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Speaker 1: Woko Nu trillions.

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Speaker 2: I'm Joel Webber and I'm Eric Belchunis.

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Speaker 1: Eric.

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Speaker 3: There was a headline from our colleague Blue Wang at

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Speaker 3: Bloomberg News recently that really caught our attention.

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Speaker 1: I'm going to read it to you.

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Speaker 3: Levered trade that blew up in two thousand and eight

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Speaker 3: gets a six hundred million etf redo.

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Speaker 1: You love headlines like that, right, Well.

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Speaker 2: Look, if you put two thousand and eight and blow

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Speaker 2: up in a headline, you're gonna get clicks on the

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Speaker 2: Bloomberg website, There's no doubt and levered for good measure.

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Speaker 2: That's like a chocolate Sunday with like extra sprinkles and

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Speaker 2: fudge and maybe some whip cream. Now what's interesting is

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Speaker 2: I knew what she was talking about as soon as

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Speaker 2: I saw this headline. And this is return stacking. Now

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Speaker 2: it's a little bitch.

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Speaker 1: Herd that I wasn't actually familiar with.

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Speaker 2: Yeah, so the return stacking ETF people I've known over

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Speaker 2: the years, I've gotten to meet several of the people

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Speaker 2: behind the two companies that do them, and I got

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Speaker 2: to tell you, these are some of the smartest people

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Speaker 2: you'll ever meet. This is like like I was once

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Speaker 2: playing tennis with this guy in Orlando, and he goes,

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Speaker 2: you know, Corey Hofstein, that's my JM. This guy like

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Speaker 2: he's a podcast. That's the smartest guy. So these are

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Speaker 2: well followed people who would normally be running institutional money

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Speaker 2: and we'd never hear about them, or we'd hear you

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Speaker 2: know that in those quarters. But because of the ETF market,

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Speaker 2: you're getting this kind of this level of intelligence in

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Speaker 2: these ETFs. And this actual strategy called return stacking used

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Speaker 2: to be called or still is called portable alpha in

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Speaker 2: the institutional world. And I remember when I wrote my

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Speaker 2: first book, the Institutional ETF Toolbox, portable alpha came up

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Speaker 2: now and then in my conversations with CIOs and whatnot,

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Speaker 2: and and well we'll save it for the podcast on

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Speaker 2: what it is, but essentially it is an institutional trade

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Speaker 2: that is now available to retail.

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Speaker 3: And you mentioned someone, Corey Hofstein. He's also going to

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Speaker 3: be joining us on this episode. He's the chief investment

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Speaker 3: officer of Newfound Research.

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Speaker 1: This time on trillions return stacking. Corey.

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Speaker 4: Welcome to Trillions, Joel, Eric, thank you so much for

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Speaker 4: having me. Really excited to be here.

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Speaker 3: Okay, so this article that Luang did generate a ton

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Speaker 3: of interest, But just break it down.

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Speaker 1: What is return stacking?

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Speaker 4: Well, return stacking is a phrase that I need to

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Speaker 4: give all credit to my colleague Rodrigo Gordillo at Resolve

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Speaker 4: Asset Management for coming up with. The reason most people

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Speaker 4: haven't heard of it is because it's a new word.

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Speaker 4: But all return stacking really is is this idea of

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Speaker 4: taking a return stream of an alternative investment or asset

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Speaker 4: class or strategy and putting it on top of your

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Speaker 4: traditional core stocks and bonds. And the idea here is

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Speaker 4: that we can access diversification or all alternative return streams

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Speaker 4: without having to sacrifice that core stock and bond exposure

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Speaker 4: that we normally have to sell to make room in

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Speaker 4: our portfolio to add those diversifiers. And this isn't a

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Speaker 4: new idea. This is an idea that goes back to

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Speaker 4: the nineteen eighties with institutions under the name Portable Alpha.

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Speaker 4: But as we've brought it to the ETF space and

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Speaker 4: tried to turn this into a tickorized packaged product, we've

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Speaker 4: decided to use the label return stacking because we think

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Speaker 4: it's a little bit more intuitive.

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Speaker 3: Can we talk about the two thousand and eight element

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Speaker 3: to this what went wrong there?

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Speaker 1: In what's different now?

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Speaker 4: Yeah, So, as the article title did not hide, this

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Speaker 4: idea uses leverage. Right if you want to add something

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Speaker 4: on top of your portfolio, you're inherently talking about borrowing

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Speaker 4: money to do that, and that's leverage and a lot

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Speaker 4: of people and rightfully so consider it leverage to be dangerous.

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Speaker 4: If you look at every major financial catastrophe in the

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Speaker 4: history of markets, leverages normal at the scene of the crime.

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Speaker 4: But it's not there alone. It's there with its buddies, concentration,

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Speaker 4: risk and ill liquidity. And so what happened in two

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Speaker 4: thousand and eight is you had a lot of institutions

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Speaker 4: adopt this trade and say, you know, it's really hard

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Speaker 4: for me to beat the market in large cap equities.

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Speaker 4: And if I look at my policy portfolio, that's the

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Speaker 4: part of the portfolio that's the biggest. Well, what if

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Speaker 4: instead of trying to pick stocks, I'll simply replace that

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Speaker 4: beta with some derivatives like a total return swap or

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Speaker 4: futures where I don't need one hundred dollars to get

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Speaker 4: one hundred dollars of SMP exposure. I might only need

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Speaker 4: ten dollars. I use that leverage, and then I'm going

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Speaker 4: to take the leftover money, that ninety dollars that's left over,

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Speaker 4: and I'm going to invest it in some very sexy

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Speaker 4: hedge fund. And the problem that happened in two thousand

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Speaker 4: and eight was first that hedge fund, whatever strategy they

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Speaker 4: were running, wasn't uncorrelated to the market, and so those

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Speaker 4: strategies ended up sharing a tail risk and blowing up

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Speaker 4: at the same time. And then two, there was no

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Speaker 4: way for the institutions to rebalance because a lot of

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Speaker 4: those hedge funds started throwing up gates and so they

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Speaker 4: couldn't address the problem, which was as those equities were

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Speaker 4: selling off, they needed to post more and more margin

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Speaker 4: as collateral and they couldn't get their money back. And

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Speaker 4: so yes, leverage was there, but again it was with

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Speaker 4: this concentration risk and ill liquidity risk that really made

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Speaker 4: up an issue for leverage. I just the last thing

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Speaker 4: I'll add is I want to contrast that with someone

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Speaker 4: like Bridgewater, very famous hedge fund, who famously uses a

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Speaker 4: whole lot of leverage in their portfolio construction. But they

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Speaker 4: use leverage for defense, for adding more diversification, and they

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Speaker 4: were able to sail through two thousand and eight. Just fine, and.

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Speaker 2: Let's go through this fund piece by piece here. So

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Speaker 2: the flagship fund that you guys run is return stacked

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Speaker 2: US stocks and managed futures etf tickers are sst Just

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Speaker 2: walk us through how you do it. So it sounds

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Speaker 2: like you get the US stock exposure through a futures

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Speaker 2: or a swap, but you have to post some kind

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Speaker 2: of a collateral, and that would mean treasury. So you're

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Speaker 2: on the hook for four or five percent interest rate, right,

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Speaker 2: and then you with the money you still have left

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Speaker 2: over since you borrow that, you go and do a

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Speaker 2: managed future strategy?

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Speaker 1: Is that about right?

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Speaker 4: It's about right? But I actually I think it's easier

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Speaker 4: to understand and reverse. Right. So what is a managed

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Speaker 4: future strategy? Really quickly for those who don't know, it's

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Speaker 4: a trading strategy that's going to trade commodities, currencies, equities,

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Speaker 4: and bonds long and short based upon different trading signals.

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Speaker 4: And the biggest signal that's uses trend following, and typically

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Speaker 4: you're trading futures, hence the name managed futures. Now, when

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Speaker 4: you give a dollar to a traditional managed future strategy,

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Speaker 4: what they're going to do is they're going to take

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Speaker 4: that dollar and invest it in TE bills and use

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Speaker 4: those T bills as collateral to run their trading strategy.

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Speaker 4: All we're really doing with RSST is saying, well, when

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Speaker 4: you give a dollar, instead of putting it in T bills,

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Speaker 4: what if we put it in the SMP five hundred

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Speaker 4: or generic large cap equities instead of T bills and

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Speaker 4: then run the trading strategy on top. And now there's

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Speaker 4: there's some minution how much how we get that exposure.

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Speaker 4: So for example, well, if you give us a dollar,

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Speaker 4: we'll buy seventy five cents of large cap equity exposure

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Speaker 4: through the underlying stocks or an ETF. We'll put the

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Speaker 4: rest in T bills as collateral, We'll buy some SMP

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Speaker 4: futures to true up that full exposure to S and

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Speaker 4: P five hundred, and then we'll use that collateral also

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Speaker 4: to do the trading strategy. But I like to think

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Speaker 4: of it as in reverse. Instead of thinking about all

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Speaker 4: these building blocks on top of each other, it's just

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Speaker 4: we're giving you a traditional managed futures fund. Just instead

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Speaker 4: of holding T bills, we're holding large cap equities.

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Speaker 2: Okay, And so when we go over that managed future strategy.

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Speaker 2: And this is I think part of the worry about

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Speaker 2: and what you mentioned two thousand and eight is that

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Speaker 2: in a panic, a lot of times correlations converge to one.

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Speaker 2: Everything is just being sold in all that math you had,

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Speaker 2: and then the historical data goes out the window. Your

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Speaker 2: managed futures has a short position, so in a sell off,

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Speaker 2: you're at least going to have the shorts go up. Right.

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Speaker 2: Is that the idea behind why it's a little different

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Speaker 2: than say a hedge fund in two thousand and eight,

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Speaker 2: which might have been all long and thus not really

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Speaker 2: a hedge fund.

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Speaker 1: Yeah.

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Speaker 4: I mean, look, leverage amplifies the good and the bad, right,

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Speaker 4: And so the reason we like manage futures and we're

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Speaker 4: I don't want to say prescriptive about what you should

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Speaker 4: be stacking on top, but we have strong opinions is

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Speaker 4: that we're looking for strategies that are ideally uncorrelated to

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Speaker 4: the things that are already in the portfolio, like large

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Speaker 4: cap equities or bonds or whatever else people typically hold

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Speaker 4: in their strategic allocation. That's not to say you can't

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Speaker 4: see managed futures and equities fall at the same time.

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Speaker 4: I think we just saw that late July early ONGUS

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Speaker 4: were managed future strategies. We're riding the trends of equities.

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Speaker 4: They were short the Japanese yend because that was a

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Speaker 4: trade that was paying off, and as that carry trade

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Speaker 4: blew up, managed future strategies went down at the same

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Speaker 4: time as equities, and you would see in our ETF

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Speaker 4: that we lost more money than if you had just

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Speaker 4: held equities alone. In fact, if we look at this

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Speaker 4: sort of trade equities plus managed futures on top on average,

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Speaker 4: the draw down is going to be larger every single

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Speaker 4: year than just equities alone. But it's in those bigger

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Speaker 4: draw downs like two thousand and eight or the early

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Speaker 4: two thousands that you see strategies like managed futures start

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Speaker 4: to adapt and as equities sell off, they might suddenly

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Speaker 4: go short equities and long bonds and short commodities and

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Speaker 4: long the US dollar, and all of a sudden have

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Speaker 4: the flexibility to start to create positive returns in those

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Speaker 4: crisis periods. And that's where we think that diversification over

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Speaker 4: time is really valuable.

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Speaker 3: Corey, you guys launched about a year ago. I'm curious

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Speaker 3: what have you learned so far and how might that

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Speaker 3: inform what happens going forward with the products.

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Speaker 4: I think the biggest lessons we've learned and trying to

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Speaker 4: bring this entire suite to market is how important it

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Speaker 4: is to think of these things as building blocks.

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Speaker 1: Right.

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Speaker 4: So when we talk about RSST here, what we're talking

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Speaker 4: about is every dollar you give us, we're going to

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Speaker 4: give you a dollar of large cap equity plus a

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Speaker 4: dollar of managed futures exposure. We're not saying that that

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Speaker 4: is the optimal combination of equities and managed futures. There

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Speaker 4: might be some mathematically better combination. But by providing just

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Speaker 4: that dollar for dollar, we're trying to make it as

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Speaker 4: transparent and easy to use for smaller institutions and financial

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Speaker 4: advisors as a as a lego or building block in

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Speaker 4: their portfolio. And I think I underappreciate to personally that

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Speaker 4: flexibility that it provides allocators by keeping the products simpler,

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Speaker 4: and rather than trying to bring the most optimal product

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Speaker 4: to market, bringing a product that's more transparent, easier to understand,

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Speaker 4: and serves as a building block allows allocators to use

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Speaker 4: it in a variety of flexible manners.

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Speaker 3: So talk to us more about the suite. What is

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Speaker 3: this suite of products? And how might investors try and

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Speaker 3: use them together.

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Speaker 4: Yeah, So we launched our first product back in February

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Speaker 4: twenty twenty three. We now have five ETFs out the

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Speaker 4: door and have raised just over seven hundred and fifty

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Speaker 4: million in assets in the suite sense then, and we'll

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Speaker 4: hopefully have a sixth product out the door by the

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Speaker 4: end of the year. And there's of the five products,

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Speaker 4: we have a the one we've been talking about, which

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Speaker 4: is our Stocks and Managed Futures that has a sister

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Speaker 4: fund which is a bonds in managed futures. Same concept.

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Speaker 4: Give it a dollar, it's going to get a dollar

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Speaker 4: of core US fixed income plus a dollar managed futures

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Speaker 4: on top. Then we have our stocks and Futures Yield,

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Speaker 4: This is another futures trading strategy, but instead of using

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Speaker 4: trend as the signal, it's using carry as the signal,

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Speaker 4: another very popular global macro type trade. We then have

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Speaker 4: a bonds plus futures yield, so again a sister fund there,

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Speaker 4: which we just launched last week. And then we have

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Speaker 4: a Global Stocks and Bonds ETF, which really isn't meant

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Speaker 4: to be a stacking solution in the same sense, where

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Speaker 4: we're adding an overlay to a portfolio, but meant to

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Speaker 4: be used as a capital efficiency tool that anyone can

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Speaker 4: effectively use it to free up room in their portfolio

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Speaker 4: and then effectively stack whatever they want on their portfolio.

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Speaker 4: Very much and to choose your own adventure sense.

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Speaker 2: And if I'm a sixty forty investor, a lot of

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Speaker 2: advisors are, which is the prominent consumer of ETFs. What

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Speaker 2: am I selling to buy this? What part of the

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Speaker 2: portfolio would I be you know, allocating this too?

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Speaker 4: You know, Eric, that's actually the fundamental problem we're trying

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Speaker 4: to solve in what we're doing, right, because traditionally with alternatives,

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Speaker 4: diversification is this process of addition through subtraction. If I

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Speaker 4: like managed futures because it's uncorrelated to stocks and bonds,

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Speaker 4: I need to figure out how to make room in

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Speaker 4: my portfolio, which often means selling stocks and bonds. So

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Speaker 4: if you look at say the performance of managed futures

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Speaker 4: versus the SMP since we launched r SST last November,

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Speaker 4: the SMP's up north of twenty five percent and managed

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Speaker 4: futures are flat over that period. And so that is

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Speaker 4: a at least over this period, right, has been a

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Speaker 4: very expensive opportunity cost. The idea of a product like

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Speaker 4: RSST is you can sell your equities and buy RSST

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Speaker 4: and you are getting your equities back and overlaying the

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Speaker 4: managed futures on top, and so you don't have to

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Speaker 4: sacrifice that exposure. And again that goes back to debt.

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Speaker 4: To my answer to you, Joel, about what we learned

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Speaker 4: the simple building blocks. By having stocks plus managed futures

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Speaker 4: or bonds plus managed futures, or stocks plus futures yield

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Speaker 4: or bonds plus futures yield as individual building block products,

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Speaker 4: it makes it very easy for the advisor or allocator

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Speaker 4: to figure out what to sell and how to replace

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Speaker 4: that underlying exposure to then create the overlight to the

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Speaker 4: alternative strategy they want.

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Speaker 2: All right, and Corey, you know we talked about the

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Speaker 2: users of ETFs so prodmintly advisors and I get this

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Speaker 2: as a something they can use. What about institutions, because

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Speaker 2: you know, I always find that interesting. You know, you've

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Speaker 2: got someone like yourself, you clearly you know, and Rodrigo

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Speaker 2: could be institutional money managers. You could have a hedge fund.

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Speaker 2: So your caliber is that of an institutional manager. Is

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Speaker 2: there any interest from them on this, Like you know,

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Speaker 2: Simplify has had some institutional bites. Some of their funds

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Speaker 2: have like pensions and endowments.

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Speaker 1: It's tough though.

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Speaker 2: I think institutions sometimes want the private private fund they

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Speaker 2: don't want it through an ETF for some reason. But

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Speaker 2: these all these like Simplifies products seem like something that

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Speaker 2: maybe you could even coax a institution to buy.

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Speaker 4: So this is again a trade that came from the

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Speaker 4: institutional space. So a lot of larger institutions are already

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Speaker 4: doing this and so they don't need the products that

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Speaker 4: we put together. That said, what where we are getting

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Speaker 4: inbound interest is from smaller institutions who don't have the

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Speaker 4: infrastructure to set up this trade and want to be

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Speaker 4: able to access it the way their larger siblings are

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Speaker 4: doing it, as well as ex institutional money managers who

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Speaker 4: are now running model portfolios. And I know this is

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Speaker 4: a space you've both looked at a lot, but model

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Speaker 4: portfolios of for financial advisors of space that's grown dramatically.

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Speaker 4: There's a lot of ex institutional money managers that are

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Speaker 4: now overseeing those models, and we are seeing not only

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Speaker 4: allocation in that space, but a tremendous amount of interest I'm.

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Speaker 3: Actually curious about the institutional investor approach to this versus

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Speaker 3: the approach that you guys have brought to market as

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Speaker 3: an ETF. What's different still about what the institutions are

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Speaker 3: doing than what you all have.

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Speaker 4: Well, the big difference is really just the package. What

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Speaker 4: the institutions are doing is they're able to work with

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Speaker 4: a large institutional asset manager to open up separately managed accounts,

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Speaker 4: have their derivatives managed in that separately managed account. Then

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Speaker 4: they can go choose whatever hedge fund strategy they want,

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Speaker 4: whatever manager they want to allocate to, to overlight to

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Speaker 4: create that portable alpha overlay. We're providing more defined building blocks. Right,

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Speaker 4: Our US equity plus managed future strategy is our managed

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Speaker 4: future strategy. It's entirely possible that an allocator likes the

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Speaker 4: concept but doesn't like the way we do the trades.

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Speaker 4: The larger institutions can go out and source wherever they

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Speaker 4: want on the hedgehunt side, so it's a lot more

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Speaker 4: flexibility for them. But again with that flexibility comes a

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Speaker 4: lot more operational burden, a lot more manager due diligence.

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Speaker 4: What we're trying to do is put it into a single,

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Speaker 4: easy to access trade.

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Speaker 2: And it's interesting. I've known you for quite a while

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Speaker 2: and I've known Rodrigo as well. I know him as

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Speaker 2: this sort of risk weighted ETF person and fun person,

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Speaker 2: and I always thought of you as a quant you know,

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Speaker 2: sort of like Wes Gray or Cliff Fastness. And when

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Speaker 2: did you come up with this? You know, you have

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Speaker 2: this other ETF romo which I don't is not totally

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Speaker 2: related to this suite of products. I always find that

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Speaker 2: interesting somebody who has had a couple ETFs here and there,

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Speaker 2: and then they sort of lock into something that gets

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Speaker 2: some grassroots interest and they just run with it. It's like,

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Speaker 2: you know, like your third album was the successful one?

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Speaker 2: Is that sort of how this feels? And how did

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Speaker 2: you get into this versus just doing more quant based investing?

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Speaker 4: In some ways yes, in some ways no. This idea

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Speaker 4: of capital efficiency and portable alpha is something that Resolve

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Speaker 4: has been doing internally a long time, because that's how

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Speaker 4: you build a risk balanced portfolio. In my firm, Newfound,

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Speaker 4: we started implementing it in our mandates back in twenty seventeen,

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Speaker 4: but what we didn't do is put it out in

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Speaker 4: an ETF. And I think the common frustration both Newfound

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Speaker 4: and Resolve had, and the problem we were ultimately trying

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Speaker 4: to solve was that we both were large proponents of

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Speaker 4: alternative diversification in an era the twenty tens where that

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Speaker 4: was just a hard concept to continue to try to

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Speaker 4: convince people to allocate to. Again, it goes back to

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Speaker 4: this problem of diversification is typically addition through subtraction. I

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Speaker 4: need to tell someone to sell stocks and bonds to

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Speaker 4: make room for alternatives in a decade that you couldn't

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Speaker 4: have done better than just passive US sixty forty, right,

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Speaker 4: And so that was a very hard trade to convince

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Speaker 4: people to move out of. This evolution isn't an evolution

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Speaker 4: of thinking so much as an evolution of delivery of

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Speaker 4: us saying well, this might be a better way for

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Speaker 4: people to get their alternatives and be able to stick

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Speaker 4: with them, right, because by packaging them in this way

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Speaker 4: and not forcing people to get rid of their stocks

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Speaker 4: and bonds, it might be easier for people to hold

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Speaker 4: alternatives during those periods where alternatives are underperforming stocks and bonds,

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Speaker 4: so that they can have them in years like twenty

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Speaker 4: twenty two and they're not selling out of them and

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Speaker 4: making all these wrong sort of market timing decisions.

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Speaker 1: I want to ask about performance.

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Speaker 3: How do you feel about how things have gone so

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Speaker 3: far and what scenario is the one that you feel

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Speaker 3: like you need to really feel like you're going to

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Speaker 3: break through and have people really know that this is

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Speaker 3: a winning strategy.

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Speaker 4: Yeah, so with five ETFs, right, it's going to differ.

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Speaker 4: But I'll talk about our flagship RSST, and I think

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Speaker 4: from a target perspective, we have done and delivered exactly

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Speaker 4: as we said we would over the last year. If

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Speaker 4: you decompose our returns, we have almost perfectly delivered, providing

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Speaker 4: the S and P five hundred plus category average returns

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Speaker 4: of managed futures. And that's what we're trying to do

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Speaker 4: is give you the beta of the managed futures category,

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Speaker 4: and so we are very very happy with the return

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Speaker 4: we've generated. That said, managed futures as a strategy has

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Speaker 4: had a negative return over the last year, and so

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Speaker 4: if you compare us versus buy and hold equities, we

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Speaker 4: will have underperformed. But again, what I would go back

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Speaker 4: to is saying, Okay, the SMP's up twenty eight percent,

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Speaker 4: we're up close to twenty. Managed futures as a category

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Speaker 4: is flat to negative and so okay, we're we're lagging

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Speaker 4: behind the SMP because we overlaid that negative return. I

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Speaker 4: think that's a lot better than if you had sold

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Speaker 4: the SMP to buy managed futures and now you're lagging

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Speaker 4: behind by thirty six percent, right, And so I think

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Speaker 4: we prove in the point, which is, okay, we can

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Speaker 4: add the diversification without creating this huge hurdle that is

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Speaker 4: the opportunity cost of trying to fight against markets just

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Speaker 4: marching higher over the long run.

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Speaker 1: Yeah.

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Speaker 2: And is it tempting in the managed future strategy when

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Speaker 2: the markets are going up and we think the Fed's

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Speaker 2: gonna cut everything seems pretty good right now to maintain

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Speaker 2: the short position, because I remember looking at charts of

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Speaker 2: hedge funds over the years, and when the bull market

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Speaker 2: of the twenty tens was going on, I think a

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Speaker 2: lot of them started to just merge into long only.

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Speaker 2: They if they didn't, they were losing assets, and so

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Speaker 2: the market kind of dictated they just go long only.

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Speaker 2: How much are you strict with yourself to keep the

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Speaker 2: short position in the managed futures incredibly strict.

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Speaker 4: I mean, we run it in a purely systematic manner

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Speaker 4: and again, the idea with trend is that if equities

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Speaker 4: are going up, our trend following strategy should start adding

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Speaker 4: positively to equities. But it's not just trading equities. It's

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Speaker 4: trading currencies and commodities and bonds. And so if we

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Speaker 4: say rewind the clock to April, which was another little

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Speaker 4: bit of a jostle for equities, we saw that even

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Speaker 4: though the trend program was long equities and was losing

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Speaker 4: money in those long equity positions, that was offset by

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Speaker 4: you know, shorts in currencies and longs in commodities and

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Speaker 4: shorts and bonds, and so you know, the very nature

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Speaker 4: here is we think these are long term strategies that

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Speaker 4: are uncorrelated to each other. We think over the long

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Speaker 4: run both are going to create positive returns, and so

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Speaker 4: we think they're better stacked. The short run, right, is

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Speaker 4: another matter entirely. Just as stocks can have a year

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Speaker 4: where they're down, we expect maned futures to have a

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Speaker 4: year that it's down. But as long as we systematically

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Speaker 4: stick to that trend following strategy, we think it's long term,

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Speaker 4: very additive to the portfolio.

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Speaker 2: It's interesting, I notice this huge rush of ETFs that

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Speaker 2: protect your downside a little bit, if not completely. The

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Speaker 2: buffer ETFs and also the covered call strategies, it almost

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Speaker 2: seems like this managed futures return stacking ETF could compete

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Speaker 2: with those in that if you do stick to the

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Speaker 2: shorts being in there, that when the market does sell off,

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Speaker 2: it will have somewhat of a buffer effect in the portfolio.

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Speaker 2: And just seems like there's a huge market for that.

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Speaker 2: Is that, I mean, I guess that's the biggest one.

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Speaker 2: Is that part of the reason why that one sold

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Speaker 2: the best?

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Speaker 4: I think so. And these stats actually I think come

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Speaker 4: from York and these blew my mind as there's over

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Speaker 4: fifty billion in those buffered ETFs. Yeah, that launched what

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Speaker 4: five years ago, and over fifty percent of ETFs launched

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Speaker 4: year to date include derivatives in them, which I think

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Speaker 4: is a big change. So it really speaks to the

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Speaker 4: changing market environment and what people are looking for in

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Speaker 4: an allocation product. Short answers, Yes, right, those buffered products

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Speaker 4: are going to use options to try to explicitly manage

439
00:24:01,240 --> 00:24:04,520
Speaker 4: your downside risk, whereas what we're trying to do, which

440
00:24:04,520 --> 00:24:06,760
Speaker 4: comes at a cost. Right, if you're buying insurance, there's

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00:24:06,800 --> 00:24:08,879
Speaker 4: a cost to insurance. What we're trying to do is

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00:24:08,920 --> 00:24:13,200
Speaker 4: say we're not contractually hedging downside risk. What we're trying

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00:24:13,240 --> 00:24:17,399
Speaker 4: to do is add an alternative investment strategy that we

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00:24:17,520 --> 00:24:20,840
Speaker 4: think generates positive long term returns and has really attractive

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00:24:20,880 --> 00:24:25,159
Speaker 4: diversification properties to your portfolio. And in doing so, not

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00:24:25,200 --> 00:24:28,120
Speaker 4: only do we think we can outperform over the long run,

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00:24:28,200 --> 00:24:33,439
Speaker 4: right that portable alpha create those excess returns, but you know,

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00:24:33,520 --> 00:24:36,720
Speaker 4: we think there's a strong probability that in those large

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00:24:36,760 --> 00:24:40,320
Speaker 4: draw down environments, those big macroeconomic shocks twenty twenty two,

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00:24:40,400 --> 00:24:43,040
Speaker 4: A two thousand and eight, in early two thousands, these

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00:24:43,040 --> 00:24:45,159
Speaker 4: are the sort of strategies that can adapt and have

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00:24:45,240 --> 00:24:48,040
Speaker 4: the flexibility and the breadth of assets that they're trading

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00:24:48,200 --> 00:24:50,960
Speaker 4: to create a positive return and hopefully offset some of

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00:24:50,960 --> 00:24:53,440
Speaker 4: those losses in either the underlying stocks or bonds.

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00:24:54,240 --> 00:24:56,600
Speaker 3: Corey, I'm curious where else do you think you can

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00:24:56,640 --> 00:24:58,600
Speaker 3: take the strategy you mentioned you've got one more product

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00:24:58,600 --> 00:24:59,600
Speaker 3: that you can add to the suite.

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00:25:00,119 --> 00:25:02,800
Speaker 1: Is that is that it and then you grow the

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00:25:02,880 --> 00:25:03,640
Speaker 1: AUM from there?

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00:25:03,720 --> 00:25:06,199
Speaker 3: Or do you think that there might be more opportunities

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00:25:06,200 --> 00:25:07,800
Speaker 3: to grow the number of offerings you guys have.

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00:25:08,240 --> 00:25:10,040
Speaker 4: I think going back to the idea that we want

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00:25:10,080 --> 00:25:14,040
Speaker 4: this to be legos in building blocks for allocators. There's

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00:25:14,040 --> 00:25:17,280
Speaker 4: a number of combinations we can start to build, right,

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00:25:17,720 --> 00:25:19,720
Speaker 4: So we're looking towards the end of the year to

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00:25:19,800 --> 00:25:23,360
Speaker 4: launch a bonds plus merger arbitrage strategy. But I think

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00:25:23,400 --> 00:25:26,159
Speaker 4: you can still even look towards more vanilla combinations like

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00:25:26,480 --> 00:25:30,800
Speaker 4: stocks plus commodities, bonds plus gold. I'm sure we could

469
00:25:30,800 --> 00:25:36,640
Speaker 4: look at something like stocks plus bitcoin, right, not appealing

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00:25:36,680 --> 00:25:39,440
Speaker 4: to everyone, But as we continue to build the suite

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00:25:39,520 --> 00:25:42,480
Speaker 4: out and think about these different combinations of both passive

472
00:25:42,560 --> 00:25:47,480
Speaker 4: and active diversifiers, I don't want to say there's unlimited combinations,

473
00:25:47,480 --> 00:25:50,560
Speaker 4: but there's certainly a large, fat tail of combinations. What

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00:25:50,640 --> 00:25:53,000
Speaker 4: we're trying to do with the first call it six

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00:25:53,080 --> 00:25:55,720
Speaker 4: to nine products is really make sure we hit the

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00:25:55,960 --> 00:25:58,920
Speaker 4: big trends that people are looking for, both the big

477
00:25:59,000 --> 00:26:02,399
Speaker 4: underlying assets well as the big diversifiers. And then as

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00:26:02,440 --> 00:26:05,400
Speaker 4: we get towards products ten to fifteen, I think you'll

479
00:26:05,400 --> 00:26:07,720
Speaker 4: start to see sort of a less appetite for the

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00:26:07,760 --> 00:26:10,800
Speaker 4: specific implementation as we sort of slice and dice the

481
00:26:10,800 --> 00:26:11,479
Speaker 4: market a little bit.

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Speaker 1: Dinner.

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00:26:12,359 --> 00:26:16,479
Speaker 3: Okay, last question, favorite ETF ticker other than your own.

484
00:26:18,960 --> 00:26:24,720
Speaker 4: It's now defunct, unfortunately. Let's okay at cy CYA and

485
00:26:25,000 --> 00:26:29,760
Speaker 4: why that one from Simplify. It was a tail hedging ETF.

486
00:26:29,800 --> 00:26:32,080
Speaker 4: And this is not a commentary on the product itself,

487
00:26:32,160 --> 00:26:35,880
Speaker 4: but CYA standing for cover your Ass. And I thought

488
00:26:35,880 --> 00:26:37,320
Speaker 4: that was a pretty clever ticker.

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00:26:37,920 --> 00:26:39,000
Speaker 1: Yeah, yeah, that.

490
00:26:39,040 --> 00:26:39,680
Speaker 3: Is pretty good.

491
00:26:39,840 --> 00:26:40,560
Speaker 1: That's a good one.

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00:26:40,600 --> 00:26:43,399
Speaker 2: That's that's never been used before.

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00:26:44,040 --> 00:26:45,160
Speaker 1: I know that ETF.

494
00:26:46,080 --> 00:26:47,480
Speaker 2: I thought this, you know, I thought it was a

495
00:26:47,480 --> 00:26:50,800
Speaker 2: great ticker when it came out. Good one man, pretty inspired.

496
00:26:50,800 --> 00:26:53,239
Speaker 2: Although I know you're kind of friendly with them, and

497
00:26:53,440 --> 00:26:55,200
Speaker 2: that's sort of your your.

498
00:26:55,040 --> 00:26:58,080
Speaker 4: World if I try to keep my fingers on the

499
00:26:58,080 --> 00:27:00,080
Speaker 4: pulse of the market to okay, I follow you, so

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00:27:00,080 --> 00:27:01,159
Speaker 4: I see what's getting launched.

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00:27:02,560 --> 00:27:04,439
Speaker 1: All right, Corey Hofsen, thanks so much for joining us

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Speaker 1: on Trillions.

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Speaker 4: Thank you guys.

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Speaker 3: Thanks for listening to Trillions.

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Speaker 4: Until next time.

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Speaker 3: You can find us on the Bloomberg Terminal, Bloomberg dot com,

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00:27:18,400 --> 00:27:22,200
Speaker 3: Apple Podcasts, Spotify, or wherever else you'd like to listen.

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00:27:22,840 --> 00:27:25,560
Speaker 3: We'd love to hear from you. We're on Twitter. I'm

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00:27:25,560 --> 00:27:30,600
Speaker 3: at Joel Webber Show. He's at Eric Baulchunas. This episode

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00:27:30,600 --> 00:27:32,720
Speaker 3: of Trillions was produced by Magnus Hendrickson.

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Speaker 1: Bye