WEBVTT - Alternative ETFs Finally Get Their Moment in the Sun 0:00:05.880 --> 0:00:11.520 Wogan trillions. I'm Joel Webber and I'm Eric bel Tunis. Eric, 0:00:11.520 --> 0:00:14.480 there's a category that we haven't really spent that much 0:00:14.480 --> 0:00:16.560 time talking about un trillions, which is kind of incredible. 0:00:16.840 --> 0:00:20.799 But that's alternatives. And why why is that significant right now? Yeah, 0:00:20.840 --> 0:00:23.880 because the sixty and the forty, the equities and bonds 0:00:23.920 --> 0:00:26.800 that most people have as the portfolio is not really 0:00:27.320 --> 0:00:30.479 working like people thought. This year. The forty, which is 0:00:30.480 --> 0:00:34.320 the bonds, isn't really hedging the sixty. Normally that happens, 0:00:34.400 --> 0:00:36.199 and that's good and that's why you use bonds. But 0:00:36.240 --> 0:00:38.360 this year they're both down, and to me, that has 0:00:38.600 --> 0:00:41.839 opened the door to alternatives, which is literally what the 0:00:41.920 --> 0:00:45.720 name is. And I define alternatives as investment strategies that 0:00:45.760 --> 0:00:49.640 have non correlated return streams to stocks and bonds, so 0:00:49.760 --> 0:00:51.959 like they might have zero correlation or just a very 0:00:52.000 --> 0:00:54.720 small correlation, and therefore they can sometimes go up or 0:00:54.720 --> 0:00:57.360 go down less than the sixty and the forty, and 0:00:57.400 --> 0:01:01.120 they typically are lower vault. And in that category exists 0:01:01.120 --> 0:01:04.319 a lot of hedge fund strategies. So contrary to popular belief, 0:01:04.520 --> 0:01:07.119 um not all hedge funds are trying to like crush 0:01:07.200 --> 0:01:09.959 the market. A lot are trying to deliver something that 0:01:10.040 --> 0:01:12.200 might be UM have a higher sharp ratio, which means 0:01:12.440 --> 0:01:14.720 a decent return stream but at lower vall and with 0:01:14.800 --> 0:01:18.120 non correlative return. So that category has grown a ton 0:01:18.160 --> 0:01:20.200 this year. It's still small at five point one billion, 0:01:20.560 --> 0:01:24.880 but the percentage growth is big. And it's been waiting 0:01:25.120 --> 0:01:28.360 maybe fifteen years for this moment because stocks and bonds 0:01:28.360 --> 0:01:31.160 have just gone up easily, and it hasn't really been 0:01:31.160 --> 0:01:33.720 like something people search for, because why bother if you're 0:01:33.720 --> 0:01:36.200 sixty and forty is doing fine. There's a whole different 0:01:36.240 --> 0:01:38.520 ball game now, and so I think alternatives are having 0:01:38.600 --> 0:01:42.520 somewhat of a moment. So we're gonna talk about hedge 0:01:42.520 --> 0:01:45.360 funds strategies in an e t F rapper this time 0:01:45.480 --> 0:01:48.320 joining us. It's gonna be Andrew Beer of Dynamic Beta, 0:01:48.840 --> 0:01:53.560 Bob Elliott of Unlimited, and Cathy Burton, hedge fund reporter 0:01:53.600 --> 0:02:03.960 with Bloomberg News, this time on Trilliance Hedge Funns. Andrew, Bob, Cathy, 0:02:04.000 --> 0:02:08.079 Welcome to Trallians. Thank you so much, thanks for having us. Okay, Andrew, 0:02:08.120 --> 0:02:10.880 I want to start with you, UM, why hedge fund 0:02:11.360 --> 0:02:13.840 strategy and an ETF wrapper? Why do this at all? 0:02:14.360 --> 0:02:17.919 So Eric mentioned this idea that we've been waiting fifteen 0:02:17.960 --> 0:02:20.119 years for this moment. I've actually been working fifteen years 0:02:20.160 --> 0:02:24.760 for this moment. So I've been doing this incredibly long time. Uh. 0:02:24.880 --> 0:02:27.600 You know, we we knew that this breakdown of stocks 0:02:27.600 --> 0:02:29.360 and bonds would come at some point. You know, what 0:02:29.440 --> 0:02:31.400 we're living through in the two thousand tens was very 0:02:31.480 --> 0:02:34.560 very unusual. And you know, about seven or eight years ago, 0:02:34.600 --> 0:02:36.480 we started to focus on the strategy that we thought 0:02:36.639 --> 0:02:39.600 actually had the most diversification bang for the buck if 0:02:39.600 --> 0:02:42.079 you're starting with a portfolio, and it's a strategy called 0:02:42.160 --> 0:02:45.680 managed futures, And the easiest way to describe managed futures 0:02:45.800 --> 0:02:48.119 is it's like flood insurance where you get paid to wait. 0:02:48.760 --> 0:02:50.480 That's all you need to know about it from from 0:02:50.480 --> 0:02:53.040 a portfolio perspective. And so we saw it as one 0:02:53.080 --> 0:02:55.799 of these areas where you know, previously it had done 0:02:55.840 --> 0:02:57.760 really really well during the dot Com crisis, it had 0:02:57.800 --> 0:02:59.880 done really really well during the Great Financial Crisis, and 0:02:59.880 --> 0:03:03.160 the question was would it do well in another big 0:03:03.200 --> 0:03:06.040 crisis like that? And now the strategy is up overall 0:03:06.040 --> 0:03:08.040 around thirty percent this year, and we've been very, very 0:03:08.080 --> 0:03:11.600 fortunate to manage an et F that's in that area, 0:03:13.000 --> 0:03:16.040 Drill down what is it, what's in the portfolio? If 0:03:16.040 --> 0:03:17.760 I pull up the holding screen, what am I going 0:03:17.800 --> 0:03:20.040 to see? And it's active? So what are you doing? 0:03:19.760 --> 0:03:23.000 And by the way, the ticker d d m F right, yes, sir, 0:03:23.600 --> 0:03:26.560 so yeah, so so what what these strategies do is 0:03:26.600 --> 0:03:29.240 basically there are a bunch of hedge funds that are 0:03:29.320 --> 0:03:32.320 looking for trying to determine whether an asset is going 0:03:32.360 --> 0:03:34.440 to go up or down. Is oil, if oil has 0:03:34.440 --> 0:03:36.040 been going up, is going to keep going up? If 0:03:36.120 --> 0:03:37.400 rates have been going up, are they going to keep 0:03:37.400 --> 0:03:38.880 going up? If equities are going down, and are they 0:03:38.880 --> 0:03:41.760 gonna keep going down? And so the way that they 0:03:41.800 --> 0:03:45.600 express this is through financial derivitist called futures contracts, because 0:03:45.640 --> 0:03:47.720 these are very very efficient ways to bet on things 0:03:47.720 --> 0:03:50.240 going up or down. And so what we do in 0:03:50.320 --> 0:03:53.800 DBMF is we basically try to piggyback off of the 0:03:53.840 --> 0:03:57.520 core trades that these largest hedge funds are doing. So 0:03:57.600 --> 0:03:59.640 when they're betting that oil is going up, we simply 0:03:59.680 --> 0:04:01.960 expres us. It's the same way through a futures contract. 0:04:02.240 --> 0:04:03.720 If their betting rates are going to keep going up, 0:04:03.760 --> 0:04:05.360 we do the same thing, but also through things like 0:04:05.400 --> 0:04:08.000 treasury futures. So when you look at DBMF, what you 0:04:08.040 --> 0:04:10.200 basically see as a big pile of cash and cash 0:04:10.240 --> 0:04:13.720 like instruments and then a handful of derivative contracts through 0:04:13.760 --> 0:04:17.120 which we express those views. Okay, Bob, what are you doing? 0:04:17.279 --> 0:04:20.240 That's different because and you have a you came from Bridgewater, right, 0:04:20.240 --> 0:04:23.240 so I'm curious. You know that's a world's biggest hedge fund, 0:04:23.240 --> 0:04:24.800 Like what did you pick up there? And what are 0:04:24.800 --> 0:04:29.359 you doing with your tick HfN D well I I 0:04:29.480 --> 0:04:32.680 spent the first twenty years of my career basically in 0:04:32.760 --> 0:04:36.480 two and twenty institutions in two and twenty for those 0:04:36.560 --> 0:04:39.320 not in the two and twenty being UH. The typical 0:04:39.320 --> 0:04:43.360 fee structure of a hedge fund so management fee two 0:04:43.400 --> 0:04:47.280 percent of AUM management fee performance. And what I saw 0:04:47.400 --> 0:04:51.960 over time was that UM hedge funds UH and two 0:04:52.000 --> 0:04:55.880 and twenty managers generate great returns. They're they're very good 0:04:56.120 --> 0:05:00.760 at delivering alpha or sort of returns above of standard 0:05:00.800 --> 0:05:03.760 index investing. But what they do is they end up 0:05:03.800 --> 0:05:07.080 charging so many fees that the investor who invest in 0:05:07.080 --> 0:05:10.080 those products is typically worse off. Plus they're always in 0:05:10.120 --> 0:05:15.480 structures that are uh typically unaccessible to the everyday investor, 0:05:16.120 --> 0:05:18.480 and so that got me to thinking about whether there 0:05:18.520 --> 0:05:20.760 was a way to sort of bring a kind of 0:05:20.760 --> 0:05:25.040 low cost indexing idea that obviously is totally changed stocks 0:05:25.040 --> 0:05:27.480 and bonds, but bring it to the hedge fund space. Now, 0:05:27.520 --> 0:05:31.920 the goal they're being to track the gross of fees 0:05:31.960 --> 0:05:35.200 returns of the total hedge fund industry and all the 0:05:35.240 --> 0:05:39.479 different strategies that make up that so not includes things 0:05:39.480 --> 0:05:43.200 like equity long short, fixed income, arbitrage, global macro managed 0:05:43.240 --> 0:05:48.120 futures is andrew is highlighted, and basically create an index 0:05:48.160 --> 0:05:50.479 replication that looks like the hedge fund industry in the 0:05:50.480 --> 0:05:53.359 same way you might buy an index an index of 0:05:53.400 --> 0:05:55.520 the SP five under it, or an index that covers 0:05:56.040 --> 0:05:57.919 the global bond market. And so that's really what HfN 0:05:58.000 --> 0:06:02.240 D is all about, is is creating that index like 0:06:02.480 --> 0:06:05.640 product for the hedge fund space. Okay, Kathy, you've been 0:06:05.680 --> 0:06:08.440 covering hedge funds for a really long time. This feels 0:06:08.440 --> 0:06:11.200 like an existential crisis almost. It's like these guys have 0:06:11.520 --> 0:06:14.360 hedge fund industry has this magic formula that only they 0:06:14.360 --> 0:06:18.440 know they can charge a significant amount of money for 0:06:19.040 --> 0:06:22.520 have institutional clients with gigantic pools of money that they 0:06:22.520 --> 0:06:25.360 can drop on. But you know, an et F strategy, 0:06:25.400 --> 0:06:27.919 this opens the door, like I can invest like a 0:06:27.960 --> 0:06:30.440 hedge fund now, right, So how does this going over 0:06:30.480 --> 0:06:33.279 within the hedge fund community? Well, I think right now 0:06:33.360 --> 0:06:36.760 it's still a pretty small part. But it is a 0:06:36.800 --> 0:06:39.520 bit more of a threat, I would say, because there 0:06:39.560 --> 0:06:42.760 although there's some funds that are doing very well this year, uh, 0:06:42.800 --> 0:06:45.560 there are a lot that have not been able to 0:06:45.800 --> 0:06:48.279 take advantage of you know, to be short when the 0:06:48.279 --> 0:06:52.640 market drops. They've just done a pretty poor job overall. 0:06:53.040 --> 0:06:55.159 So I feel like it is a bit of a 0:06:55.279 --> 0:06:58.000 moment where we might see more people and just give 0:06:58.080 --> 0:06:59.840 us the lay the land of the hedge fund world 0:06:59.880 --> 0:07:02.600 right now, Um, I don't look at it every day, 0:07:02.680 --> 0:07:05.679 lest I heard it's about three trillion. Has that assets 0:07:05.720 --> 0:07:08.040 been going up or down? We talk about active mutual 0:07:08.040 --> 0:07:10.360 funds a lot on here, and they're seeing like eight 0:07:10.720 --> 0:07:13.720 billion outflows this year. How are hedge funds holding up 0:07:13.760 --> 0:07:16.600 through the whole sort of rise of passive? I mean, 0:07:16.640 --> 0:07:20.120 are they maintaining their niche? Our institutions still like is 0:07:20.160 --> 0:07:23.640 in love with them? Are they maybe forcing their fees down. 0:07:23.640 --> 0:07:26.520 Are they also getting like some fee compression. What's the 0:07:26.560 --> 0:07:30.240 state of things over there? Uh, it really varies. I 0:07:30.280 --> 0:07:33.560 would say overall fees have come down, but for certain 0:07:33.600 --> 0:07:36.080 funds that have done well, the fees have actually gone 0:07:36.160 --> 0:07:40.720 up in some instances. Overall, the assets have more or 0:07:40.840 --> 0:07:46.120 less kind of stabilized at that three trillion dollar level. Uh. Certainly, 0:07:46.200 --> 0:07:49.760 a lot of strategies like long short equity have lost assets, 0:07:49.760 --> 0:07:53.160 both because of the market fall and people pulling money. 0:07:53.200 --> 0:07:56.600 But at the same time, other some of the largest 0:07:56.640 --> 0:08:00.440 funds have made money this year, so that's helped bring 0:08:00.480 --> 0:08:03.800 assets up a little bit. So that's the stabilizing aspect 0:08:03.840 --> 0:08:08.160 of it. Both. You guys are looking to democratize hedge 0:08:08.160 --> 0:08:11.840 funds in general. I get it. It's clear. Here's the 0:08:11.880 --> 0:08:15.000 thing and what I you know, I've learned about institutions. 0:08:15.040 --> 0:08:19.400 I feel like they they want exclusivity. They almost think 0:08:19.400 --> 0:08:21.559 the e t F is like the the public pool 0:08:21.600 --> 0:08:23.840 down the street. I want the private pool in my 0:08:23.880 --> 0:08:26.960 backyard or at least the country club. I'm not I 0:08:26.960 --> 0:08:29.600 I need to do better things than that. And then 0:08:29.640 --> 0:08:31.760 on the flip side, you have advisors who may not 0:08:31.800 --> 0:08:34.320 even understand hedge funds enough to use them. So I 0:08:34.440 --> 0:08:36.800 sometimes think alts might get caught in the middle of 0:08:36.840 --> 0:08:40.400 both of those worlds, or have challenges selling two institutions 0:08:40.400 --> 0:08:43.319 who want exclusivity and advisors who may not totally even 0:08:43.400 --> 0:08:46.040 understand what you're talking about and get scared of under performance. 0:08:46.559 --> 0:08:49.440 So back to the point about fees, right, So, so 0:08:49.480 --> 0:08:51.840 the hedge fund industry is not going away, right In fact, 0:08:51.920 --> 0:08:54.200 and and and the hedge fund industry serves a very 0:08:54.240 --> 0:08:58.280 very valuable function for those institutional investors their products. They 0:08:58.280 --> 0:09:01.720 can assemble their own cars from hundreds of different you 0:09:01.720 --> 0:09:06.079 know parts, basically to meet their particular risk reward criteria. 0:09:06.240 --> 0:09:08.440 And most frankly, as much as they talk about it, 0:09:08.440 --> 0:09:10.760 they really don't care how much they're paying fees. Right, 0:09:10.800 --> 0:09:13.640 It's just them. Yes, fees have come down, but relative 0:09:13.720 --> 0:09:15.800 to the net A feed performance of hedge funds, they 0:09:15.800 --> 0:09:18.560 obviously haven't come down very much, and they're going up 0:09:18.600 --> 0:09:22.719 in certain circumstances. Our business plan is very different. Right, 0:09:22.720 --> 0:09:25.240 You've got six or seven trillion dollars of et F 0:09:25.280 --> 0:09:28.400 assets out there. You have a fifteen year history of 0:09:28.559 --> 0:09:32.320 pretty bad products, hedge fund products being put into ETFs. 0:09:32.760 --> 0:09:35.360 One of our competitors launched in the beginning of two 0:09:35.400 --> 0:09:40.240 thousand eleven, it's down over eleven years, where the hedge 0:09:40.240 --> 0:09:42.880 funds that it's supposed to be mimicking are up over 0:09:42.960 --> 0:09:46.720 that period of time. One of Bob's competitors has delivered 0:09:46.720 --> 0:09:49.320 two percent per anum since two thousand seven or two 0:09:49.320 --> 0:09:51.600 thousand eight, or to actually the beginning of two thousand nine. 0:09:52.160 --> 0:09:55.000 So when you talk about democratization, if these are your 0:09:55.040 --> 0:09:58.480 options for democratization, don't bother. And that was the lesson 0:09:58.520 --> 0:10:01.520 of the two thousand tents. Let's talk about the competitors. 0:10:01.520 --> 0:10:03.120 I want to bring up the tickers, but there are 0:10:03.240 --> 0:10:06.440 some hedge fund ETFs that have an equity bias in them. 0:10:06.679 --> 0:10:09.400 They're only partially hedged, and I think that was to 0:10:09.440 --> 0:10:12.240 try to sell them to advisors in the up times 0:10:12.600 --> 0:10:14.000 that so that you still got you got that like 0:10:14.160 --> 0:10:17.640 Beta kick, but now Beta is bad and it's maybe 0:10:17.720 --> 0:10:20.320 making the actual hedge working less. Is that what you're 0:10:20.360 --> 0:10:23.040 talking about here, whereas yours are more all in hedge. 0:10:23.240 --> 0:10:25.680 But it's also the complexity of it. Our our mission 0:10:25.679 --> 0:10:28.920 as advisor education right and in fact, in fact when 0:10:29.000 --> 0:10:31.400 we built are the two ETFs that we run the 0:10:31.480 --> 0:10:34.600 ideas that they're supposed to be incredibly simple and elegant 0:10:34.600 --> 0:10:36.839 building blocks for advisors who want to use them in 0:10:36.840 --> 0:10:39.520 their portfolio. They're supposed to understand how they work underneath 0:10:39.520 --> 0:10:41.040 the hood and what it is we're trying to achieve, 0:10:41.520 --> 0:10:43.439 and we have to build a better language around it 0:10:44.080 --> 0:10:46.000 because we have to be able to explain it in 0:10:46.040 --> 0:10:48.360 a way not where somebody gets off the phone understanding 0:10:48.400 --> 0:10:51.040 what we're talking about, but three weeks later, not having 0:10:51.120 --> 0:10:52.439 thought about it for three weeks. They've got to be 0:10:52.480 --> 0:10:54.400 able to sit down with their client who knows nothing 0:10:54.480 --> 0:10:57.080 about the space and be able to communicate the value 0:10:57.120 --> 0:11:01.319 proposition why it's there. And so our view has been 0:11:01.400 --> 0:11:02.920 that there have been a lot of hedge fund like 0:11:03.120 --> 0:11:05.800 products that have been put into et f rappers that 0:11:05.880 --> 0:11:08.280 never should have been there. Some of them are designed 0:11:08.600 --> 0:11:12.280 to as you say, they are almost in a Noman's 0:11:12.360 --> 0:11:15.760 land between the really really dynamic, thematic type products that 0:11:15.800 --> 0:11:17.760 people buy and sell every day on a regular basis 0:11:18.200 --> 0:11:20.520 and the asset allocators who want something where they can 0:11:20.600 --> 0:11:23.880 say I want this strategy, and I want it in 0:11:24.000 --> 0:11:26.640 a predictable, simple, straightforward way that I can explain to 0:11:26.679 --> 0:11:29.280 my clients. I think one of the most interesting things 0:11:30.040 --> 0:11:33.719 when I talk to advisors is nearly every advisor I 0:11:33.800 --> 0:11:38.839 talked to is looking for alternatives. They appreciate and recognize 0:11:38.920 --> 0:11:43.719 the challenges that SIXT has had will have on a 0:11:43.800 --> 0:11:46.840 forward looking basis, and so they need to have something 0:11:47.480 --> 0:11:51.480 that gives their clients something better, frankly, than they can 0:11:51.520 --> 0:11:55.000 do on their own to just invest in in index investing. 0:11:55.520 --> 0:11:58.480 And the problem those advisors face is when they look 0:11:58.520 --> 0:12:03.640 at alternatives, they structures that are very unpalatable. So they 0:12:03.720 --> 0:12:09.160 see traditional LP positions that are highly concentrated, they see 0:12:09.200 --> 0:12:11.440 those positions that are very tax and efficient. Are those 0:12:11.440 --> 0:12:14.960 structures are very tax and efficient? And they say to themselves, 0:12:15.320 --> 0:12:17.640 this is a hard way. It is hard to get 0:12:17.760 --> 0:12:21.520 access to alternative investment products. And so I think what 0:12:21.600 --> 0:12:25.000 they're looking for the problem is clear in terms of 0:12:25.080 --> 0:12:28.599 the need for alternatives and the desire for a simplified, 0:12:28.679 --> 0:12:32.000 tax efficient structure that the e t F provides. And 0:12:32.080 --> 0:12:38.200 so they're looking for institutional quality, world class investors coming 0:12:38.240 --> 0:12:40.840 to the e t F market offering those sorts of products. 0:12:40.880 --> 0:12:43.439 And I think, you know, Andrew and I both have 0:12:43.679 --> 0:12:46.800 that sort of pedigree and experience that we know how 0:12:47.520 --> 0:12:52.120 institutional quality hedge fund strategies work and can put those 0:12:52.160 --> 0:12:55.160 into the package that that is much more accessible to 0:12:55.240 --> 0:13:05.800 investors and advised. So I'm curious when you're talking to 0:13:05.840 --> 0:13:08.880 your advisors, the the idea of a non correlated asset 0:13:09.160 --> 0:13:12.760 very appealing. Obviously, how do you break down how you 0:13:12.880 --> 0:13:15.319 achieve that? We've heard, we've heard how how Andrew does it? 0:13:15.400 --> 0:13:17.400 But how do you do it? Well? What we do 0:13:17.840 --> 0:13:22.240 is we use machine learning techniques to basically look over 0:13:22.360 --> 0:13:25.559 the shoulder of the asset managers. There's a lot of 0:13:25.679 --> 0:13:30.120 information that you can see in uh in what managers 0:13:30.160 --> 0:13:32.559 are doing from their pattern of returns, and that's reported 0:13:32.600 --> 0:13:35.959 regularly their teams basically right, No, not their teams thirteen 0:13:36.040 --> 0:13:37.599 have to have some issues because they only give you 0:13:37.640 --> 0:13:42.360 a very small slice, a small picture into what they're doing. 0:13:42.480 --> 0:13:45.840 If you're sophisticated hedge funds, you're doing a lot more 0:13:45.880 --> 0:13:47.800 than what's in that their team f report. And so instead, 0:13:47.840 --> 0:13:49.720 what we do is we look at the pattern of returns, 0:13:50.240 --> 0:13:54.800 and having built proprietary hedge fund strategies across various hedge 0:13:54.800 --> 0:13:58.040 fund styles, we can look at those pattern of returns. 0:13:58.360 --> 0:14:02.079 We can compare it to a plausible set of exposures 0:14:02.880 --> 0:14:05.600 that they might have on or might drive their returns 0:14:05.640 --> 0:14:08.880 at any point in time, and basically solve for what's 0:14:08.920 --> 0:14:12.760 that portfolio look like that is generating the returns that 0:14:12.880 --> 0:14:16.120 we're seeing. So you're like reverse engineering or portfolio using 0:14:16.200 --> 0:14:18.480 machine learning exactly exactly. And one of the things that's 0:14:18.520 --> 0:14:21.480 very important is you can obviously solve for any particular 0:14:21.560 --> 0:14:23.640 point in time with a regression that will give you 0:14:24.560 --> 0:14:27.440 answers that who knows exactly whether it's right or wrong. 0:14:27.800 --> 0:14:30.560 What we do with frankly machine learning techniques that didn't 0:14:30.560 --> 0:14:32.880 exist ten or fifteen years ago, what we're able to 0:14:32.960 --> 0:14:36.200 do is solve for the path of of positions that 0:14:36.600 --> 0:14:40.720 that hedge fund manager might have on through time, which 0:14:40.800 --> 0:14:44.840 then helps us understand more effectively what positions they have 0:14:45.040 --> 0:14:48.360 on now. And that's what we use to inform what 0:14:48.520 --> 0:14:50.840 we put on in terms of the assets back in 0:14:50.880 --> 0:14:53.160 the e t F. So it's really really what we're 0:14:53.160 --> 0:14:55.120 trying to do is sort of infer the wisdom of 0:14:55.200 --> 0:14:57.960 the whole hedge fund community. Are they long growth stocks 0:14:58.080 --> 0:15:00.480 or short growth stocks? Do that? Are they long bonds 0:15:00.560 --> 0:15:02.360 or are they short bonds? Were trying to infer that 0:15:02.920 --> 0:15:05.440 from the aggregate hedge fund community and then put that 0:15:05.560 --> 0:15:08.320 together in something that's simple and easy to access for 0:15:08.360 --> 0:15:10.240 the everyday investors. How do you decide who's in and 0:15:10.360 --> 0:15:13.560 out at that index? We look at everybody. Uh. One 0:15:13.640 --> 0:15:18.480 of the great lessons I think many institutional investors have learned, 0:15:18.640 --> 0:15:21.840 particularly the most sophisticated, is that it's very hard to 0:15:21.960 --> 0:15:24.720 predict exactly which manager is likely to be successful and 0:15:24.760 --> 0:15:29.840 which one isn't. The most successful and sophisticated sovereign wealth 0:15:29.880 --> 0:15:32.680 funds and other institutional managers, what they do is they 0:15:32.680 --> 0:15:35.720 build a diversified portfolio of hedge funds, of thirty or 0:15:35.800 --> 0:15:39.080 fifty hedge funds that are world class and nature and 0:15:39.120 --> 0:15:41.240 they basically say, we don't know exactly which one is 0:15:41.240 --> 0:15:43.600 going to perform well or poorly at any particular point 0:15:43.640 --> 0:15:45.800 in time, but I put together thirty or fifty hedge 0:15:45.840 --> 0:15:50.200 funds together, and that's going to create a nice diversified 0:15:50.200 --> 0:15:52.320 portfolio that over time is going to go up into 0:15:52.360 --> 0:15:54.920 the right it's going to generate pretty good returns. And 0:15:55.040 --> 0:15:58.080 so that's really we're sort of drawing on that expertise 0:15:58.200 --> 0:16:01.680 and saying, instead of looking just one strategy or one manager, 0:16:02.160 --> 0:16:07.200 build an aggregated portfolio, a diversified portfolio, which is likely 0:16:07.360 --> 0:16:10.240 over time to be more consistent than just focusing on 0:16:10.320 --> 0:16:13.440 one manager, one strategy. Do you ever hedge over that 0:16:13.560 --> 0:16:17.320 in any way? What we're doing with HfN D, we 0:16:17.560 --> 0:16:21.080 we don't apply any of our own proprietary views or 0:16:21.800 --> 0:16:26.520 or or or other or other strategies on top of it. 0:16:26.600 --> 0:16:28.760 What we're trying to do is is match the hedge 0:16:28.800 --> 0:16:32.480 fund index grossive fees to be clear, which is a 0:16:32.920 --> 0:16:36.600 important consideration because, uh, when you look at hedge fund 0:16:36.640 --> 0:16:40.040 returns grossive fees, they're pretty good. You know, you you 0:16:40.120 --> 0:16:42.520 have returns that are better than stocks, a bit better 0:16:42.560 --> 0:16:45.720 than stocks, and volatility that's about half what you'd see 0:16:46.240 --> 0:16:49.400 holding stock index return. So that's a that's a pretty 0:16:49.480 --> 0:16:53.160 good return stream that most investors and advisors were wanting 0:16:53.160 --> 0:16:58.480 their portfolio. It's just typically they're too expensive to access, 0:16:58.960 --> 0:17:01.240 uh or or you know, the fees are too high, 0:17:01.480 --> 0:17:04.200 or you can't access the best the best ones because 0:17:04.240 --> 0:17:05.840 they won't take your money. And so that's what we're 0:17:05.840 --> 0:17:08.480 trying to do to really create that democratization of that 0:17:08.680 --> 0:17:13.159 diversified low cost index fund concept just for the for 0:17:13.200 --> 0:17:16.560 the hedge fund space. So what's the best way to 0:17:16.800 --> 0:17:21.400 use your your product, because I guess looking back at 0:17:21.600 --> 0:17:25.359 ten years, it must have been frustrating. Everything everything everywhere 0:17:25.440 --> 0:17:27.560 was going up, and yet you had to kind of 0:17:27.680 --> 0:17:30.200 like wait for a moment, and that moment may have 0:17:30.320 --> 0:17:33.399 arrived now. And so you're you know, you're selling picks 0:17:33.440 --> 0:17:35.879 on the way to a gold rush all of a sudden. 0:17:36.080 --> 0:17:38.440 Um but I'm you know, I'm curious, like now that 0:17:38.600 --> 0:17:41.800 this is happening, how are you telling investors to think 0:17:41.800 --> 0:17:45.720 about using the product now and going forward? So um so, 0:17:45.920 --> 0:17:49.439 to stick with my flood insurance analogies flood not gold rushes. 0:17:50.119 --> 0:17:54.600 So um so, Look, you can overpay for flood insurance 0:17:54.880 --> 0:17:57.120 and if a flood doesn't happen for five or six years, 0:17:57.200 --> 0:17:58.920 you've probably given up your policy when you need it. 0:17:59.280 --> 0:18:01.679 That happened to a lot of people in this space. Uh. 0:18:01.800 --> 0:18:04.320 The Manatutre space on the hedge fund side was notorious, 0:18:04.400 --> 0:18:07.400 and actually Bloomberg wrote an article nearly a decade ago 0:18:07.480 --> 0:18:10.840 talking about how of all gains in the space had 0:18:10.880 --> 0:18:13.800 gone to everybody but clients. Um So, obviously it's it's 0:18:13.800 --> 0:18:15.760 got a lot better since then, and some of the 0:18:15.800 --> 0:18:18.000 funds we track have actually been leaders in in in 0:18:18.160 --> 0:18:20.400 making it somewhat more rational, but it's still an area 0:18:20.440 --> 0:18:22.440 that could be very expensive to invest in. And the 0:18:22.520 --> 0:18:25.040 other is is the fine print in the policies and 0:18:25.480 --> 0:18:27.119 you know, so you get it by a flood, but 0:18:27.160 --> 0:18:29.520 it turns out the flood was from a storm surge um. 0:18:29.680 --> 0:18:31.879 So there are plenty of funds this year, including some 0:18:32.000 --> 0:18:34.200 very popular funds that have actually gone down in a 0:18:34.240 --> 0:18:37.240 year where everybody else has gone up. And so you know, 0:18:37.359 --> 0:18:39.520 this is an area if you if you pull institutional 0:18:39.600 --> 0:18:42.080 investors and you say where do I get the most 0:18:42.280 --> 0:18:45.119 diversification bang for the buck Manachuchers is always at the 0:18:45.160 --> 0:18:46.840 top of the list, going back to your point zero 0:18:46.880 --> 0:18:49.960 correlation over time, and it's hit the trifecta of gains 0:18:50.040 --> 0:18:52.800 during the dot Com crisis, the GFC, and this year. 0:18:53.720 --> 0:18:56.520 The problem is it's been very very difficult people to access. 0:18:56.560 --> 0:18:58.240 And we're trying to make it simple and easy, not 0:18:58.480 --> 0:19:01.120 for the institutional investors who can do it and they've 0:19:01.119 --> 0:19:04.040 done it successfully, but rather for the trillions of dollars 0:19:04.080 --> 0:19:07.199 of ETF based model portfolios that have never had an 0:19:07.200 --> 0:19:09.960 access point to get into this space. So Joel I 0:19:10.080 --> 0:19:12.760 have kind of trolled Andrew a little bit on Twitter 0:19:13.359 --> 0:19:16.040 by calling his fund the arc of the fed hiking 0:19:16.119 --> 0:19:19.240 era um, because you know, Cathy would is obviously like, 0:19:19.880 --> 0:19:22.119 do you get a commission for that? Sounds it sounds 0:19:22.160 --> 0:19:24.879 pretty good. Well, if you're on Twitter, not everybody's a 0:19:24.960 --> 0:19:27.479 Cathy fan. I mean i'd say almost the majority, especially 0:19:27.520 --> 0:19:30.960 the professionals. They just they she she really gets under 0:19:31.000 --> 0:19:34.240 their skin. Um. And so obviously she's down in the 0:19:34.280 --> 0:19:36.359 past like year or two, not having a good time, 0:19:36.400 --> 0:19:39.159 although the investors are pretty loyal. But the reason I 0:19:39.240 --> 0:19:41.760 say that is because if you look at ARCS flow 0:19:41.880 --> 0:19:44.600 chart and dbmfs there they sort of hung in oblivion 0:19:44.640 --> 0:19:47.399 for a while and then bam, the out performance started. 0:19:47.680 --> 0:19:49.760 The people came. You had the shiny object moment up 0:19:50.640 --> 0:19:54.720 this year, which is phenomenal because the markets down or 0:19:54.760 --> 0:19:57.359 something like that. So that's a fifty percentage point above it. 0:19:58.160 --> 0:20:00.720 One billion in assets were one point one allion. That 0:20:00.840 --> 0:20:03.520 doesn't seem like a lot, but relative to alts, that's 0:20:04.280 --> 0:20:06.600 market share of the category. I don't think I've ever 0:20:06.640 --> 0:20:09.240 seen a fund go from nothing to market share in 0:20:09.280 --> 0:20:11.920 a year. So in a way, even though you're a 0:20:12.000 --> 0:20:15.360 smaller scale, it is an ARC type phenomenon in that category. 0:20:16.000 --> 0:20:18.280 And the question I would have for you is, now 0:20:18.320 --> 0:20:20.359 that you've got all this love and people you know, 0:20:20.480 --> 0:20:24.119 kind of going to that shiny nous, let's say the 0:20:24.240 --> 0:20:27.320 Fed pivots or they just say we're done hiking, and that, 0:20:27.520 --> 0:20:29.239 you know, that kind of turns on that whole ARC 0:20:29.320 --> 0:20:32.200 trade again. Um, do you prepare them for like maybe 0:20:32.320 --> 0:20:34.560 the fact that it won't be up every year? I mean, 0:20:34.600 --> 0:20:36.440 how how's that going? And is that like a like 0:20:36.480 --> 0:20:39.080 a fear of yours that like what goes up comes down? 0:20:39.160 --> 0:20:40.800 I mean, I don't know. I'm just curious where your 0:20:40.800 --> 0:20:42.119 heads out on that. Well, there are a couple of 0:20:42.119 --> 0:20:43.880 differences dark. One is I'm not going to tell people 0:20:43.880 --> 0:20:47.360 that we're gonna make thirty Okay, let's let's let's get 0:20:47.359 --> 0:20:50.920 that very straight. Um. The other difference that we're actually 0:20:50.960 --> 0:20:53.520 an interesting similarity is you know, and you and I 0:20:53.560 --> 0:20:55.040