WEBVTT - Return Stacking 0:00:06.160 --> 0:00:06.920 Woko Nu trillions. 0:00:06.920 --> 0:00:10.160 I'm Joel Webber and I'm Eric Belchunis. 0:00:11.600 --> 0:00:11.799 Eric. 0:00:11.800 --> 0:00:14.680 There was a headline from our colleague Blue Wang at 0:00:14.720 --> 0:00:17.720 Bloomberg News recently that really caught our attention. 0:00:18.120 --> 0:00:18.959 I'm going to read it to you. 0:00:19.480 --> 0:00:21.680 Levered trade that blew up in two thousand and eight 0:00:21.840 --> 0:00:24.360 gets a six hundred million etf redo. 0:00:24.720 --> 0:00:27.840 You love headlines like that, right, Well. 0:00:28.040 --> 0:00:31.040 Look, if you put two thousand and eight and blow 0:00:31.120 --> 0:00:34.159 up in a headline, you're gonna get clicks on the 0:00:34.200 --> 0:00:38.240 Bloomberg website, There's no doubt and levered for good measure. 0:00:38.560 --> 0:00:41.479 That's like a chocolate Sunday with like extra sprinkles and 0:00:41.560 --> 0:00:45.680 fudge and maybe some whip cream. Now what's interesting is 0:00:45.840 --> 0:00:47.760 I knew what she was talking about as soon as 0:00:47.800 --> 0:00:51.879 I saw this headline. And this is return stacking. Now 0:00:51.920 --> 0:00:52.800 it's a little bitch. 0:00:52.720 --> 0:00:55.240 Herd that I wasn't actually familiar with. 0:00:55.840 --> 0:00:59.480 Yeah, so the return stacking ETF people I've known over 0:00:59.520 --> 0:01:02.720 the years, I've gotten to meet several of the people 0:01:02.720 --> 0:01:05.040 behind the two companies that do them, and I got 0:01:05.080 --> 0:01:06.640 to tell you, these are some of the smartest people 0:01:06.680 --> 0:01:09.759 you'll ever meet. This is like like I was once 0:01:09.800 --> 0:01:11.679 playing tennis with this guy in Orlando, and he goes, 0:01:12.440 --> 0:01:15.720 you know, Corey Hofstein, that's my JM. This guy like 0:01:15.720 --> 0:01:18.880 he's a podcast. That's the smartest guy. So these are 0:01:19.080 --> 0:01:23.039 well followed people who would normally be running institutional money 0:01:23.040 --> 0:01:25.440 and we'd never hear about them, or we'd hear you 0:01:25.480 --> 0:01:28.680 know that in those quarters. But because of the ETF market, 0:01:28.720 --> 0:01:32.200 you're getting this kind of this level of intelligence in 0:01:32.240 --> 0:01:36.160 these ETFs. And this actual strategy called return stacking used 0:01:36.200 --> 0:01:38.760 to be called or still is called portable alpha in 0:01:38.760 --> 0:01:41.000 the institutional world. And I remember when I wrote my 0:01:41.040 --> 0:01:44.440 first book, the Institutional ETF Toolbox, portable alpha came up 0:01:44.480 --> 0:01:47.280 now and then in my conversations with CIOs and whatnot, 0:01:47.640 --> 0:01:50.600 and and well we'll save it for the podcast on 0:01:50.680 --> 0:01:54.080 what it is, but essentially it is an institutional trade 0:01:54.080 --> 0:01:55.600 that is now available to retail. 0:01:56.440 --> 0:01:59.560 And you mentioned someone, Corey Hofstein. He's also going to 0:01:59.560 --> 0:02:02.800 be joining us on this episode. He's the chief investment 0:02:02.880 --> 0:02:05.280 officer of Newfound Research. 0:02:08.760 --> 0:02:13.680 This time on trillions return stacking. Corey. 0:02:13.960 --> 0:02:17.000 Welcome to Trillions, Joel, Eric, thank you so much for 0:02:17.040 --> 0:02:18.359 having me. Really excited to be here. 0:02:18.840 --> 0:02:23.240 Okay, so this article that Luang did generate a ton 0:02:23.280 --> 0:02:24.760 of interest, But just break it down. 0:02:24.800 --> 0:02:26.320 What is return stacking? 0:02:27.040 --> 0:02:29.200 Well, return stacking is a phrase that I need to 0:02:29.200 --> 0:02:33.400 give all credit to my colleague Rodrigo Gordillo at Resolve 0:02:33.400 --> 0:02:35.959 Asset Management for coming up with. The reason most people 0:02:36.040 --> 0:02:38.680 haven't heard of it is because it's a new word. 0:02:39.160 --> 0:02:43.200 But all return stacking really is is this idea of 0:02:43.840 --> 0:02:48.440 taking a return stream of an alternative investment or asset 0:02:48.480 --> 0:02:53.040 class or strategy and putting it on top of your 0:02:53.080 --> 0:02:56.800 traditional core stocks and bonds. And the idea here is 0:02:56.840 --> 0:03:01.400 that we can access diversification or all alternative return streams 0:03:01.680 --> 0:03:06.119 without having to sacrifice that core stock and bond exposure 0:03:06.160 --> 0:03:09.200 that we normally have to sell to make room in 0:03:09.240 --> 0:03:12.600 our portfolio to add those diversifiers. And this isn't a 0:03:12.639 --> 0:03:14.359 new idea. This is an idea that goes back to 0:03:14.440 --> 0:03:18.560 the nineteen eighties with institutions under the name Portable Alpha. 0:03:18.760 --> 0:03:21.440 But as we've brought it to the ETF space and 0:03:21.480 --> 0:03:26.000 tried to turn this into a tickorized packaged product, we've 0:03:26.040 --> 0:03:28.600 decided to use the label return stacking because we think 0:03:28.600 --> 0:03:29.880 it's a little bit more intuitive. 0:03:30.280 --> 0:03:32.320 Can we talk about the two thousand and eight element 0:03:32.400 --> 0:03:34.400 to this what went wrong there? 0:03:34.840 --> 0:03:35.920 In what's different now? 0:03:36.800 --> 0:03:40.600 Yeah, So, as the article title did not hide, this 0:03:40.800 --> 0:03:44.160 idea uses leverage. Right if you want to add something 0:03:44.280 --> 0:03:47.800 on top of your portfolio, you're inherently talking about borrowing 0:03:47.840 --> 0:03:49.880 money to do that, and that's leverage and a lot 0:03:49.960 --> 0:03:53.680 of people and rightfully so consider it leverage to be dangerous. 0:03:53.880 --> 0:03:57.400 If you look at every major financial catastrophe in the 0:03:57.560 --> 0:04:01.120 history of markets, leverages normal at the scene of the crime. 0:04:01.800 --> 0:04:06.200 But it's not there alone. It's there with its buddies, concentration, 0:04:06.400 --> 0:04:09.480 risk and ill liquidity. And so what happened in two 0:04:09.520 --> 0:04:11.720 thousand and eight is you had a lot of institutions 0:04:11.760 --> 0:04:14.800 adopt this trade and say, you know, it's really hard 0:04:14.840 --> 0:04:17.839 for me to beat the market in large cap equities. 0:04:18.240 --> 0:04:21.000 And if I look at my policy portfolio, that's the 0:04:21.040 --> 0:04:23.120 part of the portfolio that's the biggest. Well, what if 0:04:23.160 --> 0:04:28.080 instead of trying to pick stocks, I'll simply replace that 0:04:28.160 --> 0:04:31.800 beta with some derivatives like a total return swap or 0:04:31.839 --> 0:04:34.480 futures where I don't need one hundred dollars to get 0:04:34.480 --> 0:04:36.560 one hundred dollars of SMP exposure. I might only need 0:04:36.600 --> 0:04:39.520 ten dollars. I use that leverage, and then I'm going 0:04:39.600 --> 0:04:42.680 to take the leftover money, that ninety dollars that's left over, 0:04:42.720 --> 0:04:45.880 and I'm going to invest it in some very sexy 0:04:45.920 --> 0:04:49.640 hedge fund. And the problem that happened in two thousand 0:04:49.680 --> 0:04:53.240 and eight was first that hedge fund, whatever strategy they 0:04:53.279 --> 0:04:57.240 were running, wasn't uncorrelated to the market, and so those 0:04:57.279 --> 0:04:59.760 strategies ended up sharing a tail risk and blowing up 0:04:59.800 --> 0:05:02.880 at the same time. And then two, there was no 0:05:02.920 --> 0:05:05.440 way for the institutions to rebalance because a lot of 0:05:05.440 --> 0:05:08.560 those hedge funds started throwing up gates and so they 0:05:08.640 --> 0:05:11.320 couldn't address the problem, which was as those equities were 0:05:11.360 --> 0:05:13.680 selling off, they needed to post more and more margin 0:05:13.800 --> 0:05:15.839 as collateral and they couldn't get their money back. And 0:05:15.880 --> 0:05:18.560 so yes, leverage was there, but again it was with 0:05:18.640 --> 0:05:22.640 this concentration risk and ill liquidity risk that really made 0:05:22.680 --> 0:05:25.160 up an issue for leverage. I just the last thing 0:05:25.160 --> 0:05:27.839 I'll add is I want to contrast that with someone 0:05:27.880 --> 0:05:32.080 like Bridgewater, very famous hedge fund, who famously uses a 0:05:32.080 --> 0:05:34.960 whole lot of leverage in their portfolio construction. But they 0:05:35.040 --> 0:05:38.960 use leverage for defense, for adding more diversification, and they 0:05:38.960 --> 0:05:42.800 were able to sail through two thousand and eight. Just fine, and. 0:05:43.400 --> 0:05:46.680 Let's go through this fund piece by piece here. So 0:05:47.400 --> 0:05:50.279 the flagship fund that you guys run is return stacked 0:05:50.400 --> 0:05:54.800 US stocks and managed futures etf tickers are sst Just 0:05:54.880 --> 0:05:57.360 walk us through how you do it. So it sounds 0:05:57.400 --> 0:06:03.479 like you get the US stock exposure through a futures 0:06:03.640 --> 0:06:06.360 or a swap, but you have to post some kind 0:06:06.400 --> 0:06:09.120 of a collateral, and that would mean treasury. So you're 0:06:09.160 --> 0:06:13.400 on the hook for four or five percent interest rate, right, 0:06:13.680 --> 0:06:15.920 and then you with the money you still have left 0:06:15.920 --> 0:06:18.159 over since you borrow that, you go and do a 0:06:18.200 --> 0:06:19.360 managed future strategy? 0:06:19.960 --> 0:06:20.920 Is that about right? 0:06:21.400 --> 0:06:23.440 It's about right? But I actually I think it's easier 0:06:23.480 --> 0:06:26.960 to understand and reverse. Right. So what is a managed 0:06:26.960 --> 0:06:29.120 future strategy? Really quickly for those who don't know, it's 0:06:29.440 --> 0:06:33.839 a trading strategy that's going to trade commodities, currencies, equities, 0:06:33.839 --> 0:06:37.080 and bonds long and short based upon different trading signals. 0:06:37.160 --> 0:06:40.520 And the biggest signal that's uses trend following, and typically 0:06:40.560 --> 0:06:44.080 you're trading futures, hence the name managed futures. Now, when 0:06:44.120 --> 0:06:48.160 you give a dollar to a traditional managed future strategy, 0:06:48.200 --> 0:06:49.520 what they're going to do is they're going to take 0:06:49.560 --> 0:06:52.320 that dollar and invest it in TE bills and use 0:06:52.360 --> 0:06:55.560 those T bills as collateral to run their trading strategy. 0:06:56.520 --> 0:06:59.640 All we're really doing with RSST is saying, well, when 0:06:59.680 --> 0:07:01.760 you give a dollar, instead of putting it in T bills, 0:07:01.880 --> 0:07:04.040 what if we put it in the SMP five hundred 0:07:04.520 --> 0:07:08.919 or generic large cap equities instead of T bills and 0:07:08.960 --> 0:07:11.679 then run the trading strategy on top. And now there's 0:07:11.760 --> 0:07:14.960 there's some minution how much how we get that exposure. 0:07:15.040 --> 0:07:17.200 So for example, well, if you give us a dollar, 0:07:17.240 --> 0:07:20.160 we'll buy seventy five cents of large cap equity exposure 0:07:20.200 --> 0:07:23.480 through the underlying stocks or an ETF. We'll put the 0:07:23.520 --> 0:07:26.320 rest in T bills as collateral, We'll buy some SMP 0:07:26.440 --> 0:07:29.960 futures to true up that full exposure to S and 0:07:30.000 --> 0:07:33.840 P five hundred, and then we'll use that collateral also 0:07:33.880 --> 0:07:35.600 to do the trading strategy. But I like to think 0:07:35.640 --> 0:07:37.760 of it as in reverse. Instead of thinking about all 0:07:37.800 --> 0:07:39.800 these building blocks on top of each other, it's just 0:07:40.120 --> 0:07:43.000 we're giving you a traditional managed futures fund. Just instead 0:07:43.040 --> 0:07:45.760 of holding T bills, we're holding large cap equities. 0:07:46.760 --> 0:07:49.800 Okay, And so when we go over that managed future strategy. 0:07:50.200 --> 0:07:54.440 And this is I think part of the worry about 0:07:54.640 --> 0:07:56.400 and what you mentioned two thousand and eight is that 0:07:56.680 --> 0:08:00.400 in a panic, a lot of times correlations converge to one. 0:08:01.200 --> 0:08:04.200 Everything is just being sold in all that math you had, 0:08:04.480 --> 0:08:07.520 and then the historical data goes out the window. Your 0:08:07.560 --> 0:08:11.080 managed futures has a short position, so in a sell off, 0:08:11.480 --> 0:08:13.680 you're at least going to have the shorts go up. Right. 0:08:13.800 --> 0:08:17.000 Is that the idea behind why it's a little different 0:08:17.360 --> 0:08:19.560 than say a hedge fund in two thousand and eight, 0:08:19.560 --> 0:08:23.400 which might have been all long and thus not really 0:08:23.400 --> 0:08:24.080 a hedge fund. 0:08:25.080 --> 0:08:25.280 Yeah. 0:08:25.280 --> 0:08:28.160 I mean, look, leverage amplifies the good and the bad, right, 0:08:28.240 --> 0:08:31.960 And so the reason we like manage futures and we're 0:08:32.679 --> 0:08:34.959 I don't want to say prescriptive about what you should 0:08:34.960 --> 0:08:37.360 be stacking on top, but we have strong opinions is 0:08:37.360 --> 0:08:41.640 that we're looking for strategies that are ideally uncorrelated to 0:08:42.480 --> 0:08:45.319 the things that are already in the portfolio, like large 0:08:45.320 --> 0:08:48.640 cap equities or bonds or whatever else people typically hold 0:08:48.679 --> 0:08:52.160 in their strategic allocation. That's not to say you can't 0:08:52.200 --> 0:08:56.880 see managed futures and equities fall at the same time. 0:08:57.280 --> 0:09:00.280 I think we just saw that late July early ONGUS 0:09:00.280 --> 0:09:04.600 were managed future strategies. We're riding the trends of equities. 0:09:04.960 --> 0:09:07.680 They were short the Japanese yend because that was a 0:09:07.720 --> 0:09:10.160 trade that was paying off, and as that carry trade 0:09:10.200 --> 0:09:13.680 blew up, managed future strategies went down at the same 0:09:13.720 --> 0:09:16.559 time as equities, and you would see in our ETF 0:09:16.640 --> 0:09:19.360 that we lost more money than if you had just 0:09:19.400 --> 0:09:23.000 held equities alone. In fact, if we look at this 0:09:23.120 --> 0:09:27.679 sort of trade equities plus managed futures on top on average, 0:09:27.880 --> 0:09:31.400 the draw down is going to be larger every single 0:09:31.480 --> 0:09:35.200 year than just equities alone. But it's in those bigger 0:09:35.320 --> 0:09:38.000 draw downs like two thousand and eight or the early 0:09:38.080 --> 0:09:42.040 two thousands that you see strategies like managed futures start 0:09:42.080 --> 0:09:45.560 to adapt and as equities sell off, they might suddenly 0:09:45.600 --> 0:09:49.720 go short equities and long bonds and short commodities and 0:09:49.760 --> 0:09:52.559 long the US dollar, and all of a sudden have 0:09:52.640 --> 0:09:55.960 the flexibility to start to create positive returns in those 0:09:56.040 --> 0:09:59.680 crisis periods. And that's where we think that diversification over 0:09:59.760 --> 0:10:01.160 time is really valuable. 0:10:08.200 --> 0:10:10.480 Corey, you guys launched about a year ago. I'm curious 0:10:10.520 --> 0:10:14.600 what have you learned so far and how might that 0:10:14.640 --> 0:10:16.880 inform what happens going forward with the products. 0:10:17.559 --> 0:10:20.600 I think the biggest lessons we've learned and trying to 0:10:20.600 --> 0:10:24.040 bring this entire suite to market is how important it 0:10:24.080 --> 0:10:26.319 is to think of these things as building blocks. 0:10:26.640 --> 0:10:26.840 Right. 0:10:26.880 --> 0:10:30.480 So when we talk about RSST here, what we're talking 0:10:30.480 --> 0:10:32.240 about is every dollar you give us, we're going to 0:10:32.280 --> 0:10:34.199 give you a dollar of large cap equity plus a 0:10:34.280 --> 0:10:37.840 dollar of managed futures exposure. We're not saying that that 0:10:38.000 --> 0:10:42.160 is the optimal combination of equities and managed futures. There 0:10:42.240 --> 0:10:45.640 might be some mathematically better combination. But by providing just 0:10:45.679 --> 0:10:48.040 that dollar for dollar, we're trying to make it as 0:10:48.120 --> 0:10:53.840 transparent and easy to use for smaller institutions and financial 0:10:53.880 --> 0:10:56.920 advisors as a as a lego or building block in 0:10:56.960 --> 0:11:01.040 their portfolio. And I think I underappreciate to personally that 0:11:01.360 --> 0:11:05.520 flexibility that it provides allocators by keeping the products simpler, 0:11:05.520 --> 0:11:08.480 and rather than trying to bring the most optimal product 0:11:08.480 --> 0:11:12.800 to market, bringing a product that's more transparent, easier to understand, 0:11:12.840 --> 0:11:15.920 and serves as a building block allows allocators to use 0:11:15.960 --> 0:11:17.880 it in a variety of flexible manners. 0:11:19.320 --> 0:11:21.280 So talk to us more about the suite. What is 0:11:21.320 --> 0:11:24.520 this suite of products? And how might investors try and 0:11:25.320 --> 0:11:26.120 use them together. 0:11:26.920 --> 0:11:30.760 Yeah, So we launched our first product back in February 0:11:30.800 --> 0:11:34.200 twenty twenty three. We now have five ETFs out the 0:11:34.240 --> 0:11:37.040 door and have raised just over seven hundred and fifty 0:11:37.080 --> 0:11:40.160 million in assets in the suite sense then, and we'll 0:11:40.160 --> 0:11:43.079 hopefully have a sixth product out the door by the 0:11:43.160 --> 0:11:46.400 end of the year. And there's of the five products, 0:11:46.480 --> 0:11:48.480 we have a the one we've been talking about, which 0:11:48.520 --> 0:11:51.600 is our Stocks and Managed Futures that has a sister 0:11:51.760 --> 0:11:55.120 fund which is a bonds in managed futures. Same concept. 0:11:55.240 --> 0:11:56.760 Give it a dollar, it's going to get a dollar 0:11:56.760 --> 0:11:59.400 of core US fixed income plus a dollar managed futures 0:11:59.400 --> 0:12:04.000 on top. Then we have our stocks and Futures Yield, 0:12:04.240 --> 0:12:08.000 This is another futures trading strategy, but instead of using 0:12:08.200 --> 0:12:11.280 trend as the signal, it's using carry as the signal, 0:12:11.320 --> 0:12:15.320 another very popular global macro type trade. We then have 0:12:15.440 --> 0:12:18.640 a bonds plus futures yield, so again a sister fund there, 0:12:18.679 --> 0:12:21.160 which we just launched last week. And then we have 0:12:21.280 --> 0:12:25.000 a Global Stocks and Bonds ETF, which really isn't meant 0:12:25.040 --> 0:12:27.920 to be a stacking solution in the same sense, where 0:12:27.920 --> 0:12:30.960 we're adding an overlay to a portfolio, but meant to 0:12:31.040 --> 0:12:35.840 be used as a capital efficiency tool that anyone can 0:12:35.880 --> 0:12:38.920 effectively use it to free up room in their portfolio 0:12:39.360 --> 0:12:43.079 and then effectively stack whatever they want on their portfolio. 0:12:43.280 --> 0:12:45.240 Very much and to choose your own adventure sense. 0:12:46.840 --> 0:12:49.240 And if I'm a sixty forty investor, a lot of 0:12:49.240 --> 0:12:53.760 advisors are, which is the prominent consumer of ETFs. What 0:12:54.040 --> 0:12:57.360 am I selling to buy this? What part of the 0:12:57.360 --> 0:13:01.760 portfolio would I be you know, allocating this too? 0:13:02.480 --> 0:13:04.920 You know, Eric, that's actually the fundamental problem we're trying 0:13:04.960 --> 0:13:08.960 to solve in what we're doing, right, because traditionally with alternatives, 0:13:10.280 --> 0:13:14.600 diversification is this process of addition through subtraction. If I 0:13:14.760 --> 0:13:18.040 like managed futures because it's uncorrelated to stocks and bonds, 0:13:18.160 --> 0:13:19.800 I need to figure out how to make room in 0:13:19.840 --> 0:13:23.840 my portfolio, which often means selling stocks and bonds. So 0:13:23.920 --> 0:13:27.480 if you look at say the performance of managed futures 0:13:27.600 --> 0:13:31.480 versus the SMP since we launched r SST last November, 0:13:31.920 --> 0:13:34.640 the SMP's up north of twenty five percent and managed 0:13:34.679 --> 0:13:38.000 futures are flat over that period. And so that is 0:13:38.040 --> 0:13:40.640 a at least over this period, right, has been a 0:13:40.760 --> 0:13:44.040 very expensive opportunity cost. The idea of a product like 0:13:44.160 --> 0:13:48.680 RSST is you can sell your equities and buy RSST 0:13:49.400 --> 0:13:52.680 and you are getting your equities back and overlaying the 0:13:52.679 --> 0:13:55.440 managed futures on top, and so you don't have to 0:13:55.480 --> 0:13:58.040 sacrifice that exposure. And again that goes back to debt. 0:13:59.160 --> 0:14:01.360 To my answer to you, Joel, about what we learned 0:14:01.559 --> 0:14:04.400 the simple building blocks. By having stocks plus managed futures 0:14:04.480 --> 0:14:07.400 or bonds plus managed futures, or stocks plus futures yield 0:14:07.480 --> 0:14:10.720 or bonds plus futures yield as individual building block products, 0:14:11.400 --> 0:14:14.520 it makes it very easy for the advisor or allocator 0:14:14.559 --> 0:14:17.440 to figure out what to sell and how to replace 0:14:17.480 --> 0:14:20.480 that underlying exposure to then create the overlight to the 0:14:20.520 --> 0:14:21.960 alternative strategy they want. 0:14:23.280 --> 0:14:25.880 All right, and Corey, you know we talked about the 0:14:26.000 --> 0:14:30.160 users of ETFs so prodmintly advisors and I get this 0:14:30.560 --> 0:14:34.320 as a something they can use. What about institutions, because 0:14:35.400 --> 0:14:38.120 you know, I always find that interesting. You know, you've 0:14:38.120 --> 0:14:41.880 got someone like yourself, you clearly you know, and Rodrigo 0:14:41.960 --> 0:14:44.520 could be institutional money managers. You could have a hedge fund. 0:14:45.560 --> 0:14:49.480 So your caliber is that of an institutional manager. Is 0:14:49.480 --> 0:14:51.440 there any interest from them on this, Like you know, 0:14:51.480 --> 0:14:56.440 Simplify has had some institutional bites. Some of their funds 0:14:56.440 --> 0:14:57.920 have like pensions and endowments. 0:14:58.520 --> 0:14:59.160 It's tough though. 0:14:59.160 --> 0:15:02.800 I think institutions sometimes want the private private fund they 0:15:02.800 --> 0:15:05.160 don't want it through an ETF for some reason. But 0:15:05.280 --> 0:15:07.960 these all these like Simplifies products seem like something that 0:15:08.440 --> 0:15:12.000 maybe you could even coax a institution to buy. 0:15:12.840 --> 0:15:16.000 So this is again a trade that came from the 0:15:16.080 --> 0:15:20.320 institutional space. So a lot of larger institutions are already 0:15:20.360 --> 0:15:23.760 doing this and so they don't need the products that 0:15:23.800 --> 0:15:27.680 we put together. That said, what where we are getting 0:15:27.840 --> 0:15:31.520 inbound interest is from smaller institutions who don't have the 0:15:31.600 --> 0:15:34.280 infrastructure to set up this trade and want to be 0:15:34.360 --> 0:15:38.480 able to access it the way their larger siblings are 0:15:38.560 --> 0:15:42.760 doing it, as well as ex institutional money managers who 0:15:42.800 --> 0:15:46.320 are now running model portfolios. And I know this is 0:15:46.320 --> 0:15:48.720 a space you've both looked at a lot, but model 0:15:48.760 --> 0:15:53.000 portfolios of for financial advisors of space that's grown dramatically. 0:15:53.400 --> 0:15:56.240 There's a lot of ex institutional money managers that are 0:15:56.280 --> 0:15:59.400 now overseeing those models, and we are seeing not only 0:15:59.440 --> 0:16:03.640 allocation in that space, but a tremendous amount of interest I'm. 0:16:03.560 --> 0:16:08.000 Actually curious about the institutional investor approach to this versus 0:16:08.560 --> 0:16:10.760 the approach that you guys have brought to market as 0:16:10.760 --> 0:16:13.960 an ETF. What's different still about what the institutions are 0:16:13.960 --> 0:16:15.240 doing than what you all have. 0:16:16.640 --> 0:16:18.640 Well, the big difference is really just the package. What 0:16:18.760 --> 0:16:21.720 the institutions are doing is they're able to work with 0:16:21.800 --> 0:16:27.960 a large institutional asset manager to open up separately managed accounts, 0:16:28.200 --> 0:16:32.480 have their derivatives managed in that separately managed account. Then 0:16:32.520 --> 0:16:37.560 they can go choose whatever hedge fund strategy they want, 0:16:37.880 --> 0:16:41.600 whatever manager they want to allocate to, to overlight to 0:16:41.800 --> 0:16:48.320 create that portable alpha overlay. We're providing more defined building blocks. Right, 0:16:50.080 --> 0:16:54.520 Our US equity plus managed future strategy is our managed 0:16:54.520 --> 0:16:58.480 future strategy. It's entirely possible that an allocator likes the 0:16:58.520 --> 0:17:01.280 concept but doesn't like the way we do the trades. 0:17:02.440 --> 0:17:05.000 The larger institutions can go out and source wherever they 0:17:05.000 --> 0:17:06.880 want on the hedgehunt side, so it's a lot more 0:17:06.960 --> 0:17:10.679 flexibility for them. But again with that flexibility comes a 0:17:10.720 --> 0:17:14.639 lot more operational burden, a lot more manager due diligence. 0:17:15.119 --> 0:17:17.520 What we're trying to do is put it into a single, 0:17:17.680 --> 0:17:19.480 easy to access trade. 0:17:20.400 --> 0:17:22.920 And it's interesting. I've known you for quite a while 0:17:23.000 --> 0:17:25.880 and I've known Rodrigo as well. I know him as 0:17:25.960 --> 0:17:30.240 this sort of risk weighted ETF person and fun person, 0:17:30.280 --> 0:17:33.119 and I always thought of you as a quant you know, 0:17:33.280 --> 0:17:37.880 sort of like Wes Gray or Cliff Fastness. And when 0:17:37.920 --> 0:17:40.199 did you come up with this? You know, you have 0:17:40.240 --> 0:17:43.000 this other ETF romo which I don't is not totally 0:17:43.040 --> 0:17:46.200 related to this suite of products. I always find that 0:17:46.280 --> 0:17:49.560 interesting somebody who has had a couple ETFs here and there, 0:17:50.400 --> 0:17:54.040 and then they sort of lock into something that gets 0:17:54.080 --> 0:17:57.000 some grassroots interest and they just run with it. It's like, 0:17:57.680 --> 0:18:00.240 you know, like your third album was the successful one? 0:18:00.520 --> 0:18:02.080 Is that sort of how this feels? And how did 0:18:02.119 --> 0:18:05.760 you get into this versus just doing more quant based investing? 0:18:07.000 --> 0:18:10.160 In some ways yes, in some ways no. This idea 0:18:10.160 --> 0:18:15.280 of capital efficiency and portable alpha is something that Resolve 0:18:15.320 --> 0:18:18.199 has been doing internally a long time, because that's how 0:18:18.240 --> 0:18:21.960 you build a risk balanced portfolio. In my firm, Newfound, 0:18:22.000 --> 0:18:25.879 we started implementing it in our mandates back in twenty seventeen, 0:18:26.560 --> 0:18:28.679 but what we didn't do is put it out in 0:18:28.720 --> 0:18:33.360 an ETF. And I think the common frustration both Newfound 0:18:33.359 --> 0:18:35.400 and Resolve had, and the problem we were ultimately trying 0:18:35.400 --> 0:18:38.639 to solve was that we both were large proponents of 0:18:39.359 --> 0:18:44.160 alternative diversification in an era the twenty tens where that 0:18:44.280 --> 0:18:47.520 was just a hard concept to continue to try to 0:18:47.560 --> 0:18:49.840 convince people to allocate to. Again, it goes back to 0:18:49.840 --> 0:18:54.040 this problem of diversification is typically addition through subtraction. I 0:18:54.040 --> 0:18:56.800 need to tell someone to sell stocks and bonds to 0:18:56.800 --> 0:18:59.639 make room for alternatives in a decade that you couldn't 0:18:59.680 --> 0:19:02.920 have done better than just passive US sixty forty, right, 0:19:02.960 --> 0:19:04.719 And so that was a very hard trade to convince 0:19:04.720 --> 0:19:09.000 people to move out of. This evolution isn't an evolution 0:19:09.200 --> 0:19:11.280 of thinking so much as an evolution of delivery of 0:19:11.359 --> 0:19:14.000 us saying well, this might be a better way for 0:19:14.040 --> 0:19:16.520 people to get their alternatives and be able to stick 0:19:16.560 --> 0:19:19.520 with them, right, because by packaging them in this way 0:19:19.600 --> 0:19:21.639 and not forcing people to get rid of their stocks 0:19:21.640 --> 0:19:24.560 and bonds, it might be easier for people to hold 0:19:24.600 --> 0:19:28.439 alternatives during those periods where alternatives are underperforming stocks and bonds, 0:19:28.520 --> 0:19:31.600 so that they can have them in years like twenty 0:19:31.680 --> 0:19:34.280 twenty two and they're not selling out of them and 0:19:34.320 --> 0:19:42.960 making all these wrong sort of market timing decisions. 0:19:44.920 --> 0:19:46.480 I want to ask about performance. 0:19:46.600 --> 0:19:49.679 How do you feel about how things have gone so 0:19:49.840 --> 0:19:53.240 far and what scenario is the one that you feel 0:19:53.240 --> 0:19:55.400 like you need to really feel like you're going to 0:19:55.440 --> 0:19:58.199 break through and have people really know that this is 0:19:58.480 --> 0:19:59.360 a winning strategy. 0:20:00.680 --> 0:20:03.200 Yeah, so with five ETFs, right, it's going to differ. 0:20:03.240 --> 0:20:06.200 But I'll talk about our flagship RSST, and I think 0:20:06.280 --> 0:20:10.000 from a target perspective, we have done and delivered exactly 0:20:10.040 --> 0:20:12.440 as we said we would over the last year. If 0:20:12.480 --> 0:20:18.440 you decompose our returns, we have almost perfectly delivered, providing 0:20:18.440 --> 0:20:23.119 the S and P five hundred plus category average returns 0:20:23.320 --> 0:20:25.080 of managed futures. And that's what we're trying to do 0:20:25.280 --> 0:20:27.760 is give you the beta of the managed futures category, 0:20:27.800 --> 0:20:30.600 and so we are very very happy with the return 0:20:30.640 --> 0:20:33.800 we've generated. That said, managed futures as a strategy has 0:20:33.800 --> 0:20:36.240 had a negative return over the last year, and so 0:20:36.320 --> 0:20:40.320 if you compare us versus buy and hold equities, we 0:20:40.400 --> 0:20:42.720 will have underperformed. But again, what I would go back 0:20:42.760 --> 0:20:46.760 to is saying, Okay, the SMP's up twenty eight percent, 0:20:46.880 --> 0:20:50.080 we're up close to twenty. Managed futures as a category 0:20:50.160 --> 0:20:53.520 is flat to negative and so okay, we're we're lagging 0:20:53.520 --> 0:20:57.000 behind the SMP because we overlaid that negative return. I 0:20:57.040 --> 0:20:59.320 think that's a lot better than if you had sold 0:20:59.359 --> 0:21:02.359 the SMP to buy managed futures and now you're lagging 0:21:02.400 --> 0:21:05.880 behind by thirty six percent, right, And so I think 0:21:05.920 --> 0:21:08.240 we prove in the point, which is, okay, we can 0:21:08.400 --> 0:21:12.879 add the diversification without creating this huge hurdle that is 0:21:12.880 --> 0:21:16.800 the opportunity cost of trying to fight against markets just 0:21:16.880 --> 0:21:18.359 marching higher over the long run. 0:21:19.160 --> 0:21:19.360 Yeah. 0:21:19.400 --> 0:21:22.159 And is it tempting in the managed future strategy when 0:21:22.160 --> 0:21:25.000 the markets are going up and we think the Fed's 0:21:25.040 --> 0:21:28.560 gonna cut everything seems pretty good right now to maintain 0:21:28.640 --> 0:21:33.159 the short position, because I remember looking at charts of 0:21:33.720 --> 0:21:37.440 hedge funds over the years, and when the bull market 0:21:37.480 --> 0:21:39.720 of the twenty tens was going on, I think a 0:21:39.720 --> 0:21:42.840 lot of them started to just merge into long only. 0:21:43.880 --> 0:21:47.920 They if they didn't, they were losing assets, and so 0:21:48.000 --> 0:21:50.440 the market kind of dictated they just go long only. 0:21:51.760 --> 0:21:54.840 How much are you strict with yourself to keep the 0:21:54.880 --> 0:21:57.720 short position in the managed futures incredibly strict. 0:21:57.840 --> 0:22:00.480 I mean, we run it in a purely systematic manner 0:22:00.520 --> 0:22:04.000 and again, the idea with trend is that if equities 0:22:04.000 --> 0:22:07.200