WEBVTT - Return Stacking to Solve the 60/40 Dilemma 0:00:05.600 --> 0:00:13.800 Welcome to Trillans. I'm Joel Webber and I'm Eric bel Tunis. Eric, 0:00:13.840 --> 0:00:19.439 the sixty portfolio is really the bedrock of investing has 0:00:19.600 --> 0:00:23.560 taken a ton of arrows, but we're gonna spend some 0:00:23.640 --> 0:00:29.360 time today talking about maybe how can be even better. Yeah, 0:00:29.400 --> 0:00:32.400 there's a couple of smart guys who I largely met 0:00:32.400 --> 0:00:35.560 on Twitter, but they have ETFs invest in ETFs have 0:00:35.640 --> 0:00:38.920 mutual funds there in the asset management world. But they 0:00:38.960 --> 0:00:42.800 have really done something that I think we'll find an audience, 0:00:42.800 --> 0:00:46.680 which is everybody loves sixty. I mean it's a smash hit. 0:00:46.760 --> 0:00:50.600 Look at any Advisor PORTFOLI it's usually some derivative of sixty. 0:00:51.360 --> 0:00:54.000 And yet everybody is worried about the sixty and the 0:00:54.040 --> 0:00:56.000 forty both falling at the same time, right because they 0:00:56.040 --> 0:00:58.160 both went up for the same time. So how do 0:00:58.240 --> 0:01:01.080 you hedge against that and yet keep your sixty forty 0:01:01.240 --> 0:01:02.800 because no one wants to let go of that because 0:01:02.800 --> 0:01:05.240 every time people try to hedge, they've been they would 0:01:05.280 --> 0:01:08.119 lose money because the market rebounds almost every single time. 0:01:08.560 --> 0:01:10.760 Yet there could be a time when it doesn't. So 0:01:10.800 --> 0:01:12.760 how do you like have your cake and need it too? 0:01:12.800 --> 0:01:16.080 And these these two guys have have seemingly come with 0:01:16.120 --> 0:01:19.560 a way to do this that involves a model portfolio, 0:01:19.640 --> 0:01:22.920 which is a whole another trend. Model portfolios are very popular. 0:01:23.480 --> 0:01:26.559 UM that invests in ETFs and mutual funds, that tries 0:01:26.600 --> 0:01:30.560 to allow advisors to have it all. And um, it's 0:01:30.560 --> 0:01:33.440 really fascinates called return stacking and I'm excited to dive 0:01:33.480 --> 0:01:37.679 into it. So joining us on this episode Corey Hofstein, 0:01:38.640 --> 0:01:44.959 Newfound Research Chief investment Officer and Rodrigo Gordio, Resolve President 0:01:45.040 --> 0:01:48.760 and portfolio manager. You can read more about their research 0:01:48.840 --> 0:01:53.040 at return stacking dot com or follow along at return 0:01:53.080 --> 0:02:02.320 Stacking dot Live, this time on Trilliance return Stacking Corey Rodrigo, 0:02:02.400 --> 0:02:05.040 Welcome to Trillions. Thank you so much for having us 0:02:05.040 --> 0:02:07.960 excited to be here, thanks to Okay, Corey, I want 0:02:07.960 --> 0:02:10.480 to start with you. How did you guys find each other? 0:02:10.480 --> 0:02:13.120 Because you guys don't even like officially worked together, right, 0:02:13.160 --> 0:02:16.040 Like this kind of unusual to have two different firms 0:02:16.040 --> 0:02:19.600 that collaborate like this. Yeah, this is definitely a little 0:02:19.639 --> 0:02:24.400 weird to have two in theory competing asset managers work 0:02:24.440 --> 0:02:28.080 on research and launch product together. But this was really 0:02:28.120 --> 0:02:30.919 born out of a mutual respect. For years and years 0:02:30.919 --> 0:02:34.880 and years, Rodrigo and his team have been publishing research 0:02:35.240 --> 0:02:38.560 that I've read and really enjoyed, and I hope they 0:02:38.600 --> 0:02:40.840 would say the same about my team and the research 0:02:40.880 --> 0:02:44.440 that we've written. We ended up getting introduced to one 0:02:44.440 --> 0:02:47.840 another through that mutual respect for research, and then ultimately 0:02:47.880 --> 0:02:50.560 found that we had a large number of clients in common, 0:02:50.800 --> 0:02:53.240 or clients who would learn about one of us and 0:02:53.320 --> 0:02:56.280 ask about the other, and ultimately found that a lot 0:02:56.320 --> 0:02:59.960 of the approaches we were taking in from a philosop 0:03:00.000 --> 0:03:03.480 topical perspective, we're very much aligned, but from an actual 0:03:03.600 --> 0:03:07.080 product perspective, we're very complementary. And so it really made 0:03:07.280 --> 0:03:09.520 natural sense for us to work together on a lot 0:03:09.560 --> 0:03:12.880 of things. And Rodrigo, what, what was the thing that 0:03:12.960 --> 0:03:15.240 they did that you were like, Oh, man, that's really good. 0:03:15.240 --> 0:03:17.440 I wish I had thought of that. Oh my god, 0:03:17.560 --> 0:03:20.919 I mean it's you know what, Like like Corey said, 0:03:21.600 --> 0:03:26.240 we constantly found ourselves talking about similar topics, and as 0:03:26.320 --> 0:03:30.000 you know, when you're talking about complex issues, you try 0:03:30.040 --> 0:03:33.079 to create a language around them when the average investor 0:03:33.120 --> 0:03:36.320 can understand. I've always been envious of you know, we'll 0:03:36.360 --> 0:03:41.480 go out and we'll talk about ensemble methods for quantitative investing, 0:03:42.120 --> 0:03:45.200 and then Corey would say timing luck is a thing. 0:03:45.320 --> 0:03:49.400 So it's just a much much better language. Often like 0:03:49.960 --> 0:03:51.920 you're looking at them like that's this, We're talking about 0:03:51.920 --> 0:03:54.840 the same thing. But his language was just so much 0:03:54.920 --> 0:03:59.960 more beautiful and accessible than we often often struggle with 0:04:00.040 --> 0:04:02.560 that a resolved So that's I think that's what I've 0:04:02.600 --> 0:04:06.760 always been envous a. Corey is a fantastic writer and communicator. Okay, 0:04:06.760 --> 0:04:09.080 so what's the product that you guys have come to 0:04:09.120 --> 0:04:12.200 market with? Calling it a product, it's interesting what we 0:04:12.400 --> 0:04:15.560 what we came up with, uh, and we started noodling 0:04:15.680 --> 0:04:23.640 this over the summer of was the concept of these 0:04:23.720 --> 0:04:26.279 new funds that had come out in the market, including 0:04:26.279 --> 0:04:28.480 our funds. So Corey has gone through a bit of 0:04:28.520 --> 0:04:31.240 evolution and in the product lined up. Even though he's 0:04:31.240 --> 0:04:34.240 been talking about capital efficiency for years and using capital 0:04:34.240 --> 0:04:36.440 efficiency for years in many respects, the product that he 0:04:36.560 --> 0:04:43.280 launched or relaunched in November was able to create give 0:04:43.320 --> 0:04:46.560 you some unique alpha's and unique bade us stacked on 0:04:46.600 --> 0:04:49.200 top of each other using capital efficiency. We had been 0:04:49.240 --> 0:04:50.880 doing that for ten years in our fun but it 0:04:50.960 --> 0:04:53.599 was tough for us to communicate that to the audience. 0:04:53.720 --> 0:04:56.640 And then we started seeing et F providers like wisdom 0:04:56.720 --> 0:05:01.640 Tree and Standpoint and not Standpoint Simplify also come up 0:05:01.640 --> 0:05:03.960 with stacking ideas, and well like, how do we how 0:05:03.960 --> 0:05:06.799 do we use these new products that have never existed 0:05:06.839 --> 0:05:09.719 before in the retail space, how do we put them 0:05:09.760 --> 0:05:12.120 together in such a way that we can get people 0:05:12.120 --> 0:05:15.600 to do better to create much more robust portfolios. And 0:05:15.839 --> 0:05:17.920 so we started thinking about it, and we we came 0:05:18.000 --> 0:05:21.040 up with again language right this idea. Instead of calling 0:05:21.080 --> 0:05:27.200 it capital efficient or leverage or or structural alpha, we 0:05:27.320 --> 0:05:30.479 named it return stacking, and we did it in such 0:05:30.520 --> 0:05:33.800 a way that was the most accessible to the average investor, 0:05:34.120 --> 0:05:37.240 even foundations and small corporations. And so in the summer 0:05:37.279 --> 0:05:40.680 we started noodling this and we decided to write a 0:05:40.720 --> 0:05:44.480 paper about the idea of stacking returns how to improve 0:05:44.480 --> 0:05:47.760 a sixty forty portfolio through these new products and putting 0:05:47.800 --> 0:05:51.200 them together in unique ways. And that led to then 0:05:51.240 --> 0:05:54.359 a demand for some sort of solution, which led to 0:05:54.440 --> 0:05:58.000 this index that has a bout of bts and mutual 0:05:58.040 --> 0:06:01.080 funds that we've structured together to create uh profile that 0:06:01.080 --> 0:06:03.159 we're gonna I'm sure to talk about the rest of 0:06:03.160 --> 0:06:06.239 this podcast. Let me jump in here, um and really 0:06:06.680 --> 0:06:09.279 get down to this stacking issue. And I want to 0:06:09.279 --> 0:06:12.200 go back a couple of years with you, Cory. There's 0:06:12.240 --> 0:06:15.560 a product that was launched called nt SX, which is 0:06:15.560 --> 0:06:19.279 the wisdom Tree US Efficient Core e t F. It 0:06:19.360 --> 0:06:23.039 used to be called the nine sixty and that was 0:06:23.120 --> 0:06:25.560 born out of a Twitter conversation with you and a 0:06:25.560 --> 0:06:29.040 couple other people. And this was interesting to me at 0:06:29.040 --> 0:06:31.279 the time because, um, I was on Twitter and I 0:06:31.279 --> 0:06:33.080 thought it was interesting. It was one of the first 0:06:33.240 --> 0:06:34.800 e t s that was born out of people just 0:06:34.839 --> 0:06:38.080 talking about something wisdom Tree launched that. I was skeptical. 0:06:38.279 --> 0:06:41.479 I thought advisors just don't want to They typically don't 0:06:41.520 --> 0:06:43.680 like to have all the asset classes together. They want 0:06:43.720 --> 0:06:46.080 to pick the pieces. But it's got a billion dollars 0:06:46.480 --> 0:06:48.839 and it's a success and they've launched. I think other 0:06:48.920 --> 0:06:52.640 versions of it explain to me the sixt what and 0:06:52.800 --> 0:06:55.680 I think this is essentially what return stacking is, and 0:06:55.680 --> 0:06:56.800 this is one of the e t s you use 0:06:56.839 --> 0:06:59.320 in your model. So I guess walk us through how 0:06:59.360 --> 0:07:03.680 this fun gets the exposure and how it gets the 0:07:03.800 --> 0:07:06.560 extra how it stacks, and I think that will be 0:07:06.600 --> 0:07:10.040 a metaphor for the bigger model, right absolutely so. As 0:07:10.040 --> 0:07:12.120 you mentioned this e t F that was launched by 0:07:12.160 --> 0:07:16.680 Wisdom Tree, Jeremy Schwartz at wisdom Tree was really the 0:07:16.800 --> 0:07:20.400 driver behind. That was born out of a conversation that 0:07:20.480 --> 0:07:23.600 was taking place on Twitter between me and to actually 0:07:23.640 --> 0:07:28.240 anonymous Twitter accounts non related sense who has unfortunately since 0:07:28.280 --> 0:07:31.920 passed away, and another Twitter user named Jake and Jeremy 0:07:31.960 --> 0:07:34.320 Sawton thought it was a really unique innovative idea and 0:07:34.400 --> 0:07:37.560 was able to breathe life into it. The core concept 0:07:37.720 --> 0:07:41.840 is to take a sixty forty portfolio and lever it 0:07:41.960 --> 0:07:45.040 up one point five times, and that's going to give 0:07:45.080 --> 0:07:47.920 you a N sixty. Now how is that done in practice? Well, 0:07:48.320 --> 0:07:52.400 what happens is for every dollar you invest in the fund, 0:07:52.520 --> 0:07:56.280 the fund is gonna take ninety cents and invest it 0:07:56.440 --> 0:08:00.360 in the SMP five and it's gonna leave ten sense 0:08:00.400 --> 0:08:04.560 aside in cash or cash equivalence very short term US 0:08:04.600 --> 0:08:09.680 treasuries for example, as collateral to then buy a ladder 0:08:09.800 --> 0:08:13.120 of US Treasury futures, It's going to be a blend 0:08:13.160 --> 0:08:16.960 of two year, five year, ten year, and twenty plus 0:08:17.040 --> 0:08:21.040 year US Treasury futures percent in each and that will 0:08:21.040 --> 0:08:25.480 give you sixt notional exposure. So you got ninety in 0:08:25.520 --> 0:08:31.120 the SMP plus sixty using treasury futures. Now we could 0:08:31.120 --> 0:08:33.840 stop there and say, well, that is stacking. What we've 0:08:33.840 --> 0:08:39.760 done is we've stacked treasury returns on top of equity returns, 0:08:40.480 --> 0:08:42.959 which may or may not be a just a very 0:08:43.000 --> 0:08:46.679 interesting solution as an alternative to someone who's very equity heavy. 0:08:47.280 --> 0:08:50.320 Clifford ass At, a q R. Wrote a paper twenty 0:08:50.520 --> 0:08:54.120 five thirty years ago called why not just equities? And 0:08:54.160 --> 0:08:56.960 he showed actually, a levered sixty forty over the long 0:08:57.080 --> 0:09:00.440 run does much better than just equities. Jeremy Schwartz recently 0:09:00.440 --> 0:09:03.480 published an update to that for plus years about a sample. 0:09:03.840 --> 0:09:07.559 But I think where this gets really interesting is to say, 0:09:07.760 --> 0:09:11.080 let's actually not use it as an alternative to equities. 0:09:11.720 --> 0:09:14.959 Let's use it as an alternative to a sixty forty. 0:09:15.120 --> 0:09:18.640 And by that I mean if I just invest sixty 0:09:18.760 --> 0:09:24.160 six percent of my capital in this levered sixty forty, 0:09:24.360 --> 0:09:28.160 then I get equivalent exposure to what investing a hundred 0:09:28.240 --> 0:09:30.599 percent of my capital in a sixty forty would have 0:09:30.640 --> 0:09:33.440 given me. But I'm left with thirty three of my 0:09:33.480 --> 0:09:36.360 capital left over that I can do whatever I want with. 0:09:36.800 --> 0:09:39.000 And then it becomes a very interesting question of what 0:09:39.040 --> 0:09:42.280 do you do with that leftover capital, which then in 0:09:42.400 --> 0:09:46.880 effect is going to be a return stacked on top 0:09:46.920 --> 0:09:50.040 of that six return profile. So we're able to retain 0:09:50.120 --> 0:09:53.079 the sixty forty that everyone wants and loves, but use 0:09:53.120 --> 0:09:57.360 a bunch of leftover capital to potentially stack something diversifying 0:09:57.360 --> 0:10:01.960 in return generating on top. So this fund is and 0:10:02.000 --> 0:10:04.600 we're gonna get to the bigger model first, but this fund, 0:10:05.120 --> 0:10:10.960 essentially UH is up about seventy since launching. Would you 0:10:11.120 --> 0:10:13.120 would you say it? Would you compare this to a 0:10:13.120 --> 0:10:15.760 balance like a balanced fund or the SMP. What's the 0:10:15.840 --> 0:10:19.679 right benchmark here? Well, my guess is it's probably benchmark 0:10:19.720 --> 0:10:22.840 to the SMP. I would argue that's not a great benchmark. 0:10:23.520 --> 0:10:26.160 The reason I love the phrase return stacking, which I 0:10:26.160 --> 0:10:29.400 have to give all credit to Rodrigo for coming up with, 0:10:29.480 --> 0:10:32.679 though I do plan over time to whitewash history and 0:10:32.880 --> 0:10:37.640 take that from him. Actually on the term, I wrote 0:10:37.640 --> 0:10:39.959 this book back in the day called The Institutional E 0:10:40.040 --> 0:10:42.800 T F Toolbox, which is available on Amazon in case 0:10:42.840 --> 0:10:46.760 you're curious anyway, I interviewed some institutions and I think 0:10:46.760 --> 0:10:49.120 they refer to this as portable alpha. So are you 0:10:49.160 --> 0:10:52.240 sort of rebranding it or is there a difference between 0:10:52.280 --> 0:10:55.760 portable alpha and return stack. There's a slight difference. Uh. 0:10:56.000 --> 0:10:59.120 Portable alpha really from an institutional perspective. Back in the 0:10:59.200 --> 0:11:04.640 two tho era was all about stacking alpha on top 0:11:05.520 --> 0:11:07.400 of your exposure. So if you look at something like 0:11:07.400 --> 0:11:11.320 an nts X, which is just SMP beta plus bond beta, 0:11:11.840 --> 0:11:15.000 well that's not really portable alpha. I might call that 0:11:15.120 --> 0:11:19.360 portable beta. Right You're you're porting beta on top of beta. 0:11:19.679 --> 0:11:23.920 There's no alpha there. The return stacking concept is more 0:11:24.040 --> 0:11:27.960 generic than portable alpha because it's a question of what 0:11:28.000 --> 0:11:30.080 do you do with the extra capital you free up? 0:11:30.120 --> 0:11:32.679 That capital efficiency you create and you could go out 0:11:32.720 --> 0:11:35.719 and buy alpha strategies, which then it does, I think, 0:11:35.800 --> 0:11:38.880 become very similar to portable alpha. But a lot of 0:11:38.880 --> 0:11:42.400 the nuance comes into how are you actually generating that 0:11:42.480 --> 0:11:45.880 capital efficiency, how much does it cost you, where is 0:11:45.920 --> 0:11:49.120 it coming from? And that's sort of a difference in 0:11:49.240 --> 0:11:52.160 terms of how portable alpha used to work versus what 0:11:52.160 --> 0:11:55.880 we're doing here. Everything that clos has talked about has 0:11:55.920 --> 0:12:01.200 allowed an investor to increase portfolio real estate. Right. An 0:12:01.240 --> 0:12:06.680 institutional investor has a vast, a wide expanse of real 0:12:06.760 --> 0:12:09.160 estate that they could create. They get a hundred dollars, 0:12:09.200 --> 0:12:11.960 they could invest a thousand dollars if they want to, 0:12:12.120 --> 0:12:17.400 through derivatives, through borrowing and the like. Retail investors, retail advisors, 0:12:17.440 --> 0:12:20.120 a lot of small pensions and institutions are stuck with 0:12:20.200 --> 0:12:22.000 a hundred cents on the dollar. You give them a 0:12:22.040 --> 0:12:25.880 hundred dollars, they only have that to spend, and that's 0:12:25.880 --> 0:12:29.400 because they don't necessarily have access to leverage, have access 0:12:29.440 --> 0:12:31.800 to derivatives, has the expertise to do it, don't want 0:12:31.840 --> 0:12:34.080 to do it all of a sudden. In the last 0:12:34.080 --> 0:12:37.840 two years, with products like ours in nts X, you 0:12:37.960 --> 0:12:41.160 now are able to buy instead you want sixty forty, 0:12:41.280 --> 0:12:43.880 you only have to spend sixty seven dollars of your 0:12:43.960 --> 0:12:47.400 hundred to get sixty forty returns for the year, And 0:12:47.440 --> 0:12:50.800 now you've created thirty three dollars of portfolio real estate. Right. 0:12:50.880 --> 0:12:53.520 And what the reason we started with return stacking the 0:12:53.600 --> 0:12:57.240 language stack returns is that if you do it right, 0:12:57.280 --> 0:12:59.520 if you choose the right thing to put onto your 0:12:59.559 --> 0:13:03.320 thirty three percent you're getting, you're gonna get that six return, 0:13:03.640 --> 0:13:06.800 and whatever you make in that extra thirty three dollars, 0:13:07.360 --> 0:13:10.199 that return is going to stack on top the six forty. 0:13:10.679 --> 0:13:13.880 So this the paper is is about, you know, how 0:13:13.920 --> 0:13:17.160 to stack returns in a low return environment, because I 0:13:17.160 --> 0:13:19.959 think that's what everybody's worried about sixty forty, like Eric said, 0:13:20.240 --> 0:13:24.240 where they're terrified of getting away. You know, they know 0:13:24.400 --> 0:13:26.120 that it might be low returns in the future of 0:13:26.160 --> 0:13:29.280 sixty forty. They know there might be higher correlations, but 0:13:29.320 --> 0:13:32.199 they're terrified and moving away from it. This this allows 0:13:32.720 --> 0:13:36.040 investors to both have their cake and eat it two 0:13:36.080 --> 0:13:44.439 through stacking something thoughtful on top. Right. Okay, so I 0:13:44.440 --> 0:13:46.320 want to talk about the thirty three dollars a little 0:13:46.320 --> 0:13:47.840 bit more, but before we do that, let's just talk 0:13:47.880 --> 0:13:50.440 about the the bigger model, because you're you're adding a 0:13:50.440 --> 0:13:55.079 few other things into that, right, correct? Yeah, So what 0:13:55.120 --> 0:13:57.800 are those and how do how does it all work? Yeah? 0:13:57.880 --> 0:14:00.560 So the idea. First, the paper goes through a simple 0:14:00.600 --> 0:14:03.040 example like we just discussed, right, But then we say 0:14:03.080 --> 0:14:06.000 a lot, very few investors will actually buy a single 0:14:06.000 --> 0:14:09.960 et F and then have that be their portfolio and 0:14:10.000 --> 0:14:12.480 then stack you know, whatever they want to do on that. 0:14:14.040 --> 0:14:15.679 But it's time out real quick, and let's just hone 0:14:15.720 --> 0:14:18.439 in on that. This is crucial because a lot of 0:14:18.480 --> 0:14:20.560 people ask me, why isn't there just one e TF 0:14:20.640 --> 0:14:22.960 for everything? Or you know and or why don't ask 0:14:22.960 --> 0:14:26.360 the dellocation which holds like balanced ETF are weren't they 0:14:26.360 --> 0:14:29.560 more popular? And advisors just are the word us, the 0:14:29.600 --> 0:14:32.720 word terrified. They're terrified of having one line item that 0:14:32.800 --> 0:14:36.000 they want to have more in there. And so I 0:14:36.000 --> 0:14:38.240 guess just just I just want to stop there for 0:14:38.280 --> 0:14:40.600 one second and also address that because Joel, you had 0:14:40.640 --> 0:14:45.600 that idea for why isn't there a hole inch alata ETF. 0:14:46.040 --> 0:14:49.040 Ironically it probably wouldn't sell that much because advisors want 0:14:49.040 --> 0:14:50.960 to be the deciders. They want the pieces in there. 0:14:51.600 --> 0:14:54.080 So I'll pass it back to Rodrigo, who obviously is 0:14:54.120 --> 0:14:56.400 making the pieces. Well, this is this is from years 0:14:56.560 --> 0:15:00.400 of interacting with advisors, right There's it's really a tough 0:15:00.840 --> 0:15:02.960 to get through your compliance that you're gonna put sixties 0:15:03.040 --> 0:15:05.960 six cents on the dollar in a single service provider. 0:15:06.080 --> 0:15:08.840 It's just not a thing. And then from a optics 0:15:08.840 --> 0:15:11.840 respective with clients. Let's say you have a single company 0:15:11.880 --> 0:15:14.520 that has five beautiful et s. It's very rare to 0:15:14.520 --> 0:15:16.960 find the advisor that's okay with giving it all to 0:15:17.040 --> 0:15:20.800 a single provider. And so you you certainly want to 0:15:20.800 --> 0:15:22.920 have manager diversity. You want to have you want to 0:15:22.960 --> 0:15:25.560 minimize the risk there from one single manager blown up 0:15:25.640 --> 0:15:29.280 or not doing well. But if you're looking at return stacking, 0:15:29.280 --> 0:15:31.080 then you only had one product to play with, it 0:15:31.080 --> 0:15:34.040 would be a problem. What we found, which was very refreshing, 0:15:34.560 --> 0:15:37.440 is that as you start digging in, you find that 0:15:37.480 --> 0:15:39.880 there were, at the time of writing the paper, we 0:15:39.960 --> 0:15:44.280 found ten very clear return stacked funds, and they were 0:15:44.280 --> 0:15:49.080 stacking different things. Some were stacking equity beta on top 0:15:49.160 --> 0:15:53.440 of bond beta. Some were stacking s p y and 0:15:53.480 --> 0:15:56.440 then you know, fifty cents of spy and a hundred 0:15:56.520 --> 0:16:00.240 cents of trend manu futures trend, another one with sacking 0:16:00.360 --> 0:16:05.560 global equities with managed futures trend. We were stacking global risparity, 0:16:05.640 --> 0:16:08.360 and then on top of that global macro like rules base, 0:16:08.400 --> 0:16:12.640 Global macro cory was active equity on top of active 0:16:13.200 --> 0:16:15.640 bonds and tail protection wrapped around that. So all of 0:16:15.680 --> 0:16:19.560 a sudden you start finding these really exciting products that 0:16:19.600 --> 0:16:22.920 you can now put together in a way that makes 0:16:24.080 --> 0:16:30.160 that creates an exposure of six equities bonds, and then 0:16:30.160 --> 0:16:34.200 what we stacked on top was thirty cents of systematic 0:16:34.480 --> 0:16:37.960 um trends that's just like managed future trends or ct 0:16:38.120 --> 0:16:40.960 A s, and then another thirty percent of global macro 0:16:41.080 --> 0:16:44.320 or systematic global macro. And the difference between CTA and 0:16:44.360 --> 0:16:48.480 global macro they're both futures based. One does pure trend 0:16:48.640 --> 0:16:52.240 the other one uses value factor, the momentum fact, the 0:16:52.280 --> 0:16:56.440 momentum trend factor, the carry factor, some use seasonality, some 0:16:56.600 --> 0:16:58.080 use me in reversion, right, so it's just a bit 0:16:58.160 --> 0:17:02.360 more diversive. We jump in here. So, uh, what what 0:17:02.440 --> 0:17:06.240 you just went over was hedge fund strategies or alts, 0:17:06.320 --> 0:17:08.800 And they're called alts because they're alternative the stocks and 0:17:08.800 --> 0:17:11.200 bonds and they don't have they have very low correlation 0:17:11.280 --> 0:17:15.480 to that category. There are et s, net Corey, but 0:17:15.480 --> 0:17:19.640 they totally ignored because they just don't really do much 0:17:19.720 --> 0:17:22.000 compared to stocks and bonds in the last ten years. 0:17:22.920 --> 0:17:26.000 But I think there is a knowledge that they when 0:17:26.040 --> 0:17:30.320 the market does sell off, those hedge fund ish kind 0:17:30.359 --> 0:17:32.640 of strategies rise to the top. They tend to be 0:17:32.720 --> 0:17:35.760 the top performers when the both the sixty and the 0:17:35.800 --> 0:17:37.680 forty or down. I've seen it happen. It's only little 0:17:37.720 --> 0:17:39.719 windows because then the FED steps in and everything goes 0:17:39.800 --> 0:17:43.080 up again. But is that why you're using your thirty 0:17:43.160 --> 0:17:47.080 three cents on that instead of in the NTSX situation 0:17:47.320 --> 0:17:49.919 more treasuries because you're like, we already had that covered. 0:17:50.160 --> 0:17:52.120 Now let's get some alts in there just in case 0:17:52.119 --> 0:17:54.879 the world goes to hell. That will help you on 0:17:54.920 --> 0:17:58.920 the protection side. That's the idea here, just to try 0:17:58.920 --> 0:18:02.480 to simplify it. The nail on the head that at 0:18:02.480 --> 0:18:05.040 the end of the day, there are these really interesting 0:18:05.200 --> 0:18:10.840 and attractive alternative strategies from a diversification perspective. The problem 0:18:10.920 --> 0:18:14.600 is most allocators have been stuck with this either or 0:18:14.840 --> 0:18:19.439 problem over the last decade that to introduce these diversifiers 0:18:19.440 --> 0:18:21.960 they have to sell stocks or bonds. So you look 0:18:21.960 --> 0:18:25.520 at something like managed futures, which had a total return 0:18:25.600 --> 0:18:28.160 the stock gain Managed Future ct A index I think 0:18:28.160 --> 0:18:31.320 at a total return of between twenty and for the 0:18:31.480 --> 0:18:34.760 entire last decade. Right, So if you sold stocks or 0:18:34.760 --> 0:18:37.439 bonds to buy managed futures, you were very disappointed in 0:18:37.440 --> 0:18:43.280 the total return, but it is a phenomenal diversifier historically, 0:18:43.400 --> 0:18:47.040 particularly during periods of inflation fear. So if you can 0:18:47.080 --> 0:18:52.000 have your sixty forty and then stack those extra managed 0:18:52.040 --> 0:18:56.119 futures are alternative returns on top. Not only are you 0:18:56.160 --> 0:19:00.359 potentially earning the extra return, but you are whole fully 0:19:00.359 --> 0:19:04.640 making your portfolio more resilient by adding a diversifier that 0:19:04.720 --> 0:19:09.960 particularly attacks what a sixty portfolio is weak two, which 0:19:10.040 --> 0:19:13.359 is inflation risk that tends to cause stock and bond 0:19:13.400 --> 0:19:20.399 correlations UH to turn positive. Okay, I like this, although 0:19:20.480 --> 0:19:24.560 I will just question the fact that you know, plus 0:19:24.600 --> 0:19:26.960 thirty three plus all this other stuff does not equal 0:19:26.960 --> 0:19:29.480 one hundred. So there's some really basic math that I 0:19:29.520 --> 0:19:32.080 want to take you guys up one but as a joke. 0:19:32.359 --> 0:19:33.840 But I do want to just talk about this thirty 0:19:33.880 --> 0:19:37.760 three and sort of the competition there, because it sounds 0:19:37.800 --> 0:19:40.400 like there's a lot of very technical things that are 0:19:40.400 --> 0:19:44.879 happening there that a normal retail investor isn't going to understand. 0:19:45.400 --> 0:19:48.640 You're you're probably catering to an advisor more than anything there. 0:19:49.040 --> 0:19:51.879 And I'm also just you know, genuinely curious here, like 0:19:51.920 --> 0:19:54.240 how are you supposed to figure out what you're supposed 0:19:54.280 --> 0:19:56.720 to do with that thirty three? I mean there there's 0:19:56.840 --> 0:19:58.439 probably a version of that that I should put in 0:19:58.480 --> 0:20:03.879 crypto even right, Sure, look, there's it's not necessarily I mean, 0:20:03.920 --> 0:20:06.159 the index is meant to be prescriptive, but the paper 0:20:06.240 --> 0:20:09.800 is not right. So what you do with that thirty 0:20:09.800 --> 0:20:11.439 three cents? A lot of it has to do with 0:20:11.480 --> 0:20:14.880 your own values, right. For example, if you're a value manager, 0:20:14.920 --> 0:20:19.399 if you truly believe in buying cheap then all this time. 0:20:19.640 --> 0:20:21.480 You know, if you're like Warren Buffett that leaves some 0:20:21.560 --> 0:20:23.919 cash on the sidelines and waits for the opportunities, you 0:20:23.960 --> 0:20:26.440 can't do that as an advisor. Investors have a hard 0:20:26.440 --> 0:20:29.800 time staying in cash until value comes up again they 0:20:29.800 --> 0:20:32.080 can snatch things up. You know, a few people can 0:20:32.080 --> 0:20:35.200 actually accomplish that. But again, having your cake and eating 0:20:35.200 --> 0:20:39.400 it too. Now you get full exposure to sixty by 0:20:39.440 --> 0:20:42.120 only investing sixty seven cents, you have thirty three dollars. 0:20:42.160 --> 0:20:46.080 It's on the sidelines. March happens. If you're a value guy, 0:20:46.400 --> 0:20:49.400 you can you can pick up a lot of cheap stocks, right, 0:20:49.560 --> 0:20:51.560 And because you can buy you really, like you said, 0:20:51.560 --> 0:20:54.359 adding it, it's you're getting a hundred cents plus another 0:20:54.400 --> 0:20:57.600 thirty three cents, a hundred percent exposure thirty three cents. 0:20:57.600 --> 0:21:01.159 We're in cash. Now you've invested it in March twenty, 0:21:01.560 --> 0:21:04.640 you've bought all the chief stocks. You stacked a bunch 0:21:04.640 --> 0:21:08.040 of return. So that's one way of return stacking. Right. 0:21:08.080 --> 0:21:11.400 The problem is that once you're there, now you're exposed 0:21:11.440 --> 0:21:15.120 not sixty forty, but you're now exposed ninety forty. You're 0:21:15.280 --> 0:21:18.800 you're very, very heavily intequities, and that becomes a long 0:21:18.920 --> 0:21:23.280 term problem in our view, Right, So what we tend 0:21:23.320 --> 0:21:25.520 to espouse and lean on if what are you gonna 0:21:25.560 --> 0:21:28.560 do with that thirty three You want to do things 0:21:28.760 --> 0:21:33.520 that can thrive when equities and bonds don't thrive. And 0:21:33.560 --> 0:21:35.199 I think you, guys. I was just listening to a 0:21:35.200 --> 0:21:37.639 podcast of Years with Gina Martin Adams, your your boss, 0:21:37.760 --> 0:21:40.200 Eric uh and she was talking about you, guys. Talked 0:21:40.200 --> 0:21:42.720 about a bunch of very interesting things, one of which 0:21:42.800 --> 0:21:46.560 was inflation and the fact that when we've seen periods 0:21:46.560 --> 0:21:50.040 of inflation and rising rates, we've seen bonds and equities 0:21:50.080 --> 0:21:52.640 not only lose money, but lose money at the same time. 0:21:52.720 --> 0:21:55.800 The correlations went up, so what does well, what can 0:21:55.840 --> 0:21:58.679 you do for that? Other one of the things you 0:21:58.680 --> 0:22:03.040 could explore is a diverseified commodity index, right. Another thing 0:22:03.080 --> 0:22:05.000 you could explore are these c t A s and 0:22:05.040 --> 0:22:08.960 global macro funds that can both make money and inflation markets, 0:22:09.000 --> 0:22:11.600 and then when the inevitable FED comes to break the 0:22:11.600 --> 0:22:15.560 back of inflation, it can also profit from downward deflation, 0:22:15.840 --> 0:22:19.520 which they did beautifully in the two thousand's right. So 0:22:19.760 --> 0:22:21.960 that's that's kind of what some of the things that 0:22:22.000 --> 0:22:24.440 you can do with that three cents it would be. 0:22:24.680 --> 0:22:28.800 It depends on just how I guess your tolerance for risk, 0:22:28.880 --> 0:22:31.240 But it seems to me it would be kind of 0:22:32.400 --> 0:22:35.720 dangerous to put it into something like crypto, which has 0:22:36.680 --> 0:22:39.560 acts like a high beta stock. If that goes down, 0:22:39.640 --> 0:22:43.359 then you're down. Then you're all all hundred and thirty 0:22:43.400 --> 0:22:47.639 three is down. Where you want the thirty three largely 0:22:47.680 --> 0:22:50.879 to offset the potential for the six going down, I 0:22:50.880 --> 0:22:53.960