSQ represents not just an investment in music but an investment in innovation, culture, and the evolving landscape of consumer preferences. It underscores the importance of thematic ETFs in constructing resilient, forward-looking portfolios that resonate with investors on a personal level.
As the financial industry continues to evolve, embracing thematic ETFs such as MUSQ could pave the way for new investment strategies that align with the changing dynamics of the global economy and consumer behavior. For advisors and broker-dealers, the journey into thematic investing offers a unique opportunity to diversify portfolios while connecting with clients through shared passions and interests. The story of MUSQ is a testament to the power of innovation, the resilience of the music industry, and the untapped potential of thematic ETFs in the broader financial landscape.
