Episode 25

RSST 3-Year Review Webinar

In this three-year review, Corey Hoffstein and Adam Butler revisit the Return Stacked® U.S. Stocks & Managed Futures ETF (RSST) and ask a simple question: is the fund doing what it was designed to do? They explain why managed futures has historically shone in only a small share of market environments. That pattern has made the strategy notoriously difficult to hold as a standalone line item. From there, they break down how RSST seeks to deliver S&P 500 exposure by design and how its blended top-down and bottom-up models seek to replicate the managed futures category. They also cover why stacking the two may help investors stay invested through a diversifier's long quiet stretches. The session closes with live Q&A on volatility, why today's structure differs from the portable alpha approaches that struggled in 2008, recent strategy updates, and how advisors might think about funding an allocation.

Topics Discussed

  • Introduction of Return Stacked® ETFs and the concept of Return Stacking
  • Three-year review and value proposition of the RSST ETF
  • Explanation of managed futures and trend following strategies
  • Historical performance of stocks, bonds, and managed futures during market regimes
  • Structure and cash management under the hood of the RSST ETF
  • Dual replication methods (top-down and bottom-up) for the SG Trend Index
  • Performance analysis and tracking error of the RSST model over the past three years
  • Strategic addition of agricultural futures and active research into methodology extensions

FOR STANDARDIZED PERFORMANCE, VISIT:

Performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call 1-844-737-3001 or visit the Funds' website at https://www.returnstackedetfs.com/.

Index Definitions

Investors should carefully consider the investment objectives, risks, charges and expenses of the Return Stacked® ETFs. This and other important information about the ETFs is contained in their prospectuses, which can be obtained by calling 1-844-737-3001 or clicking here. The prospectuses should be read carefully before investing.

Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. Brokerage commissions may apply and would reduce returns. Derivatives Risk. Derivatives are instruments, such as futures contracts, whose value is derived from that of other assets, rates, or indices. The use of derivatives for non-hedging purposes may be considered to carry more risk than other types of investments. Leverage Risk: As part of the Fund’s principal investment strategy, the Fund will make investments in futures contracts to gain long and short exposure across four major asset classes (commodities, currencies, fixed income, and equities). These derivative instruments provide the economic effect of financial leverage by creating additional investment exposure to the underlying instrument, as well as the potential for greater loss. Non-Diversification Risk. The Fund is non-diversified, meaning that it is permitted to invest a larger percentage of its assets in fewer issuers than diversified funds. High Portfolio Turnover Risk. The Fund may actively and frequently trade all or a significant portion of the Fund’s holdings."

Management Investment Adviser

Tidal Investments, LLC serves as investment adviser to the Fund and the Subsidiary.

Investment Sub-Advisers

Newfound Research LLC serves as investment sub-adviser to the Fund.

ReSolve Asset Management Inc. ("RAM") serves as a non-discretionary investment sub-adviser to the Fund and the Subsidiary.

Futures Advisor

ReSolve Asset Management SEZC (Cayman) serves as futures advisor to the Fund and the Subsidiary.

Distributor

Foreside Fund Services, LLC is the distributor for the Fund. Foreside is not related to Tidal, Newfound, or RAM.

Transcript
Corey Hoffstein:

All right Well, thank you everyone for joining us today,

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whether you're joining us live or catching this as a recording later,

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we greatly appreciate your time.

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My name is Corey Hoffstein, CEO of Newfound Research and one of

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the co-founders and portfolio managers at Return Stacked ETFs.

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and I am delighted to be joined by Adam Butler, CIO at Resolve Asset Management,

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as well as one of the co-founders and portfolio managers at Return Stacked ETFs.

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If this is one of your first introductions to Return Stacked ETFs, we are a

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boutique ETF firm, uh, launched our first ETF back in March 2023.

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Since then, have brought eight ETFs to market, and the suite has grown from

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zero to one point six billion dollars.

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And one of the things I would credit behind that growth is that the objective

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of this suite is to solve a very real problem that most advisors, individuals,

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and allocators face, which is introducing diversifying strategies and assets to

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a portfolio can be a very difficult proposition when it requires you to

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sell down stocks and bonds to make room.

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The entire idea of return stacking, which we'll go into some of the basics during

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this presentation, is that you don't have to make that sacrifice anymore.

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And we are trying to bring an entire turnkey suite of products to market

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to help people mix and match and build portfolios in a more thoughtful

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way to make alternatives easier to keep in the portfolio structurally.

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Now today, in particular, we're gonna be talking about RSST.

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This is our Return Stacked US Stocks and Managed Futures ETF.

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This has, not by intention, but simply by appetite, proven to be our flagship fund.

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Uh, it has just hit its three-year track record and has a little bit more than

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about five hundred and fifty million, uh, in AUM, uh, growth over that period.

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So we're very, very excited and obviously, you know, again, we think that that

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growth is, is due to the problem that we think this product helps solve,

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and we're gonna talk about that value proposition in this presentation.

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Now, Adam and I would be the very first to admit that you absolutely

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should not look at a three-year track record really as evidence of very

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much, certainly not performance.

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But we do think that there are parts of a three-year track record that

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you can look at when it comes to questioning, did we deliver upon the

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value proposition we're gonna talk about?

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So through this presentation, we're gonna talk about what this ETF is

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aiming to achieve, and then we're gonna talk about over the last three years,

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how did we deliver upon those goals.

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Now, before we get started, we obviously have to talk a little

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bit about risks and disclosures.

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please make sure before you invest in any ETF or product,

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you do read the prospectus.

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You can find all the prospectus and risks on our website, www.returnstacked.

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ETFs.

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I also want to start off this presentation with a quick poll.

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The first part of this poll is simply going to be, how familiar are you with

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the concepts of managed future strategies?

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How familiar are you with trend following and these sort of ideas

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with how these products are built and how their expectations of

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how they're going to perform?

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one here being very unfamiliar, ten being very familiar

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Great.

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Thank you everyone for filling in So what we're seeing is a

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decent amount of familiarity.

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Some folks saying a little less familiar, entering in that

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sort of three to six range.

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Um, and then we've got, you know, a whole bunch of folks who are,

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are quite familiar, eight to 10.

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Uh, we'll spend a little bit of time at the beginning of this presentation

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talking about managed futures, but this is certainly by no means gonna be an

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in-depth dive into managed futures.

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So if you're looking to learn more, we have some great

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resources we can share with you.

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Um, but we will, we will outline the basics

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So the next question is here, is how familiar are you with

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the concepts return stacking?

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Again, great to see a whole bunch of folks who feel pretty familiar

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answering in that eight to 10 range.

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Um, we've got some folks who are a little less familiar in that five to seven

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range, and then I'm really excited to see folks who just aren't very familiar.

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This is a great opportunity to learn, and we're gonna try to outline

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what the basics of return stacking are and, and more than anything,

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hopefully the benefits that return stacking can bring to your portfolio.

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So thank you for answering that.

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All right, let's dive into the presentation So again, what is the return

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stacked US stocks and managed futures ETF?

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This is an ETF that seeks to provide one dollar of exposure to core

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large cap US equities, plus a dollar of exposure to a managed futures

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strategy for every dollar invested.

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Right, so two dollars of total exposure, one to core US equities,

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and one to a managed future strategy for every dollar invested.

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And the reason we call it return stacking, right?

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Hopefully, this will be somewhat self-evident, is what we're ultimately

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trying to achieve is stacking the returns of that managed future

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strategy on top of your core equities.

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And we're gonna go into a little bit w-later why we think that very

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simple, uh, construction by simply stacking the returns of managed futures

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on top of equities creates a very powerful portfolio building block.

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Now, for those who are less familiar with managed futures as a strategy,

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this is a strategy, it's been around for a very long time in hedge funds

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going back to the nineteen seventies, nineteen eighties, that is going

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to trade futures contracts, global futures contracts, giving you access to

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equity indices, interest rates, bonds, currencies, commodities, including the

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energy complex, uh, the metals complex, and the agricultural complex, globally.

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And the, the core characteristic most of these strategies have is that they're

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implementing some form of trend following.

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That isn't true for the entire, cohort of managed future strategies.

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But by and, by and large, most of them implement some sort of trend

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following strategy, with the idea being that prices tend to persist

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in the direction they're going.

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So these strategies are generally going to go long things that have

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been going up, and they go short things that are going down, hoping

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to profit from the continued decline.

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So they are globally diversified and highly, highly flexible.

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What we have here is the live performance of US stocks, the S&P five hundred in the

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black line, core US bonds, this is the US aggregate in the blue line, and the

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SOC Gen trend index in the green line.

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Now, what's really important to understand about the SOC Gen trend

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index is that this is an index that is comprised of l-the live performance

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Of trend following hedge funds reconstituted annually going back to 1999.

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And that started tracking live in 1999.

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So this isn't some hypothetical, you know, started this year and,

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and recalculated going backwards.

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This started as an index in 1999, choosing 10 managers, the largest 10

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managers who were still ho- open to new allocations that were implementing

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trend following strategies, equally weighted, and the performance is reported

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net of all trading costs, net of all management fees, and because these

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are hedge funds, some of them charge performance fees, net of performance fees.

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It's reconstituted annually to have turnover of the managers who are

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still eligible in the criteria.

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And so what we're really looking at here, I think, is a very good depiction of

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the live category performance over time And we can see a couple of things here.

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One, right, low average correlation.

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We can see that stocks and bonds historically on average over the

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long run haven't been particularly correlated to, to each other.

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But two, managed futures have not been particularly correlated

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to stocks and bonds either.

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And we can see that the total return has been a fairly

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attractive up and to the right.

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Now, what managed futures proponents will really try to highlight for you

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is not only does it have this very attractive historical return persistence

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of going up into the right and being uncorrelated from stocks and bonds,

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but it has done quite well during periods of sharp macro regime change.

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And those are periods where equities have historically done quite poorly.

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And in some cases, both equities and bonds have done quite poorly, right?

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So if we focus on these big drawdown periods for equities over the last

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twenty-five, twenty-six years, what we can see is, yes, there were some periods

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that bonds offered an important offset, but those same periods we s-- also saw

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managed futures do quite well, whether that's the dot-com fallout, the GFC in

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two thousand and eight, even during, the COVID crisis in Q1 of, of twenty twenty.

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But importantly, when bonds weren't the ballast that many people hoped they

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would be, uh, not just being a way to de-risk a portfolio but truly diversify,

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managed futures continued to stand up and behave quite well in that twenty

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twenty-two inflationary shock period.

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And, and what a lot of people point to is just the global flexibility that

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managed futures programs have, as well as sort of them being entirely agnostic

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to having any sort of fundamental view.

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They're purely trying to catch trends.

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And so when you look at a year like twenty twenty-two and say, "Well,

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why did managed futures do so well?"

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Well, it's because it was along the US dollar, short bonds and long commodities

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in the first half of the year, right?

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Um, why did it do so well in a two thousand and eight?

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Well, it was 'cause it was very long bonds and short equities, long

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commodities in the first half of the year, short commodities in the

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second half of the year, right?

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It's not married to any, you know, global economic view.

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It's just simply capturing these trends as they emerge and persist.

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And so it's proven historically to be a very powerful diversifier

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to a portfolio This is what every managed futures manager wants you

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to focus on, this slide right here.

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Here is the uncomfortable and unfortunate truth though.

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Those periods we just looked at where managed futures did particularly

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well and would have been a wonderful diversifier in your portfolio was only

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about seventeen percent of the time over the last twenty-five, twenty-six years.

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The majority of the time that we look at over the last twenty-five years

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was actually a strong bull market.

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And so if you look at just those bear markets, right, that we looked

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at in the prior slide and compared the returns of US stocks versus

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managed futures, man, managed futures provided a wonderful offset.

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What a great diversifier to have in the portfolio.

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The problem is, more than four-fifths of the time, the reality is you're,

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you were in a strong bull market where equities were returning north

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of fifteen percent annualized And managed futures was under three percent

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annualized over that period, right?

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And that's what has historically made managed futures so

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hard to hold in a portfolio.

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Four-fifths of the time, you're constantly having to apologize for this thing that's

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lagging behind and defending it saying, "Don't worry, its time will come around.

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Don't worry, its time will come around."

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Right?

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And that-- It's a very difficult way to manage a portfolio, particularly

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when your clients keep highlighting it as a, as a line item that they

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don't understand, and they don't understand why you continue to hold it.

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They don't understand why it performs the way it does.

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And that's particularly frustrating when you're hiring it because it behaves

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differently, and they're wanting to fire it because it behaves differently, right?

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So it's been a great diversifier, but potentially one that has

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been so difficult to stick with.

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And it's why we see when we look at the, the numbers, the published numbers at

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firms like Morningstar, there's this huge gap between the returns realized by

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investors and the returns of the category.

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And it's because investors historically have just tried to

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performance chase this category.

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They just don't seem to be able to stick with it structurally.

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Our argument is that the problem is not with the diversifier,

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it's with how we're diversifying.

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We're simply asking too much of ourselves behaviorally to say, "Let's

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sell some stocks and bonds to make room for managed futures," when a

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concept like return stacking means we don't have to make that sacrifice.

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We can reframe the whole problem from this either/or to this yes/and.

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We can, through a framework like return stacking, where we can say, "Let's take

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the returns of managed futures and stack them on top of equities or on top of

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bonds or whatever you want," we no longer have to sacrifice the equity return to

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get the managed futures return on top.

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Right?

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And this is-- I should say, this is really not a novel concept.

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Return stacking is a phrase that our colleague Rodrigo Gordillo came up

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with, several years ago, uh, and we think it really is a very transparent

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way of explaining what we're doing.

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But this concept, uh, is an idea that institutions have been implementing

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going back to the nineteen eighties, under the name Portable Alpha.

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A little bit of a different implementation.

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I would argue return stacking is a bit more generic.

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Um, but again, this is nothing new.

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This is just us trying to take an idea that's been around for a very

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long time in how institutions have allocated capital and make it accessible

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for more constrained allocators So what does this look like when you

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think about a, a return stack stream?

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So what I've done here is I've taken that black line, which is, uh, US equities,

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again, the S&P 500, the green line, which is the managed futures category, the

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SOC Gen Trend Index, and I've added them together, created that return stacked

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approach in the gray mountain chart.

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And I wanna highlight two really important periods I end up highlighting three, quite

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frankly, but two really important periods.

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The first is from two thousand to two thousand and ten.

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This is your lost decade for stocks, right?

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That black line goes absolutely nowhere cumulatively, and you had quite a

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rollercoaster ride along the way.

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The green line over that period was up over a hundred percent.

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Very independent performance from equities from a point-to-point perspective.

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And as we saw before, during that two thousand drawdown, during that

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two thousand and eight drawdown, was quite resilient and would have

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helped offset some of those losses.

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And so what we can see with the gray line, right, which is the return stacked

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approach, basically taking the returns of the green line and stacking them on the

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black line, in the actual implementation.

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You don't end up having the perfect hero trade, right?

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You don't capture the full green, but you also don't capture, you

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know, sort of the zero trade, which was, which was the full black line.

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You end up somewhere in the middle, which isn't a, a bad place to be.

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A little bit more resilient than equities, but very importantly, by two thousand

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and ten, making new highs, right?

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Getting out of those drawdowns much faster 'cause they were shallower, still

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getting the compounding benefits of both these asset classes working together.

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I want to contrast that to the two thousand and tens.

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Just like the two thousands was a lost decade for stocks,

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the two thousand and tens was a lost decade for managed futures.

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If you look at two thousand and ten to call it twenty twenty, managed

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futures basically went sideways, right?

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And if you had asked a client post-two thousand and eight to say, "Hey, let's

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add managed futures to our portfolio.

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Look how great a diversifier it was over the last decade," you probably would

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have been fired as an allocator or an advisor because there's no way they could

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watch equities go up two hundred, three hundred, four hundred percent while this

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diversifier just sat there going nowhere and sort of noisily going nowhere, right?

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What the return stacked approach offered over that period was not meaningful

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excess returns over equities, but participation with equities, right?

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You didn't, again, have this either/or choice.

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While the green line went sideways, you were still able to capture

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the vast majority of the thrust of that black line's growth, right?

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Because you're keeping the growth engine i-in the portfolio and stacking the

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diversifier on top, which hopefully makes it so that you can stick with

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that diversifier so that it is there for a period like twenty twenty-two

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when it was so incredibly useful when stocks and bonds both suffered

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during an inflationary impulse.

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And so when you put it all together, right, what do you get?

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Well, let's look at these periods again.

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In, in those bear markets where managed futures historically did so well, if

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you take the return stacked approach, again, you're not getting the full

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managed futures return there, because you're, you're combining it with

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the equities, but you're hopefully getting a much, much, much better,

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more resilient, lower drawdown outcome.

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And then during those bull markets, right, we're not suddenly manifesting

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significant excess returns from, you know, those already anemic returns that the

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managed futures offered over the 2010s.

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But the ability to keep up with equities 'cause we're keeping that

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growth engine, and so what it does then is hopefully compounds over the full

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period at a much higher rate, right?

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So that is the core idea.

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That's what we're trying to deliver with RSST, give you the ability to keep that

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core growth engine in equities while stacking this wonderful diversifier on top

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So can we deliver on this idea, right?

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And I think there's four key things here that we're gonna get into.

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First question is, can we give you the S&P 500 returns by design?

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Is that something we can structurally actually deliver?

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Two, we've been talking about the managed futures category as

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being an attractive return stream.

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Can we actually deliver that managed futures category return stream?

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Three, okay, if we can do those things independently, can we

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actually stack them together?

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That's a really important question.

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And then four, have we delivered on the behavioral advantage, right?

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So I'm gonna talk about one of these, and then I'm gonna kick it

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over to Adam to go into some of the technical nuance of going into how

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we've done over the last three years.

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But I'll, I'll start with, can we give you the S&P 500 returns?

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And this really just begins with, how are we designing this portfolio structurally?

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You know, when you buy RSST, it's like buying any other ETF, but I

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think it's important to understand what's happening under the hood.

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And really, the best way to think about this actually is think

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about it like as, as if you were buying a managed futures ETF.

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If you were to buy a managed futures ETF, every hundred dollars you give

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that fund, they're gonna put a hundred dollars into T-bills, and they're

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gonna use some of that, call it ten, fifteen, twenty dollars, as collateral

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to run their future strategy, right?

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That future strategy doesn't need all the hundred dollars as actual margin

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and collateral to go long oil and short gold and whatever the trades are of,

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of the day or the month or the year.

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It only needs a part of it.

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And so what we do is we say, "Well, how much of that T-bills that are

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just sorta lying around can we repurpose to buy S&P 500 exposure?"

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And so we take seventy-five dollars of every hundred dollars invested and put

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it in a very low-cost, tax-efficient S&P 500 ETF We keep $25 in T-bills.

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We do this because we need some in T-bills as actual collateral for our

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futures trading, but we also wanna make sure we have a nice liquidity buffer to

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make sure that this structure doesn't come under any undue stress in periods

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where both managed futures and S&P exposure goes down at the same time.

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And then what we do is we use some of that margin to buy the remaining $25

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of S&P futures exposure that we need.

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And so when we take the $75 of S&P 500 plus the $25 of S&P futures,

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fully cash collateralized by the $25 of T-bills, we create $100 of S&P

Corey Hoffstein:

500 exposure for every $100 invested.

Corey Hoffstein:

And we think that this is a structure that is incredibly resilient, is about

Corey Hoffstein:

as low cost as we can deliver in terms of reducing any sort of financing

Corey Hoffstein:

costs that, uh, might be incurred in, in delivering this two-for-one type

Corey Hoffstein:

exposure, and is going to track very, very closely to that underlying beta

Corey Hoffstein:

of, of trying to have a, or beta goal of having a beta of one to the S&P 500.

Corey Hoffstein:

So we think that-

Adam Butler:

It's worth mentioning probably, Corey, that this is not a novel

Adam Butler:

way to achieve exposure to the S&P 500, that there's lots of other products out

Adam Butler:

there, ETFs, et cetera, that use this exact same structure and have exactly

Adam Butler:

the same very low tracking error, you know, very reliable performance, adjacent

Adam Butler:

to the, the target benchmark, right?

Corey Hoffstein:

Yep.

Corey Hoffstein:

I think that's absolutely right.

Corey Hoffstein:

This is not, this is not novel ground.

Corey Hoffstein:

This is well-trodden ground, and, uh, we're not doing anything

Corey Hoffstein:

particularly novel here or trying to do anything novel or unusual.

Corey Hoffstein:

This is, this is, again, what we think is very, very safe and s- and structurally

Corey Hoffstein:

resilient, uh, while again making sure that we can deliver that, that goal of

Corey Hoffstein:

giving you a beta of one to the S&P 500.

Corey Hoffstein:

Okay, Adam, I'm gonna kick it over to you to talk about

Corey Hoffstein:

achieving the category returns.

Adam Butler:

Yeah.

Adam Butler:

So when you learn about managed futures and, and trend following and you discover

Adam Butler:

the diversification properties and realize that it can be a strong complement to,

Adam Butler:

a 60/40 or, you know, even equity-heavy traditional portfolio allocation, then

Adam Butler:

an allocator's left with a choice.

Adam Butler:

How are they going to get exposure to, this trend following

Adam Butler:

concept, this diversifier?

Adam Butler:

And for a long time, you had to make a decision about which manager

Adam Butler:

and their particular style of trend following you were gonna choose.

Adam Butler:

Maybe, uh, if you had a large enough portfolio, you would choose

Adam Butler:

two or maybe three managers.

Adam Butler:

The challenge is, of course, you've got this line item risk.

Adam Butler:

You don't know because the, persistence of performance between different managed

Adam Butler:

futures funds or managers is very weak.

Adam Butler:

From one year to the next, a manager, a fund that you choose

Adam Butler:

can be very near the top of the category or very near the bottom.

Adam Butler:

Now, obviously as an allocator, you don't mind so much if your allocation

Adam Butler:

is very near the top, right?

Adam Butler:

But what you're, what you're trying to do is avoid being s- you know,

Adam Butler:

successively near the bottom for several years in a row, right?

Adam Butler:

So the way that we wanted to approach this is we wanna minimize the

Adam Butler:

probability of disappointing, right?

Adam Butler:

We wanna maximize our ability to, to provide the diversification properties

Adam Butler:

of the category and minimize the likelihood that we're just gonna

Adam Butler:

miss the general category returns by trying to get cute or specify our own

Adam Butler:

favorite definition of trend following.

Adam Butler:

And so rather than pick our pet favorite definition of trend following, and Corey

Adam Butler:

has his own favorite, I've got my own favorite, we could debate that all day.

Adam Butler:

But we said, "Well, now if you, if you just look at the index and try

Adam Butler:

to replicate it, then that probably maximizes the chances of delivering

Adam Butler:

the diversification benefit with minimum chance of disappointment."

Adam Butler:

And so the SG trend, cells here in this table.

Adam Butler:

You can see how they kind of gyrate within the top third of portfolios

Adam Butler:

or of, of managers every year.

Adam Butler:

They're never the top managers.

Adam Butler:

Sometimes they get close.

Adam Butler:

Other actual funds in the category, they deliver better

Adam Butler:

performance year in, year out.

Adam Butler:

The problem is you can't forecast which fund is going to deliver the

Adam Butler:

best performance each year, right?

Adam Butler:

And so to get the category itself, you just wanna figure out how can we best

Adam Butler:

replicate the underlying mechanisms that drive the returns of the SG trend index?

Adam Butler:

And in fact, that's exactly what we do.

Adam Butler:

We implement and implement a, a replication strategy.

Adam Butler:

So you might wonder how that works, right?

Adam Butler:

So Think about it, you go to a chili festival, all right?

Adam Butler:

There's 10 different crafters of chili.

Adam Butler:

They all think they've got the best chili, recipe.

Adam Butler:

They, they're gonna win the award at the end of the day, right, for the best chili.

Adam Butler:

you go around and you taste them, and some of them have

Adam Butler:

different flavors than others.

Adam Butler:

Maybe one's a little bit more bitter, and maybe another one's got crispy bacon in

Adam Butler:

it, and, uh, some have more meat, some have less meat, some have cubed meat,

Adam Butler:

some have diced meat, et cetera, right?

Adam Butler:

if you kind of mix them all together in one batch, you actually get kind

Adam Butler:

of 9/10 of the benefit of all or any individual, bowl of chili, right?

Adam Butler:

You get the essence of chili itself.

Adam Butler:

Well, it's the same sort of thing with what we're trying to do here, right?

Adam Butler:

The, the top-down approach, there's two different ways we're trying to

Adam Butler:

replicate the managed futures category.

Adam Butler:

All right?

Adam Butler:

The top-down approach is kind of like tasting a chili and you can taste the,

Adam Butler:

the ground meat, you taste, taste the tomatoes, and you can taste the chili

Adam Butler:

peppers and, uh, maybe the bacon, and maybe there's chocolate or whatever.

Adam Butler:

But you taste it, you're trying to f- figure it out what's inside the chili.

Adam Butler:

Well, in the same way, we're observing the historical returns of the managed futures

Adam Butler:

benchmark, and we're trying to find the portfolio that best maps to or tracks

Adam Butler:

those historical returns of the benchmark over, say, the last 20 to 40 days.

Adam Butler:

Okay?

Adam Butler:

Now, there's advantages to this.

Adam Butler:

All right?

Adam Butler:

We don't know exactly what is in the recipe for each of the individual

Adam Butler:

under- underlying managers.

Adam Butler:

Some of them may have a sprinkle of carry strategies or skewness

Adam Butler:

strategies or macroeconomic trend strategies or what have you, right?

Adam Butler:

We don't know exactly what they might layer on top.

Adam Butler:

And so because we're not making any strong assumptions about the underlying

Adam Butler:

mechanics, we're able to just track the returns with an underlying portfolio

Adam Butler:

of assets that changes over time in response to the changes in the return

Adam Butler:

profile, and get relatively close.

Adam Butler:

however, we're looking in the rear view mirror, right?

Adam Butler:

So at times of rapid transition, we may be a little bit behind the managers

Adam Butler:

themselves, their, the mechanics of their strategies may have shifted allocations

Adam Butler:

more dramatically than usual due to some kind of underlying stress event or

Adam Butler:

what have you, and we'll be a little bit delayed on capturing that change, right?

Adam Butler:

The bottom-up approach, well, it knows already that we're trying to make chili.

Adam Butler:

It, we, we know that chili has a certain set of ingredients, right?

Adam Butler:

We know it contains some beef, we know it contains some tomatoes, et cetera.

Adam Butler:

In the same way we know that trend strategies are looking at past performance

Adam Butler:

and trying to align the portfolio where past performance of a market has

Adam Butler:

been h- has been up, we wanna be long.

Adam Butler:

Where past performance has been negative, we wanna be short.

Adam Butler:

And because the trend index has 25 years of history, we have a lot

Adam Butler:

of data to figure out what length of trends and what markets are

Adam Butler:

being traded in that portfolio.

Adam Butler:

So we've got a very strong mechanistic expression of trend, and we know that 70%

Adam Butler:

of the portfolio is delivering a trend mandate because it is specifically and

Adam Butler:

mechanically designed that way, okay?

Adam Butler:

What's wonderful is that the top-down approach and the bottom-up approach,

Adam Butler:

they work equally well over the long term, but they work well and have,

Adam Butler:

have weaker tracking periods at very different times for different reasons.

Adam Butler:

And because of that, the, the error terms in their tracking mostly cancel out.

Adam Butler:

And when you combine them together, you get an even better chili recipe

Adam Butler:

or tracking portfolio than you'd get if you deployed either one alone.

Adam Butler:

And we, we actually see this in, in the historical profile, but we also see

Adam Butler:

it very clearly in live performance.

Adam Butler:

And Corey's, quarterly reports do a really good job each quarter.

Adam Butler:

I just wanna emphasize that if you don't read those, you should.

Adam Butler:

Of illustrating that exact breakdown and how they're highly complementary.

Adam Butler:

So, uh, please check those out I mentioned that when you're an

Adam Butler:

allocator, before there were replication strategies, you need to make a choice.

Adam Butler:

Maybe you wanna choose one trend, favorite trend fund that you're

Adam Butler:

gonna use to get the exposure, right?

Adam Butler:

Well, this mimics having to make that choice, recognizing that it's very hard

Adam Butler:

to decide in advance which fund is going to outperform or underperform each year.

Adam Butler:

So all we do here is just observe the maximum performance of a fund in

Adam Butler:

each month, or cumulative performance of, of each fund in each month, and

Adam Butler:

the minimum cumulative performance of each fund in each month.

Adam Butler:

That's the span of the gray region.

Adam Butler:

And then the green line is our trend replication, and you can see it tracking

Adam Butler:

pretty closely to the underlying benchmark that the SG Trend Index.

Adam Butler:

I should note that these are all excess returns, okay?

Adam Butler:

So they're in excess of the cash collateral yield that you would earn,

Adam Butler:

and we do that on purpose, and that's because when we stack this futures

Adam Butler:

portfolio on top of equities, we don't…

Adam Butler:

It- the equities are the collateral, right?

Adam Butler:

So we don't, we don't get to earn any extra collateral return when

Adam Butler:

we stack it on top of equities.

Adam Butler:

So we just set all of the funds and the SG Trend Index on an equal footing

Adam Butler:

for the purpose of this analysis.

Adam Butler:

All right?

Adam Butler:

The other thing I

Corey Hoffstein:

wanna add- So you see that there's just a really wide range.

Corey Hoffstein:

Go ahead, Corey.

Corey Hoffstein:

Really, really quickly, Adam, just to make sure everyone knows, these, these results

Corey Hoffstein:

are what we call model results, right?

Corey Hoffstein:

These are the results of our trend replication model.

Corey Hoffstein:

They're not perfectly extracted from the ETF.

Corey Hoffstein:

They are very, very, very close, and they do incorporate their net of…

Corey Hoffstein:

As Adam mentioned, they're already excess, but they're net of the same management

Corey Hoffstein:

fee we charge in the ETF, and they are net of estimated trading costs as well.

Corey Hoffstein:

So these are about as close to, implementation realistic as we

Corey Hoffstein:

think we can get at the moment

Adam Butler:

Yes, exactly.

Adam Butler:

Thank you, Corey.

Adam Butler:

Um, so this is the, the dispersion that you might experience if you

Adam Butler:

choose a single manager in order to try to get exposure to the category.

Adam Butler:

Now, some allocators choose, instead of one fund, they allocate to two funds.

Adam Butler:

And so what we've done here is we've taken all two fund portfolios drawn

Adam Butler:

from the, the list of, potential mutual funds that an advisor might choose.

Adam Butler:

And you can see that, of course, when you, when you put two fund

Adam Butler:

portfolios together that the dispersion range narrows quite a bit, right?

Adam Butler:

But it's still fairly large.

Adam Butler:

And even when you go to three fund portfolios, as in the next

Adam Butler:

slide, you still have quite a wide range of dispersion.

Adam Butler:

And our objective with the replication strategy is to continuously stay well

Adam Butler:

within this, this range or this, this, uh, cone of dispersion to, again, minimize

Adam Butler:

the likelihood that we are disappointing in our ability to give the, the returns

Adam Butler:

of the underlying category, right?

Adam Butler:

we'll just go to the ne- You have anything else you wanna add to this, Corey?

Corey Hoffstein:

No, I think that's spot on, right?

Corey Hoffstein:

I think, I think we need to acknowledge that this has been a great period

Corey Hoffstein:

for replication for us, and I think it highlights what we think is the

Corey Hoffstein:

benefit of combining multiple models.

Corey Hoffstein:

If we were to…

Corey Hoffstein:

We don't have it here, but if we were to plot the underlying models

Corey Hoffstein:

that we use, they, they are nowhere near as tightly fit to the category.

Corey Hoffstein:

It's because we combined multiple models that, you know, at different times,

Corey Hoffstein:

uh, zigged and zagged in different ways, we were able to stay quite close.

Corey Hoffstein:

And as Adam mentions, though, like there-- We expect tracking error.

Corey Hoffstein:

This is not ever gonna be a perfect fit.

Corey Hoffstein:

This is trying to figure out and back into and engineer in multiple

Corey Hoffstein:

ways what we think trend followers in the category are doing at large.

Corey Hoffstein:

we think we offer a very valuable alternative to someone who is

Corey Hoffstein:

simply saying, "Well, let me just buy three or two or three managers

Corey Hoffstein:

and equally weight them," right?

Corey Hoffstein:

We think that an engineered replication approach is a very competitive,

Corey Hoffstein:

you know, alternative to that, and that's parti- that's why we do it.

Corey Hoffstein:

Again, we don't-- We want folks who are making a decision based on the

Corey Hoffstein:

category properties to be able to feel confident that they are getting returns

Corey Hoffstein:

that are similar to the category.

Corey Hoffstein:

There's, there's really nothing worse than saying, "I got it right on the category

Corey Hoffstein:

in a year like twenty twenty-two," and having to pick the one manager at negative

Corey Hoffstein:

returns in twenty twenty-two, right?

Corey Hoffstein:

We certainly don't wanna be there, and so we wanna make sure that we

Corey Hoffstein:

are engineering an approach that keeps us close to the category.

Corey Hoffstein:

So the question really becomes, can we stack them together efficiently?

Corey Hoffstein:

And, um, I think hopefully the proof is in the eating of the pudding.

Corey Hoffstein:

You know, again, I would say that we don't want to look at a three-year

Corey Hoffstein:

track record and try to draw too much conclusion from the returns themselves,

Corey Hoffstein:

but I do think we can draw meaningful returns about our tracking error, right?

Corey Hoffstein:

And how the different models worked and when they didn't work, and did they

Corey Hoffstein:

maintain low correlation to each other in how they errored around the category.

Corey Hoffstein:

That, absolutely.

Corey Hoffstein:

And then two, I do think we can look at this and say, well, were

Corey Hoffstein:

we able to efficiently stack S&P beta plus managed futures trend

Corey Hoffstein:

following beta as we replicated it?

Corey Hoffstein:

And so what we have here in the black line is a one hundred, one hundred

Corey Hoffstein:

portfolio, a hundred percent S&P five hundred index plus a hundred percent

Corey Hoffstein:

SOC Gen trend index minus T-bills.

Corey Hoffstein:

Again, we don't get to double count those T-bill returns.

Corey Hoffstein:

And then green is the return of RSST since inception, and its nav return.

Corey Hoffstein:

And I think, you would agree, hopefully, that they are pretty much spot on,

Corey Hoffstein:

and this is exactly what we are hoping to deliver, giving you both

Corey Hoffstein:

the underlying data and the return of the diversifier stacked on top.

Corey Hoffstein:

Now, I think a really important point here with value proposition

Corey Hoffstein:

four that we're trying to bring is, you know, did we deliver on

Corey Hoffstein:

the potential behavioral advantage?

Corey Hoffstein:

And I want to highlight that this was not a great period for trend following.

Corey Hoffstein:

Trend following as a category had one of its worst drawdowns during

Corey Hoffstein:

this period, and the cumulative total return over this period was

Corey Hoffstein:

basically equal to T-bills, right?

Corey Hoffstein:

How do I know that?

Corey Hoffstein:

I'll back up a couple slides, right?

Corey Hoffstein:

If you look at the black line, this is the excess returns.

Corey Hoffstein:

It basically ended flat over the period.

Corey Hoffstein:

This was a lost three years for managed futures.

Corey Hoffstein:

They just went nowhere.

Corey Hoffstein:

You earned effectively T-bills after all the trading costs, after all the

Corey Hoffstein:

noise and friction along the way, after one of the biggest drawdowns

Corey Hoffstein:

managed futures has seen in the last quarter-century, you ended up at T-bills.

Corey Hoffstein:

And this was a period that equities did quite well.

Corey Hoffstein:

Equities were up about seventy-five percent cumulative over the period.

Corey Hoffstein:

And so we think that, again, the value proposition we're trying to deliver is

Corey Hoffstein:

making these alternatives easier to hold in your portfolio over the long run.

Corey Hoffstein:

RSST, through its structure, was able to allow you to keep that equity growth

Corey Hoffstein:

engine during a period equities did quite well, while maintaining exposure to

Corey Hoffstein:

managed futures in a period that managed futures did not do particularly well.

Corey Hoffstein:

They added noise, they added some volatility, their cumulative total

Corey Hoffstein:

return was not all that appealing, and yet This effectively matched

Corey Hoffstein:

over the full three-year period the return of the S&P 500, right?

Corey Hoffstein:

And we think that's an incredibly important value proposition for

Corey Hoffstein:

people who are trying to add diversifiers into their portfolio

Corey Hoffstein:

in a structurally sustainable way

Corey Hoffstein:

I wanna conclude today by saying, right, that RSST as a product, hopefully over the

Corey Hoffstein:

long run, is designed in a way that we're adding two things that will go up, right?

Corey Hoffstein:

And we think it can create a performance advantage versus just buying S&P 500 beta.

Corey Hoffstein:

Uh, I think I'll speak for myself at least, right?

Corey Hoffstein:

I have a, I have a strong bias that trend following over the next five, 10, 15 years

Corey Hoffstein:

will produce a positive excess return.

Corey Hoffstein:

Over any short period, I have no idea, right?

Corey Hoffstein:

I certainly wish, as someone who's allocated heavily to our own

Corey Hoffstein:

funds, that trend following had gone up over the last three years.

Corey Hoffstein:

But I can also look at the returns and say, "Well, even though trend following

Corey Hoffstein:

didn't go up, I didn't have to sacrifice my equity returns to maintain my

Corey Hoffstein:

exposure to trend following," right?

Corey Hoffstein:

And that's really the value proposition that RSST delivers.

Corey Hoffstein:

For every dollar you invest in this ETF, it's gonna seek to deliver a dollar of

Corey Hoffstein:

US large cap equity exposure and a dollar of exposure to a managed future strategy.

Corey Hoffstein:

I think over the last three years, we've demonstrated our

Corey Hoffstein:

ability to deliver upon both.

Corey Hoffstein:

We've been able to deliver the S&P 500 beta, we've able to capture the excess

Corey Hoffstein:

returns of the category, we've been able to stack them together, and I think

Corey Hoffstein:

over a period in which managed futures largely went nowhere, and in fact had

Corey Hoffstein:

a very meaningful drawdown, speak for myself as an allocator, I found it a lot

Corey Hoffstein:

easier to hold this than managed futures as a line item because I continued to

Corey Hoffstein:

participate with long-term equity growth.

Corey Hoffstein:

Now, I hope-- I know we have a whole bunch of questions here.

Corey Hoffstein:

Um, as we sort of get to the end of the presentation, uh, I

Corey Hoffstein:

do wanna say that there are…

Corey Hoffstein:

You can enter some questions in the Q&A.

Corey Hoffstein:

I'll start answering some of these here.

Corey Hoffstein:

But before I do, um, you know, if you have any other questions about return

Corey Hoffstein:

stacking or, uh, RSST in particular, please go visit returnstackedetfs.com.

Corey Hoffstein:

You can find the contact page where you can find your regional representative

Corey Hoffstein:

who, uh, is happy to set up some time to go through the specifics.

Corey Hoffstein:

Or if you need a really deep dive, make sure you can get one

Corey Hoffstein:

of us, uh, as PMs on the phone to go through a deep dive with you.

Corey Hoffstein:

We're always really excited to talk about the concepts of return stacking, what they

Corey Hoffstein:

mean for p-portfolio construction, or do a dive into how any of our products work.

Corey Hoffstein:

So with that, I'm gonna dive into some of the Q&A here, Adam, unless

Corey Hoffstein:

you have anything else you'd like to add before we do that.

Adam Butler:

I don't.

Adam Butler:

I'm, I'm answering a few of the, um, questions in line here as well.

Adam Butler:

thanks to Paul for congratulating us on the, on our success.

Adam Butler:

That was great.

Adam Butler:

and then we had another question about why When you stack $1 of stocks and $1

Adam Butler:

of trend and they're uncorrelated, why the volatility of the portfolio is, uh,

Adam Butler:

not lower than either of them alone.

Adam Butler:

And, um, so I just mentioned that, you know, when you, when you put

Adam Butler:

two uncorrelated assets together, you get a reduction in volatility.

Adam Butler:

That's that sort of classic free lunch.

Adam Butler:

So for example, if you've got, uh, a dollar in asset A and a dollar in asset

Adam Butler:

B, they're uncorrelated, and each of them has a ten percent annualized volatility.

Adam Butler:

The expected annualized volatility of that one dollar plus one dollar portfolio is

Adam Butler:

actually about fourteen percent, right?

Adam Butler:

Now, it's not twenty percent because they're not totally correlated.

Adam Butler:

If they were, if they were a hundred percent correlated, then

Adam Butler:

the combination would have a, a volatility of, of twenty percent.

Adam Butler:

Instead, it's fourteen percent.

Adam Butler:

That's the benefit of diversification.

Adam Butler:

But you would need the correlation to be substantially negative

Adam Butler:

in order to, lower the overall, volatility of the total portfolio.

Corey Hoffstein:

Yeah.

Corey Hoffstein:

Uh, and I think there's an important point here, right?

Corey Hoffstein:

When you have, when you have a hundred dollars and you put fifty in asset A and

Corey Hoffstein:

fifty in asset B and they're uncorrelated, what you would expect is, is the, the

Corey Hoffstein:

volatility of the portfolio should be lower than the average of both of them.

Corey Hoffstein:

When we're doing a, a, a hundred dollars of one plus a hundred

Corey Hoffstein:

dollars of another, right?

Corey Hoffstein:

You're adding these two return streams on top of each other.

Corey Hoffstein:

And so by being uncorrelated, you're not gonna get the two volatilities added.

Corey Hoffstein:

You're gonna get some of the benefits of diversification, but you're still adding

Corey Hoffstein:

two return streams on top of each other.

Corey Hoffstein:

So the cumulative volatility is still going to be higher than either of

Corey Hoffstein:

them individually, unless they're extremely negatively correlated, which

Corey Hoffstein:

has its own other issues around how it affects your expected returns.

Corey Hoffstein:

But when we look at historically, you know, what has the vol looked like

Corey Hoffstein:

when you take something like managed futures and add it on top of US stocks?

Corey Hoffstein:

Well, managed stocks have, say, been a fifteen vol, managed

Corey Hoffstein:

futures have been a thirteen vol.

Corey Hoffstein:

You don't get a return stream with a vol of twenty-eight.

Corey Hoffstein:

You don't add them together.

Corey Hoffstein:

You historically would have gotten a return stream with a vol around nineteen.

Corey Hoffstein:

Still higher than individual stocks.

Corey Hoffstein:

It's probably a vol that's in a similar profile to, like,

Corey Hoffstein:

small cap growth, quite frankly.

Corey Hoffstein:

Um, and the tracking error is probably about the same as, as

Corey Hoffstein:

small cap growth, quite frankly.

Corey Hoffstein:

but what we've seen is, you know, that vol is not as high as you might expect

Corey Hoffstein:

of adding those two things together, particularly because managed futures

Corey Hoffstein:

did so well during those bear markets where equity vol tends to spike.

Corey Hoffstein:

So we don't expect it to be lower vol than equities by any means.

Corey Hoffstein:

but the diversification benefits show up in the fact that you're

Corey Hoffstein:

not adding the vols together.

Adam Butler:

Corey, why did we, why do we own SPYM instead of, say, BKLC?

Corey Hoffstein:

Yeah.

Corey Hoffstein:

So BKLC is an ETF for those who are unfamiliar that is

Corey Hoffstein:

true zero expense ratio.

Corey Hoffstein:

One of the things that comes up when you're managing money at scale is, uh,

Corey Hoffstein:

there's obviously two forms of cost.

Corey Hoffstein:

There's the known expense ratio, and then there's transaction costs, right?

Corey Hoffstein:

And to maintain this dollar for dollar exposure, we have

Corey Hoffstein:

to do a lot of rebalancing.

Corey Hoffstein:

And so we have to look at things like what is our expected transaction costs

Corey Hoffstein:

within an ETF, as well as what's the explicit expense ratio we're gonna pay.

Corey Hoffstein:

and so for us, some of the larger products that are more liquid, we

Corey Hoffstein:

believe model at having a lower total cost than some of the smaller products

Corey Hoffstein:

that might have a lower, uh, explicit expense ratio for, for the size of the

Corey Hoffstein:

fund, uh, as it stands today and the type of, uh, rebalancing we need to do

Adam Butler:

Art has a great question about portable alpha and raised the quite

Adam Butler:

valid point that, portable alpha was quite a common approach among institutions

Adam Butler:

coming into the, the sort of late naughts and coming into 2008, and got a little

Adam Butler:

bit of a bad reputation, in some circles in 2008, uh, because some institutions

Adam Butler:

had, negative outcomes from that.

Adam Butler:

And the reason, there's a f- there's actually a number of

Adam Butler:

reasons, and this could be a several-hour webinar on its own.

Adam Butler:

But a big reason, is that the portable alphas that the institutions were

Adam Butler:

stacking were highly illiquid, so they were, they were often, It's, securitized

Adam Butler:

portfolios, private credit portfolios, private equity, private real estate,

Adam Butler:

infrastructure investments, et cetera, that when the equity investments

Adam Butler:

were, declining, they could not source liquidity from the illiquid investments.

Adam Butler:

And, um, so th- there was, there were very few degrees of freedom for the

Adam Butler:

institution to get the rebalancing benefit that you expect from diversification.

Adam Butler:

A corollary to that is that, you know, infrastructure, private equity, different

Adam Butler:

tranches, more ex- more aggressive tranches of credit portfolios, they all

Adam Butler:

tend to be actually highly correlated with equities during crisis periods.

Adam Butler:

So, you know, when we, when we sat down to figure out what we wanted to stack

Adam Butler:

in our return stack lineup, we strictly wanted to avoid stacking anything that

Adam Butler:

did not, wasn't the most liquid type of securities that we could, that we

Adam Butler:

could use to, to deploy to a strategy.

Adam Butler:

And we also strictly wanted to ensure that what we were stacking on top was

Adam Butler:

structurally highly uncorrelated to the core, equity or, or bond component

Adam Butler:

that we were stacking on top of, right?

Adam Butler:

And also, you know, using futures has the added benefit that you typically

Adam Butler:

do have this extra cash buffer that you can rely on if overnight shocks

Adam Butler:

are a little larger than expected.

Adam Butler:

So, um, you know, there's, there's just…

Adam Butler:

Y- you can work through the models, and it's very difficult to actually encounter

Adam Butler:

a scenario where the experience of an investor in a s- in a return stack

Adam Butler:

product would be anywhere i- in the same category as, you know, the, the

Adam Butler:

sort of portable alpha experience for some institutions in 2008, for example.

Adam Butler:

I think

Corey Hoffstein:

structurally, this picture is really

Corey Hoffstein:

important because when you…

Corey Hoffstein:

For those who are students of history and look at how those 2008 portfolios were

Corey Hoffstein:

implemented, you also see that the picture was in completely backwards, right?

Corey Hoffstein:

So if you gave me $100, what I was doing as an institution in 2008 was taking,

Corey Hoffstein:

say, $25 and using it as collateral for $100 of S&P 500, say, futures, or

Corey Hoffstein:

most of them were getting it via swaps.

Corey Hoffstein:

But, and S- $100 of S&P 500 futures, and then I was taking the other 75 and

Corey Hoffstein:

putting it into a hedge fund Right?

Corey Hoffstein:

Why is that a problem?

Corey Hoffstein:

Well, those hedge funds, beyond their return issues, right,

Corey Hoffstein:

had redemption schedules.

Corey Hoffstein:

Some of them had gates that went up in two thousand and eight, so you

Corey Hoffstein:

couldn't redeem even if you wanted to.

Corey Hoffstein:

And so when you had twenty-five dollars backing a hundred dollars of S&P five--

Corey Hoffstein:

S&P five hundred exposure, as the S&P went down, right, so did your collateral.

Corey Hoffstein:

Once the S&P five hundred went down twenty-five percent, you had

Corey Hoffstein:

blown through all your collateral.

Corey Hoffstein:

The only way you could get S&P five hundred exposure back was by redeeming

Corey Hoffstein:

some money from the hedge fund, which wasn't allowing you to redeem, right?

Corey Hoffstein:

And so what happened is a lot of these folks got blown out of their

Corey Hoffstein:

levered equity position 'cause it was under-collateralized, and they couldn't

Corey Hoffstein:

redeem from this illiquid structure.

Corey Hoffstein:

And so the whole structure, in my opinion, if you're not careful, is

Corey Hoffstein:

backwards when you do it that way.

Corey Hoffstein:

We flip it, right?

Corey Hoffstein:

We put all this cash into highly liquid S&P five hundred exposure

Corey Hoffstein:

that we can sell it like that instantaneously if we needed some cash.

Corey Hoffstein:

And then we back our managed futures program, which historically has

Corey Hoffstein:

had a max drawdown, I believe, of around sixteen to twenty percent.

Corey Hoffstein:

I, I know the SOX Gen CTA index is about sixteen.

Corey Hoffstein:

I think the trend index is about twenty.

Corey Hoffstein:

So call it twenty-five, even if that's certainly not happening

Corey Hoffstein:

in a single day, right?

Corey Hoffstein:

And so we just have a lot more flexibility via the liquidity and the way we've chosen

Corey Hoffstein:

to structure it, uh, to maintain the structure versus the what-- the structure

Corey Hoffstein:

that a lot of funds got into trouble with in two thousand and-- This turnkey

Corey Hoffstein:

approach, as it's now called, where it's integrated, the beta and the, and the

Corey Hoffstein:

alpha stack, provides a lot more li-- a lot more flexibility and resilience.

Adam Butler:

Someone asked about the expected vol versus realized vol of the…

Adam Butler:

I, well, we can address both the futures overlay and the stack.

Corey Hoffstein:

Yeah.

Adam Butler:

And I mean, I mean, obviously for, for the most part, the

Adam Butler:

vol of the S&P has been, lower than its average over the live, the live period.

Adam Butler:

We haven't really gone through a sustained bear market like a 2008

Adam Butler:

or 2000 to 2003 experience, right?

Adam Butler:

the vol of the managed futures overlay has tracked the vol of the trend

Adam Butler:

index very closely and, um, you know, we would expect that to happen by

Adam Butler:

construction, and in fact, we do observe empirically that it does track well.

Corey Hoffstein:

Yeah, I mean, to the point of, um, have we, you know, expected

Corey Hoffstein:

versus realized, you know, again, the long run averages are the long run averages.

Corey Hoffstein:

We don't expect the S&P to annualize a fifteen percent vol every year.

Corey Hoffstein:

It's gonna go through its throws and same with trend, though

Corey Hoffstein:

that one is more vol targeted.

Corey Hoffstein:

You know, again, I think the, the point is we hit the mark in terms of

Corey Hoffstein:

the returns, and so they're somewhat definitionally, we, we hit the, the

Corey Hoffstein:

vol targets in aggregate as well.

Corey Hoffstein:

Was it, you know, if you rewound to September 2023, would I say that a hundred

Corey Hoffstein:

hundred was h- gonna be higher or lower than its long-term average annualized?

Corey Hoffstein:

I have no idea.

Corey Hoffstein:

You know, but what I do generally know is when you add two uncorrelated things,

Corey Hoffstein:

you know, that should be more stable than just the one thing on its own.

Corey Hoffstein:

Okay, so we have some questions here.

Corey Hoffstein:

I'm gonna combine two questions, um, from Jonathan and Varun who,

Corey Hoffstein:

who sort of asked-- are asking us about strategy changes.

Corey Hoffstein:

So they both mentioned we did recently add agricultural futures to the product.

Corey Hoffstein:

When we first launched this fund, there was twenty-seven

Corey Hoffstein:

futures markets we traded.

Corey Hoffstein:

We excluded agricultural futures.

Corey Hoffstein:

We took over trading within this product earlier this year from a partner who

Corey Hoffstein:

had been executing for us, and in taking over trading, we felt confident

Corey Hoffstein:

and comfortable that we'd be able to add some agricultural futures like

Corey Hoffstein:

soybeans and sugar and, and wheat.

Corey Hoffstein:

Uh, we trade six markets there.

Corey Hoffstein:

In, in running our replication process, what we find is those just aren't,

Corey Hoffstein:

uh, m- as meaningful in explaining returns as other markets like gold

Corey Hoffstein:

or oil or S&P or like the ten-year.

Corey Hoffstein:

And so their average risk weight is about half what the other categories get.

Corey Hoffstein:

So they're not as meaningful in adding them, but they're,

Corey Hoffstein:

they're still explanatory.

Corey Hoffstein:

Like right now, if we look at our risk exposure, we actually have

Corey Hoffstein:

a decent amount of risk exposure in the agricultural market.

Corey Hoffstein:

So it's not that they're not important, they certainly are important, but

Corey Hoffstein:

they weren't critical in replicating over the last couple of years.

Corey Hoffstein:

We, we certainly replicated quite well without them, but we think again, they

Corey Hoffstein:

internally help improve the internal diversification of the, the portfolio.

Corey Hoffstein:

So we made that change, and we'll continue to look at whether we think

Corey Hoffstein:

there are markets that, that can help us.

Corey Hoffstein:

They're very marginal at this point as to whether they help improve replication.

Corey Hoffstein:

It's much more of a theoretical argument than a numerical argument, quite frankly.

Corey Hoffstein:

The other thing we've done, and, and Adam has looked at methodology extensions

Corey Hoffstein:

extensively, is, you know, what would it take for us to change either the amount

Corey Hoffstein:

of top-down versus bottom-up that we employ or changes to these approaches?

Corey Hoffstein:

Adam has-- you know, I don't wanna speak on your behalf, Adam, but Adam has spent

Corey Hoffstein:

a lot of time exploring whether there are some changes we can make, uh, or other

Corey Hoffstein:

approaches we can introduce I think that there are some things that we are in very

Corey Hoffstein:

active discussion about that might be, you know, potential fit improvements in

Corey Hoffstein:

all the sort of, simulations that we run.

Corey Hoffstein:

It's by no means something we're, we're looking to implement in

Corey Hoffstein:

the short run, but there's always research going on as to what we could

Corey Hoffstein:

potentially implement, going forward.

Corey Hoffstein:

So, you know, Adam, I don't know if there's anything you wanna add there.

Corey Hoffstein:

I don't wanna dive too much into the details 'cause again, these are

Corey Hoffstein:

very active internal discussions.

Corey Hoffstein:

We'll- we'd certainly disclose any changes we make.

Corey Hoffstein:

We have not made any changes.

Corey Hoffstein:

We're, we're constantly doing research, but just quite frankly, the nature of

Corey Hoffstein:

the business is, um, a lot more ends up in the research graveyard than

Corey Hoffstein:

ends up, you know, in a portfolio.

Adam Butler:

As it should, yeah.

Adam Butler:

And if you have any more questions or wanna, wanna dive more deeply into that,

Adam Butler:

feel free to reach out to me directly, by email or to connect with the sales guys

Adam Butler:

and, uh, and they'll set something up.

Adam Butler:

Uh, we've got about two minutes left.

Adam Butler:

Art had a good question about where to fund the allocation from.

Adam Butler:

Um- And he's felt the pull to, to, um, to, to sell down bonds and allocate to

Adam Butler:

RSST, and then realizing that now he's got more equity beta than he expected.

Adam Butler:

Any thoughts on that?

Corey Hoffstein:

Yeah.

Corey Hoffstein:

I mean, look, I know a lot of people are quite bearish on bonds.

Corey Hoffstein:

I think it's frankly one of the most interesting time for bonds going forward,

Corey Hoffstein:

particularly if you're looking to stack on bonds or if you're just looking

Corey Hoffstein:

to stack on your portfolio, right?

Corey Hoffstein:

You don't need to stack explicitly on bonds if, if you can…

Corey Hoffstein:

You know, in the US, the 10-year's hovering around 5%.

Corey Hoffstein:

If you can lock in a 5% nominal return and stack some trend following on top to

Corey Hoffstein:

try to hedge out the inflation risk, I, I think that's a very attractive value

Corey Hoffstein:

proposition for people who are looking at capital that they need for the next,

Corey Hoffstein:

call it, seven, eight, nine years.

Corey Hoffstein:

replacing bonds with RSST is almost certainly going to give

Corey Hoffstein:

clients indigestion, right?

Corey Hoffstein:

Clients are looking at those bonds typically as a low vol, steady,

Corey Hoffstein:

you know, probably not super happy with the total return lately,

Corey Hoffstein:

but generally fairly safe money.

Corey Hoffstein:

RSST is just going to be far, far, far more volatile.

Corey Hoffstein:

And so, you know, if someone has a very long horizon, you might be able

Corey Hoffstein:

to argue that the managed futures is a compelling diversifier in a way

Corey Hoffstein:

that perhaps bonds isn't providing the diversification you expected anymore.

Corey Hoffstein:

But I, I think outright selling bonds for something like RSST will, will likely,

Corey Hoffstein:

you know, cause more problems behaviorally than, than you would get the benefits.

Corey Hoffstein:

I should mention we- I

Adam Butler:

mean-

Corey Hoffstein:

We have another fund, RSBT, bonds plus managed futures,

Corey Hoffstein:

about 150 million-plus in that fund.

Corey Hoffstein:

Same concept where it's core bonds overlaid with the same managed

Corey Hoffstein:

futures replication program.

Corey Hoffstein:

That is something that if you, you know, say, run a 60/40, if you replace

Corey Hoffstein:

10% of your bonds with something like RSBT, you know, again, you can hopefully

Corey Hoffstein:

lock in the nominal return of those core bonds today, and that 10% overlay

Corey Hoffstein:

to managed futures is about the right dose that you would need historically

Corey Hoffstein:

to help hedge against inflation risk

Adam Butler:

Yeah, all said.

Adam Butler:

it's two o'clock, so, there's one remaining question.

Adam Butler:

Lev, we'll- we're, we're probably gonna drop here.

Adam Butler:

Lev asked about the historical dispersion.

Adam Butler:

Nothing has been out of, the range of what we would have

Adam Butler:

anticipated at any, timeframe.

Adam Butler:

It's well within the expected tracking error.

Adam Butler:

but if you have any specific questions, feel free to reach out, and we'll

Adam Butler:

get back to you with details.

Corey Hoffstein:

Yeah.

Corey Hoffstein:

Thank you so much everyone for tuning in.

Corey Hoffstein:

We really appreciate the time, whether you came in live or coming in later.

Corey Hoffstein:

Again, if you have any further questions, please do not hesitate

Corey Hoffstein:

to reach out, returnstackedetfs.com,

Corey Hoffstein:

or you can email us directly at info@returnstacked.com.

Corey Hoffstein:

Thank you again.

Adam Butler:

Thank you.

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About the Podcast

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About your hosts

Profile picture for Rodrigo Gordillo

Rodrigo Gordillo

Rodrigo Gordillo is the President and Portfolio Manager at ReSolve Asset Management Global, an alternative asset management firm specializing in globally diversified systematic investment strategies. He co-founded ReSolve Asset Management Inc. in 2015 and expanded to ReSolve Asset Management Global in 2021. Starting his career at John Hancock focusing on pensions, Gordillo transitioned to the ultra-high-net-worth sector with i3 Advisors Inc. He held significant roles at Macquarie Private Wealth, Dundee Goodman Private Wealth, and Richardson GMP, enhancing his expertise in investment decisions and client wealth management.
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Corey Hoffstein

Corey Hoffstein is the CEO and Chief Investment Officer of Newfound Research, a quantitative investment and research firm based in the Greater Tampa Bay Area, United States. Hoffstein co-founded Newfound Research with the aim of assisting investors in proactively managing investment risks through diversification, specifically by leveraging Return Stacking™ strategies. The firm specializes in managing alternative strategies and capital-efficient solutions, enabling the implementation of these innovative investment concepts. In addition to his role at Newfound Research, Hoffstein also serves as a Portfolio Manager at Return Stacked® Portfolio Solutions.