Stacking Strategic Gold & Bitcoin on Top of Stocks with RSSX ETF

Narrator: 00:01:14

Stacking Strategic Gold and Bitcoin with RSSX, with Mike

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Philbrick, CEO Resolve Asset Management

co-founders of Return stacking ETFs.

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What's the strategic diversification

case for Gold and Bitcoin?

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Mike Philbrick: Both gold and Bitcoin are

these supply constrained assets, you know,

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so they often present hedges against,

as you mentioned, inflation currency,

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debasement, and the monetization of debt.

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Um, in a fiat currency world,

we can print unlimited.

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Currency, if you will.

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But we can't print gold

and we can't print Bitcoin.

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You know, if we look at, uh, gold has

been a sent, has a centuries old track

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record of preserving purchasing power,

especially in inflationary periods

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or geopolitical uncertain periods.

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And then Bitcoin tends to

be the new kid on the block.

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You know, with this, a fixed

supply of 21 million coins, it's

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increasingly being viewed as that

gold, that digital gold analog.

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And you know, a bitwise

has an interesting stat.

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95% of Bitcoin has been mined, yet, it's

not in 95% of portfolios at this point.

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So these two asset classes are becoming,

they're going from being fringe to

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being foundational, given the regime

ship that we've seen along these,

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uh, geopolitical and, and central

bank lines that we've talked about.

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Narrator: How does return stacking

or portable alpha solve for

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typical diversification dilemmas?

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Mike Philbrick: Brian Porter is, I think

he coined the phrase, diversification

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is always having to say you're sorry.

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If you're diversified, you're gonna

have something in the portfolio

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that's not performing well.

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And diversifiers like golden Bitcoin

can lag for long periods of time, or

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they could have kind of large drawdowns

and those key behavioral challenges.

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Uh.

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Or, or make an allocation and

sticking with that allocation.

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Um, very difficult.

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And what typically happens is if you

have the allocation and it goes down,

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you end up selling it in the drawdown,

thereby locking in those risks and, and

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giving up the potential for returns.

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And that's, you know, a lot of times

people don't sell it at the highs or sell

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it when it's treating 'em really well.

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They panic at the lows.

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They feel the FOMO when they

need to get in, and then they

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feel the panic in the drawdowns.

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And so return stacking is a form of

portable alpha, and this is what you

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refer to how the institutions have

been doing it for decades, where they

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add non-correlated diversified assets

to portfolios, but they stack them

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on top of those exposures that are.

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That, that generally the clients and the

pension funds know love and trust, and

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that's your equity and bond exposures.

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So return stacking seeks to solve this

dilemma by adding this, the exposure to

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something like Golden Bitcoin without

forcing a sale of those familiar assets.

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Right?

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So you keep the things you know,

love and trust and you stack on top

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of it these diversifying assets.

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Narrator: How can investors position size

their gold and Bitcoin exposure correctly?

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Mike Philbrick: Another key,

uh, issue of course is getting

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that position sizing correct.

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So you don't want to have too much,

and you don't want to have too little.

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It's sort of like the

bears and the porridge.

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You want it just right.

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And so, you know, Bitwise has a, an

interesting paper that that goes through.

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Um, how an allocation to Bitcoin

of 1, 2, 3, 4, and 5% actually

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Im impacts the portfolio returns.

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In fact, turns out that until you get to

5% Bitcoin, you actually reduce the risk

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of the portfolio and increase the returns.

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When you get to about 5% in Bitcoin,

you start to edge up the uh, risk a

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little bit, but you do get an awful lot

of return in that, and that's that one.

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Key area that, that, while we talked

about all of those, um, you know, the

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inflation hedges, the crisis alpha,

that gold provides, that sovereign hedge

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long-term diversification, we see a lot

of those same correlate, uh, uh, same,

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um, characteristics in Bitcoin, that nice

low correlation to traditional assets.

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But what Bitcoin provides, it's

a bit unique, is that asymmetric

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upside, that convex return potential.

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In a world that's starved for these

types of assets that provide, uh,

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this monetary debasement protection,

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Narrator: How does the

R-S-S-X-E-T-F provide the golden

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Bitcoin overlay for portfolios?

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Mike Philbrick: in particular,

what happens when you allocate to,

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um, Bitcoin and gold and the, the

overall, uh, portfolio improves.

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Now gold is not more volatile than stocks.

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It is more volatile than bonds.

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When you look at this Bitcoin asset

that's had a volatility of 80.

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Now, to put, put that in context.

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You know, stocks have a volatility.

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That's, you know, the, the, the

amount that they're gonna, uh,

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fluctuate daily for no particular

reason of about 15 gold from 10 to 12.

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Uh, Bitcoin, uh, was over a hundred,

but it is, it's slowly dropping to 80

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In this past year it's been around 60.

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And as this asset becomes

institutionalized and both, um.

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Those ETF markets and futures markets

start to participate more in that,

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we would think that the volatility

of Bitcoin will continue to decline.

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And this comes, uh, this comes

really relevant when you're thinking

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about, well, how do I implement this?

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How do I take that, you know,

the US equity in this case.

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Because I don't want to give that

up, that exposure up, 'cause I don't

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wanna have that tracking error.

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And then how should I stack upon

that holding this exposure to

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gold and Bitcoin and that, that's

what RSSX, um, seeks to do.

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The return stack, uh, stocks,

Bitcoin and gold, ETF.

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What we do is we take a dollar

of the exposure and we make sure

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that that gives you 100% exposure

to the US equity markets, nice

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low cost s and p 500 exposure.

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And then on top of that, we

stack both gold and Bitcoin.

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And we, again, use futures

and ETFs to stack that on top.

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And what we do there is we don't

want the maniacs running the asylum.

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So if we had equal dollars of Bitcoin

and gold, well Bitcoin would be

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fluctuating a lot more than gold.

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So what we do is we equal risk

weight, those two assets, gold and

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Bitcoin, what that turns out to be

is about 80% gold and 20% Bitcoin.

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Now in the portfolio, you have your US

stocks as your base Stacked upon that is

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your exposure to both gold and Bitcoin,

where it's 80% gold, 20% Bitcoin.

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So those two assets are contributing

the same amount of volatility to

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that stack on top of your US stocks.

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That's gonna give you the

ability to stick with it.

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It gives you this diversifying, uh, impact

between actually gold and Bitcoin because

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they are a little bit non-correlated.

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And again, it doesn't let

the maniacs run the asylum.

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It doesn't like let Bitcoin

take over the whole, uh, ETF.

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So you're getting that exposure to this

asset that has these asymmetric return

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potentials, but not too much so that

you can stick with it and have it in the

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portfolio when it's adding a lot of value.

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Narrator: What does a 10% allocation

to RSSX look like when implemented?

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Mike Philbrick: So from an implementation

perspective, let's say you wanted to

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have a 2% position in Bitcoin and an 8%

position in gold, but you didn't want to

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sell your stocks in order to achieve that.

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So you'd sell 10% of your

exposure to the US equity market.

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And then you would buy in its place, a

10% position in RSSX, that would give

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you back that 10% in, in, in s and p

stocks in those 500 big stocks stacked

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upon that, you'd have eight, 8% exposure

to gold and 2% exposure to bitcoin.

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Which to me is a very responsible

way to add both gold and Bitcoin

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to your portfolio and also

reduce that line item risk.

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So you know, you're not gonna see

this crazy bitcoin going up and down

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or have their clients potentially

asking about, what's this line item?

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What's that line item?

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Um, rather their matched together.

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And that way we can also take advantage

of the rebalancing that, uh, can occur

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when one asset is going up and the other

asset's going down, and you just rebalance

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those back to the target weights and

that balance in the equal wrist sense.

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Is also something that fluctuates.

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It moves as the volatilities

of gold and Bitcoin move.

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So it, we look back over 500

days and we say, well, what's

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been the volatility of Bitcoin?

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What's been the volatility

of gold the last 500 days?

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It turns out it's about

four times more volatile.

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So you've got the $2 in

Bitcoin or 20% in Bitcoin.

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The 80% in gold or keep dollars in gold.

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And as that changes over time, and we

would expect it's likely that Bitcoin

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contracts in its volatility, then your

portfolio will reflect that change

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in volatility over the medium term.

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Narrator: How often do you rebalance?

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Mike Philbrick: It's rebalanced regularly,

but we do a band of rebalance because vol,

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uh, the assets can be a bit vol volatile.

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What we say is there's about a 10% range

around that 80 20 mix where we let you

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know fun assets growing a little bit

and gets, you know, sort of to 22%.

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Bitcoin, then we'll cut that back and

you get a little bit of drift, right?

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When one asset's doing well,

you let it drift a little bit.

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It also reduces the trading

costs and things like that.

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So it makes for a, we think,

a superior implementation.

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You don't have to do that every day.

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You just need to sort of move that when

you had a deviation from your original

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portfolio that makes sense to do so

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Narrator: How could this strategy

make traditional portfolios

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more resilient over time?

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Mike Philbrick: in an

inflationary environment.

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All of these assets have.

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Potential positive implications

for the portfolio, right?

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Stocks do respond to inflation, but

in a slightly different way with

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different lags and lead times gold.

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Responds to these geopolitical risks and

inflationary risks and interest rates,

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again in a slightly different way.

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And the same with Bitcoin.

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So you really have this, uh, three

legged stool that you're working with

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in order to diversify that exposure.

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And because we don't know

what's going to happen.

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We don't know how inflation may manifest.

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We don't know how the

geopolitical risks may manifest.

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And so in recognition of that, we want

to build into the portfolio of different

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asset classes that respond slightly

differently in different timeframes

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in order to build that resiliency.

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The other thing I would add is, you know,

if you're concerned or you're, you're,

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you're thinking, I'm not sure, start small

and operate from a position of strength.

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As you make allocations to some asset

classes that are different, it makes sense

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to make sure you can stick with them.

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So we would argue that, you know,

these assets like gold and Bitcoin are

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moving from fringe to foundational.

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Given the regime shift that we're saying,

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Narrator: What do you suggest

as a softer first steps approach

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to Bitcoin implementation?

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Mike Philbrick: we know

that prudence is there.

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How should we allocate?

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Well, why don't we, if you're

uncertain, start small.

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Let's start with a 5% allocation to

RSSX, thereby giving you a 1% allocation

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to Bitcoin and a 4% allocation to gold.

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Now what we can do is, okay, let's say

that stack moves against us a little bit

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and we get a pullback in gold and Bitcoin.

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Well, now you re-up, you're

comfortable because this was a small

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enough position, a de minimis enough

position that you could hold it.

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So then you, you rebalance

to that and add a little bit.

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It hasn't hurt the portfolio

too much, and you're operating

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with that same rebalancing

philosophy in your portfolio Now.

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Let's say it goes up and

it starts to contribute.

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Well, now you're operating

from a position of strength.

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The clients or allocators are seeing

that positive effect in the portfolio.

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One can, as Rob Barnett says, sin a

little bit and then maybe not Reba,

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not rebalance back down or because

you're sitting on profits in the

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portfolio and everyone feels good about

it, you could move to a 2% position.

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Once you're one and a half position

in Bitcoin or you're four, 4%

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position in gold moves up to,

let's say two and one and a half.

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And so now you add a little bit more and

you're operating then from a position

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of strength, as you build this di, these

diversifying assets into your portfolio,

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Narrator: How does this strategy make

sense from a behavioral perspective?

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Mike Philbrick: you are not subjecting

yourself to that, that evil behavioral,

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um, a demon called tracking error.

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Right.

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Or at least you're reducing it.

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Let's say, you know, stocks

continue to do well and uh, gold

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continues to consolidate for a year.

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Well, if you just owned gold and it

was consolidating and stocks were going

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up, you have foregone that exposure to

stocks in order to incorporate gold.

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The same in Bitcoin.

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Let's say you forego your exposure

in the stocks to buy Bitcoin and

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Bitcoin goes on a normal course, 20

or 30% decline, and the client then

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looks at you and looks at the line

item and says, what's going on here?

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And you say, well, let's add.

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And they, and they see the line item and

they, they, they don't make the right

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decision in that moment of time by.

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Putting it together by

rebalancing all three asset

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classes get rebalanced as well.

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So if the s and p is doing better than

the pair, then that s and p little

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extra is gonna go fund those assets that

are having their consolidation period.

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Then of course those dynamics shift

and by doing that rebalancing, you get

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this diversification premium in the

portfolio, which again, helps attenuate a

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lot of those behavioral vulnerabilities.

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And we get, we, we sort of want to get

rid of that, or not rid of, but reduce

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the exposure to that tracking error.

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Right.

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That, that's, uh, always having to

say, I'm sorry for diversification.

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Narrator: How does regulatory

clarity pave the way for Bitcoin

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as a mainstream asset class?

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Mike Philbrick: We're reaching that

point in the adoption curve where

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it's no longer contrarian or fringe.

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It's becoming foundational

to own Bitcoin and gold.

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It's becoming prudent.

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And when we look and see in the the myriad

of respected institutions, sovereign

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nations, and allocators that have

made the move, it's now professionally

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safe for others to follow, you know?

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I think the reputational risk has shifted.

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It's no longer in, in owning these

assets, but rather it's in failing to

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understand and allocate to them before

your clients ask you why you didn't and

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this, and this is going to intensify.

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The Genius Act is making its

way through US legislation.

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There are a number of, uh, rumors

about the US starting its own

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Bitcoin Reserve and the number one.

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Issue that institutions had

with allocating to Bitcoin

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was regulatory clarity.

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And we're now seeing that regulatory

clarity make its way through, um,

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the, the regulatory frameworks.

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So removing that, uh, that barrier is

going to provide the opportunity for

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those who are in that fiduciary role.

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If you're on an endowment or at

a pension fund, it's really hard

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to allocate to an asset class.

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Where you didn't have regulatory

clarity, that you were an innovator,

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a very early adopter, if you will.

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And that's a very small

bastion of the assets.

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And even with gold, if we look at the

allocations to gold, uh, um, from major

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institutions, on average it's, it's 1%.

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It's been much, much higher historically.

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So institutions are vulnerable

to these same behavioral

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issues as retail clients are.

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And again, as we've talked about, we are

going through that, um, we're passing

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through those, the, the, those, those,

um, shifts in mindset on how acceptable

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is this to be owned in portfolios.

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And so I think the real

risk to advisors today is.

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In not understanding them, at least at

a minimum, and then allocating to them

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where the it's appropriate for the client.

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We're simply helping investors do

what institutional allocators are

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already doing in a proportion that's

appropriate for that client without

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compromising their core equity holdings

that their clients know love and trust.