Trend vs. Carry: Why You Need Both — And What Happened in Q2

Adam Butler: 00:00:00

About half the time, trend rises to the occasion during a market

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shock, but it doesn't always work.

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And about half the time, carry rises to

the occasion, but it doesn't always work.

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When you combine them in a portfolio,

now you've got a pretty decent

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chance that one or the other is

gonna be activated in the right way

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during the next market shock, right?

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Rodrigo Gordillo: welcome everybody to

another episode of Stacked Unpacked.

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this is where we go through the key

insights of our quarterly commentary.

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if you don't know me, my name is

Rodrigo Gordillo, President of ReSolve

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Asset Management and co-founder of

the Return Stacked suite of ETFs.

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And I am joined today by, Adam

Butler, CIO of ReSolve Asset

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Management, and also a co-founder

of Return Stacked suite of ETFs.

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So before we begin, just a quick

note if you haven't gotten a chance

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to go through the commentary.

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if you go to

returnstackedetfs.com/literature,

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you'll be at the top of the, uh, page.

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You'll be able to hit commentary.

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All of our commentaries are there,

including our latest commentary.

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And, you'll also note that there's a bunch

of new, uh, PDF pieces and white papers

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that you, you-- you're definitely gonna

wanna review, case studies as well as,

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you know, simple explainers for, you know,

clients that you might be dealing with.

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We also have the case, you know, talking

about leverage and whether it's a good

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time to start adding, stacked portfolios.

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All of that is available

in the same section.

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So again,

returnstackedetfs.com/literature.

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That'll get you there.

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but let's get into Q1.

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Let me share my screen here so we

can go through this together if you

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don't have it in front of you already.

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a

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Adam Butler: First, a big nod to Corey

Hoffstein for, for creating this report.

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He does the quarterlies typically

and does a phenomenal job.

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So we're gonna walk through that basically

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Rodrigo Gordillo: Indeed.

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Okay, here we go.

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So it's been a good, um, year thus far.

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The whole suite is at just over $1.4

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billion as of the end of the quarter.

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It's a bit higher, today, and there's

been a new addition to the family, RSIT.

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This is one of our most,

successful launches.

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So clearly, you know, there's been,

for obvious reasons, a lot of change

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in dynamics in terms of global vers- or

international versus domestic stocks.

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RSIT is our international

stocks and managed futures ETF.

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It launched on May 5th, and it

quickly got up to forty-seven

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million by the end of the quarter.

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We're over sixty, uh, million now.

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So, that was the market asking for

something and us, being able to deliver

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in, um, in, in a fairly fast manner.

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So if there's anybody out there that

wants new stacks or new ideas, new

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bases, uh, do communicate with us.

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we are all ears and looking to

launch more, you know, a couple of

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these throughout the, um, the year.

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So what is the difference

between RSIT and RSST?

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It is international developed.

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It doesn't have emerging

markets, doesn't have US.

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It has the same trend replication.

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So w- as we go through this,

commentary, the trend, when we

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discuss trend overlay, it'll be the

same across RSST and RSIT and RSBT.

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The other new, uh, development is that

we have added a couple of new markets.

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We've added agricultures to both the

futures yield products as well as the,

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um, uh, the trend products, and that

happened in May and June respectively.

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So I will kind of show you

what that has looked like.

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let me just share the website here.

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Adam Butler: By the way, if you haven't

visited the website, we keep making

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substantial improvements to, help build

intuition around how the strategies work

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and what they hold and, and how those

holdings change over time, et cetera, both

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capital, a capital view and a risk view.

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So definitely encourage you to

revisit the site 'cause they change

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Rodrigo Gordillo: So I just wanted to show

you, if you go to the, if you go to ETFs

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or an RSSY and you click all the way down

to portfolio risk allocations, you'll be

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able to see the new markets that we've

added, and you can visualize when…

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You can see exactly when

they were added here, right?

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that gold, dark gold and purple.

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And if you wanna get more granular as

to what we have added at that times,

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then you can go down here and see when

they were added, what the positions

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were, and what the markets are.

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So coffee, cocoa, corn,

soybean, and Chicago wheat.

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Now, same thing applies

to the trend strategies.

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You'll see it again if you go down

here and click on grains, same markets.

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Now, Adam, let's talk a

little bit about that.

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So, you know, we wanna make sure

that people recog- at least, that

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we acknowledge that this is not

about, uh, trying to time any sort

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of market that we feel like saw…

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That it's a good time

for us to get into this.

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what was the rationale for us adding

these markets to both of the stacks?

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Adam Butler: All things equal, the,

the carry strategy is designed to try

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to deliver an, you know, m- maximum

risk-adjusted returns over time.

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And so all things equal, you wanna

continue to add as many bets as

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you can to the portfolio that

are uncorrelated with all of the

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other positions in the portfolio.

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As you add more diversification, you

increase the expected efficiency of the

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portfolio, the, the returns you're able

to deliver for the same level of risk.

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So all things equal, it's nice

to be able to add new markets.

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we weren't able to add

them, reliably before.

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We took over, ReSolve

actually took over trading.

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We've been running, future strategies

for over a decade now and, have

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experience running, you know,

mar- more challenging markets.

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And one thing about the grains and the

softs is the CFTC limits the number of

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contracts you can hold in these markets

in the front-month futures contract.

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And so the way you actually are

able to get scale into these markets

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is by owning, a little bit of the

front month, but then also expanding

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your exposure into the second and

third, the back months, as well.

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So we've got lots of

experience doing that.

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We trade a, a much larger, universe

of futures markets in our hedge

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funds, because they're even more

constrained in terms of, you know,

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redemptions and all that kind of stuff.

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but we felt very comfortable adding

the, the grains to the carry strategy

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and to the trend strategy once we were

able to operationalize it in-house.

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the trend strategy, it also adds value

at the margin because the underlying

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funds that represent the benchmark

that we mark against, they trade the

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grains and the softs as part of their

mandates, and so we wanna be able to

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trade all the markets that they trade.

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Now, for liquidity reasons, typically

those big funds that comprise the

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benchmark, they don't trade a lot of risk

in those markets, but they do trade some.

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And so, you know, the way we model our

replication strategy is that we'll be

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adding risk to those markets as part

of the replication in proportion to

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how much risk is warranted based on

how well they help to replicate the

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underlying benchmark at the margin, right?

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So two slightly different reasons why we

wanna add these new markets, both, from a

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prospective standpoint and e- efficiency

standpoint, not based on whether Rodrigo

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and I and Corey think it's a prospective

time to own grains or cocoa or sugar.

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Rodrigo Gordillo: Yeah.

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Yeah, that's a great summary, Adam.

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So, anyway, new markets are

pretty excited about that.

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Why don't we go into the, kind of

the simplest product right now.

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this is RSSB.

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just to g- we're trying to replicate

there is 100% exposure to global

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equities and 100% exposure to a

laddered treasury bond portfolio.

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And as you can see, just by kind

of eyeballing this, we've done a

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pretty good job replicating 100/100

portfolio, since in-- over the

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last 12 months since its inception.

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Now, one of the things to note is that

performance this quarter, if you look at

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the NAV, it underperformed by about 100

basis points to the index that we track.

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Now, that is-- We want to point out

that last quarter we outperformed by

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100 basis points, to that index, and

that has more to do with when the NAV

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is struck versus when the index values

are updated at the end of the quarter.

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S- it, it tends to…

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De- depending on the quarter, it will

be plus or minus 100 basis points.

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It's just an accounting issue.

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It is really not a tracking level issue.

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We're tracking the index quite nicely.

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So-

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Adam Butler: that, that difference

was made up the very next day.

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Rodrigo Gordillo: That's right.

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Exactly.

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And so again, what's

the use case for RSSB?

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The use case for RSSB is to make room

in your portfolio to create cash,

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continue to remain invested fully.

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So you take, you know, 5% of your

equities, 5% of your bonds, sell that, buy

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5% of RSSB, you get all your allocation

back, plus you got $5 ready for you to use

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out of the box for whatever it is, whether

you want some to ra- to have cash ready,

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whether you wanna add another diversifier

that we don't have in our lineup.

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It is a very dynamic and

one of our biggest ETFs.

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So everything is in line there for RSSB.

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so let's get to the, to the trend.

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Basically, this quarter, if I-- if we

go straight to the chart here for the

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last year, what's been interesting to

see is how the top-down small universe,

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so that's the top-down number one, has

really lagged, has really underperformed,

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over the last 12 months versus

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Adam Butler: worth taking 30

seconds to, to just go into what

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bottom-up and top-down mean here?

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Rodrigo Gordillo: Sure.

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Yeah.

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So, so there's t-top-down is wh-when you

think about trend replication and what's

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been the most common thing and, and

way to replicate all these, kinda hedge

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fund replication, trend replication has

been just m-literally looking over the

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recent period on, about price, trying

to match or re-replicate the movement of

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that, index based on different weights.

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So the best match, the best regression

analysis over the recent period to

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that index, match the weights, and then

hold it for one period until you do

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another analysis and rebalance again.

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So I'm bas-- you're basically looking in

the rear view mirror and saying, "What

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are the likely weights that we would

be able to replicate historically?"

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And that tends to do a pretty good job

at replicating the performance of a

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broad basket of managed futures managers.

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and there's a couple of

ways that you can do that.

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You do it with a small universe.

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So the small universe, I believe,

is nine futures contracts.

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and then there's a larger universe

of, 20-plus contracts that, you

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know, there's pros and cons to that.

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Adam, I don't know if you wanna

speak to what the, the pros

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and cons of those are very

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Adam Butler: Yeah.

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There's a, there's a small universe

and, and there's the 33 market universe

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that is now the expanded universe,

including the grains and the softs, right?

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So really the top-down, we're just

trying to find the, the, market weights

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of the individual futures that when

we sort of back-project them over the

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past 40 to 60 days, best mimic h- the,

performance of the underlying benchmark.

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That's the top-down.

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And we can use a small basket of

markets to do that, or we can use a

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larger basket of markets to do that.

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There's pros and cons for both, which

I won't get into now, but it's…

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What's interesting is that those models

actually are not perfectly correlated,

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so when we put them together, the

combination does much better in tracking

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the benchmark than either one does alone.

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Okay?

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So that's one component, the top-down.

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And that the bottom-up component is us

recognizing the trend funds trade trend

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strategies on generally we understand what

the constituents, what the markets they're

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trading are, and then just trying to fit

the actual process that the managers in

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the benchmark are using, what tre- what

trends apply to what markets, and then

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we find the weights of those, and we,

we just effectively run that, right?

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So the, the bottom-up

is process replication.

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The top-down is portfolio replication.

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They all, have strengths and weaknesses.

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They're different.

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They thrive and are

weak at different times.

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When you put them all together, they're

much stronger than any one of them alone

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Rodrigo Gordillo: Yeah, and what you

see here is the black line is the index.

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The green line is the

combination of all three.

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And what you're seeing in this

past 12-month period is that the

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top-down has done really poorly.

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it-- But just briefly, I'll bring up the

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Adam Butler: Well, the top-down small

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Rodrigo Gordillo: top-down small universe.

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But the top-down small universe,

if we look back in the last

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quarter, so this is looking at, at

: 2026

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and, and, and it wasn't very

good at tracking, right?

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You can see that the black line

took a big dive and then recovered.

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You know, the top-down small did not take

a big hit, and that's why it did better.

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So again, we're gonna-- there's gonna

be a, a big theme here about diversic-

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diversity and diversification.

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These are just three models we're

using to help us get a better fit

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for that index, and it's done a

pretty good job since inception.

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And you can kinda-- This line here,

what it represents is if you had a

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perfect fit, that green line would just

hug the, the, horizontal line here.

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And you can see it

meanders back and forth.

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Sometimes it's better,

sometimes it's worse.

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this is not a big difference here, so

you're looking at a, you know, 0.95

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fit versus if you were just to use

one of the three models, you'll see

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that the variance is quite high.

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So that's why you wanna

diversify across the board.

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Okay, so on the trend rep-replication

side, we're doing well.

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What happened with trend

itself, versus last quarter?

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So the green dot is the positions that we

had in, different markets last quarter,

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and the black bar is where we are today.

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So not much of a drastic

difference here on the bond side.

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Really, the story is in equities, a,

a larger long position in equities

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than we had slight short positions

in equity markets last quarter.

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not surprisingly, a larger position

in oil, versus what we had at

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the beginning of last quarter.

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You know, the trend has gotten or

had been pretty strong back leading

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up to the end of the quarter,

and throughout that quarter.

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And then, you know, currencies, the

euro, big short versus the beginning.

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a lot of small, very, very small

positions in, in the agricultural,

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so not much of an impact.

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And, and I think I missed

oil, uh, gold here.

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So gold was a big change.

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We had a big long gold position, and

now, by the end of the quarter, we

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had a slightly short gold position.

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Not surprising given the path that it's

taken, and we are following trends.

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so that's trend, The trend and, uh, and

carry, which we'll get into for the-- You

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guys can look at all the details here.

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but basically for the trend index

itself, for the last quarters have

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roughly been flat to slightly up, not

much contribution in contrast to the

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first part, the first quarter of the

year, which contributed pretty nicely

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to offset losses in, in other markets.

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But it's been flat since.

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so you guys can review the performance

here in more detail with the report.

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RSIT will be similar.

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There's not a lot of, price data there

to go because we just launched it.

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let's talk about-

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Adam Butler: to the chart, just hold

off on the chart for a second because

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I wanna, I wanna, I wanna tell a

quick story because I think it's…

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This is a really great opportunity

to build intuition around carry.

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so you can imagine coming into,

February, this is sort of in

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advance of any, initiation of

conflict in the, in the Gulf.

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The US is moving military

assets into the Gulf.

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Obviously, this is being observed by all

the participants in the energy markets.

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I want to zero in on a few of

the major participants because

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it helps to tell the story and

build the intuition behind carry.

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So imagine a refinery in Europe.

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They're seeing, many military

assets amassed in the Gulf.

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They're anticipating conflict.

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as time goes on, the probability

of conflict breaking out

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continues to escalate.

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they can't shut down the refinery, okay?

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For operate…

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for mechanical reasons, they can't

shut it down, and because they owe

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refined products to clients downstream.

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So they're getting panicky.

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They need product, and they're worried

that if there's a conflict, then the

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strait's gonna close and they're not

gonna be able to get access to product.

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Okay?

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That's one stakeholder.

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The…

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Think of another, you know, a,

a producer in the North Sea.

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So they're a long way from the Gulf, their

production is tick- is, is moving along

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tickety-boo, but they're noticing that

refineries are starting to get concerned.

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The oil price, the front month of

oil price is rising as refineries

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scramble to get product m- to make

sure that they can meet demand.

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they are trying to, to ramp up near-term

production as much as possible to help

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to meet that demand because they're

able to sell that oil at much higher

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: 00:19:02

prices now than they expected if they

can ramp up production quickly, okay?

295

: 00:19:07

And then they're continuing to…

296

: 00:19:09

They know that they're gonna be continuing

to sell, to produce oil for many years

297

: 00:19:13

in the future, and they're continuing

to sell long-term forward oil contracts

298

: 00:19:16

and for, for long-term delivery, okay?

299

: 00:19:19

Now you've got this oil trader

in the middle, all right?

300

: 00:19:24

They own storage tanks

and they own oil tankers.

301

: 00:19:28

Now, their day has just come, okay?

302

: 00:19:31

There's a major conflict brewing,

there's a major panic at refiners,

303

: 00:19:36

and they can solve this problem.

304

: 00:19:38

So yeah, they've got a bunch

of oil already in storage.

305

: 00:19:41

They can send tankers to, to, to that

oil and pull that out of storage and, and

306

: 00:19:47

put it on the water and start delivering

that to the refiners, all right?

307

: 00:19:52

But they also have the opportunity

to lease more tankers, send them,

308

: 00:19:58

for example, to the oil producer in

the North Sea, who is anxious to be

309

: 00:20:02

able to offload their oil at these

higher prices and collect that oil.

310

: 00:20:08

But while the, the trader has the

oil on the tankers, they own it.

311

: 00:20:14

They're at risk, okay?

312

: 00:20:16

And they don't want it.

313

: 00:20:16

They're not in the

business of speculation.

314

: 00:20:19

So they take on that spot oil, and they…

315

: 00:20:23

as soon as they take that on,

they sell forward that oil at

316

: 00:20:29

the point at which they expect to

deliver that oil to the refinery.

317

: 00:20:33

Okay?

318

: 00:20:34

The question is, who bears the risk?

319

: 00:20:39

Okay?

320

: 00:20:39

The refinery's willing to, to…

321

: 00:20:40

They need the oil and they know what

their profit margin is approximately.

322

: 00:20:43

The producer is having a lottery payday,

but the trader, they don't wanna pay

323

: 00:20:50

the, to, to take on that risk of the…

324

: 00:20:52

'Cause if the, the conflict resolves while

that oil sits on the water, then they

325

: 00:20:58

take that massive loss on the inventory.

326

: 00:21:00

Okay?

327

: 00:21:01

So they're selling forward the delivery

to the refiner as soon as they take

328

: 00:21:06

the oil on board the, the tankers.

329

: 00:21:08

All right?

330

: 00:21:09

The question is, who bears the

risk and why do they bear the risk?

331

: 00:21:14

Well, they bear the risk.

332

: 00:21:15

The answer is the future speculators,

those running carry strategies.

333

: 00:21:20

They bear the risk.

334

: 00:21:22

They ensure the risk that the, the

traders don't wanna bear until that

335

: 00:21:29

oil gets delivered to the refinery.

336

: 00:21:31

All right?

337

: 00:21:32

And the cost of bearing that risk is

the payment to the future speculators.

338

: 00:21:38

And

339

: 00:21:38

Rodrigo Gordillo: I.e.

340

: 00:21:39

us if we're long futures,

if we're long oil

341

: 00:21:43

Adam Butler: Exactly.

342

: 00:21:43

We're long oil futures.

343

: 00:21:45

We are harvesting the fees that all

of the other players in the market

344

: 00:21:50

don't want to pa- to bear the risk for.

345

: 00:21:52

Okay?

346

: 00:21:53

Now let's show that, that s- chart, okay?

347

: 00:21:56

Rodrigo Gordillo: before--

Just, just a couple of thing.

348

: 00:21:58

I'll, I'll add this chart.

349

: 00:21:59

So this is also something that's on the,

the, RSSY and RSBY site, which is the

350

: 00:22:07

basically risk-adjusted target weight and

the risk-adjusted carry on the right side.

351

: 00:22:12

So the-- Basically what we're

saying is that the higher the

352

: 00:22:14

carry, the likely higher weight that

we're gonna give to those assets.

353

: 00:22:19

The lower the carry or negative

carry, we're gonna short those assets.

354

: 00:22:24

And what we were seeing is the front

month go up, the back month not go

355

: 00:22:30

up, and if you, if you bought the

back month and you let it roll up,

356

: 00:22:35

you were gonna make money, right?

357

: 00:22:36

So it's like we talked about this earlier.

358

: 00:22:39

It's like during COVID, you know,

when we needed toilet paper, people

359

: 00:22:43

panicked and went out to the grocery

store and bought all of the toilet

360

: 00:22:48

paper and could possibly, like, make

a secondary market and sell it for

361

: 00:22:51

more in their neighborhood, right?

362

: 00:22:53

But everybody stocked up.

363

: 00:22:54

Their basements was to

the hilt toilet paper.

364

: 00:22:56

Nothing really happened.

365

: 00:22:57

You used it up.

366

: 00:22:58

Inventory was, went back to normal,

and it was, it was a non-issue.

367

: 00:23:01

So it's the same type of idea here.

368

: 00:23:03

Now f- it'll be more clear as I

bring up the, this chart here.

369

: 00:23:08

so Adam, why don't we walk everybody

370

: 00:23:10

Adam Butler: Yeah, I'll

go th- I'll go through it.

371

: 00:23:11

So, so notably, the, the prices for

oil d- in del- for delivery in six to

372

: 00:23:17

nine months hasn't really moved much.

373

: 00:23:20

So the, you know, producers in

the North Sea are saying, "Yeah, I

374

: 00:23:26

think this is going to be resolved

relatively quickly," right?

375

: 00:23:30

"So I'm gonna just steadily sell my

oil at the, at the prevailing price.

376

: 00:23:35

I'm not gonna ask for a premium 'cause

I expect the, the price to, to rise.

377

: 00:23:39

I think it's gonna be resolved," right?

378

: 00:23:41

But at the front, there's

massive panic, right?

379

: 00:23:43

So the, at the front, the,

the price of oil is like $100.

380

: 00:23:48

Six to nine months in the future, oil's

selling for call, call it 60, $70, okay?

381

: 00:23:53

So there's this huge

steep c- backwardation.

382

: 00:23:57

Rodrigo Gordillo: So to-- just

to be clear, at the beginning of

383

: 00:23:58

the year, here on the right-hand

side, you'll see the yield.

384

: 00:24:01

This is the zero ye- line.

385

: 00:24:03

At the beginning of the year, the

front month and the back month were

386

: 00:24:06

basically the same price, right?

387

: 00:24:08

Let's say whatever, $60 oil.

388

: 00:24:10

Both of them are…

389

: 00:24:11

By the time we're here, oil is-- on the

front month has gone up to 110, 120.

390

: 00:24:18

I can't remember where it peaked.

391

: 00:24:20

But the back month roughly

s- stayed pinned, right?

392

: 00:24:23

That is, that is now we're seeing

a massive roll yield that we could

393

: 00:24:27

capture, and the system's saying,

"Hey, we should probably go long."

394

: 00:24:31

And that's what this line shows here, the

difference between the one and the back

395

: 00:24:34

Adam Butler: Yep.

396

: 00:24:35

The green line there is the

difference between the front-month

397

: 00:24:38

price and back-month prices, okay?

398

: 00:24:41

And it's saying, "Wow, we're

getting paid a lot of money

399

: 00:24:44

to hold the front month here."

400

: 00:24:46

Okay?

401

: 00:24:46

And so we are very long the

front month of oil, okay?

402

: 00:24:51

But I don't wanna bury the lead, right?

403

: 00:24:52

Because what happened?

404

: 00:24:53

We…

405

: 00:24:53

Oil went up, like, 50% in the first

quarter, and then it dropped, like,

406

: 00:24:57

20, 25% in the second quarter, right?

407

: 00:25:00

So didn't we just earn a bunch of

money and then give it all back?

408

: 00:25:05

Well, this is the, the great thing

about carry and the great thing about

409

: 00:25:08

the fact that the-- there are actual

commercial players in the market

410

: 00:25:13

pricing risk and expressing the, the

level of panic of demand and supply

411

: 00:25:20

because they are sending signals well

in advance of when the price moves.

412

: 00:25:27

Okay?

413

: 00:25:27

Those signals said, "Wow, we should

be really long oil," back in,

414

: 00:25:32

like, mid to late January because

the panic was beginning to build.

415

: 00:25:37

But then as the actual deliveries were

made and the, the tightness in the market

416

: 00:25:44

receded and the panic receded, then that

gap closed, and we weren't getting paid

417

: 00:25:51

nearly as much to own the front month.

418

: 00:25:54

The carry signal dropped commensurately.

419

: 00:25:57

We therefore dropped our exposure to

oil, just in time for oil prices to drop.

420

: 00:26:04

So without burying the lead, you know,

in Brent Crude, the strategy, gained

421

: 00:26:09

about 400 basis points in the first

quarter and only gave back about 43

422

: 00:26:15

basis points in the second quarter, okay?

423

: 00:26:19

And that's just us getting signals

from the market that we were able to

424

: 00:26:22

use that were distinct from trend and

that working out really well, right?

425

: 00:26:28

So you can see oil prices

didn't peak until late May.

426

: 00:26:33

But by that time, the carry be-

has already begun to recede.

427

: 00:26:39

Our positioning had also

receded commensurately.

428

: 00:26:43

And so when the price collapsed,

our position had been-- had declined

429

: 00:26:48

substantially, and we just weren't

there for the, for the loss.

430

: 00:26:52

Rodrigo Gordillo: And you could see that

again in this chart here, if you kinda go

431

: 00:26:55

to energies and just select WTI and ICE,

you can see how quickly the positioning

432

: 00:27:01

went from max positioning to short.

433

: 00:27:05

Much faster than the s- the

price slowly going down.

434

: 00:27:08

And going back to this chart here, you

can see that, that, that the carry peaked

435

: 00:27:16

in, you know, just mid-February, got

another peak early March, stayed around

436

: 00:27:23

and then completely collapsed bef- And

so we were able to really reduce our

437

: 00:27:28

positioning and even start shorting it way

before we started, giving all that back.

438

: 00:27:32

So that's kind of the difference

in, in price and carry and, and how

439

: 00:27:38

that market adjusted accordingly.

440

: 00:27:41

Adam Butler: Yeah, exactly.

441

: 00:27:42

And I'm gonna, I'm, I think we should

actually leave that dotted line for,

442

: 00:27:47

for readers to investigate on their own.

443

: 00:27:50

There's, there's another twist and nuance

here that is very worth digging into, but

444

: 00:27:56

we don't really have time to do it justice

here, so, you know, I, we, we can probably

445

: 00:28:01

Rodrigo Gordillo: Sure.

446

: 00:28:01

Adam Butler: move along.

447

: 00:28:02

Rodrigo Gordillo: All right.

448

: 00:28:03

So that's, future-- And by the

way, at this point, you can ask

449

: 00:28:06

any questions, that you want.

450

: 00:28:07

Let's take a quick pause now

that we have a, we have a lot

451

: 00:28:10

of people in the room now.

452

: 00:28:11

If anybody has any questions,

go ahead and post them in the

453

: 00:28:14

respective, platforms that you're in.

454

: 00:28:15

We can see them here live.

455

: 00:28:17

we're also gonna do a quick poll just

to pause now that we're halfway through.

456

: 00:28:22

just out of curiosity, Ani, would

you mind pushing that poll up?

457

: 00:28:27

This is the first time we're using,

StreamYard to do this, so you just

458

: 00:28:33

have to select one, two, or three.

459

: 00:28:34

So the question is, do you own

any return stacked ETFs today?

460

: 00:28:38

First answer is, it's a

core part of my portfolio.

461

: 00:28:41

Second one is, I'm dabbling.

462

: 00:28:43

Third is, I'm still exploring,

really haven't made a decision.

463

: 00:28:47

I'll give everybody a few minutes

there to answer those questions while

464

: 00:28:52

we scroll down, and, and just kind of

finish up here on what the positioning

465

: 00:28:56

has been for the futures yield portfolio.

466

: 00:29:01

again, the biggest

467

: 00:29:02

Adam Butler: Yeah.

468

: 00:29:02

It's been neat to see fixed income come

back into the portfolio, where we've

469

: 00:29:06

been either neutral or, or generally

kind of short, for a long while in,

470

: 00:29:10

in the carry portfolio, consistent

with an inverted yield curve, right?

471

: 00:29:14

But, we're, we're starting to see

some, some normalization there and

472

: 00:29:18

except for the gilt, obviously,

which we had a very strong position

473

: 00:29:21

in the end of last quarter, and

that, has gone slightly negative.

474

: 00:29:27

Rodrigo Gordillo: Yeah, and in, in

475

: 00:29:28

Adam Butler: yeah,

equities are kind of mixed.

476

: 00:29:31

Yep, yep.

477

: 00:29:32

Equities are kind of mixed.

478

: 00:29:33

We've actually been kind of net

small short equities, for a while.

479

: 00:29:38

The dividend yield in equities,

like, you know, are, are typically

480

: 00:29:41

lower than the yield on cash.

481

: 00:29:44

And so, so that informs a

s- a small short position.

482

: 00:29:48

Obviously, Euro stocks, the, the

yield there is higher than the Euro

483

: 00:29:53

cash rate, and so we, we do have

a small, positive position there.

484

: 00:29:57

And we flipped from short

to small long in the S&P too

485

: 00:30:03

Yeah.

486

: 00:30:03

So you can see the, the,

the crude oil positions.

487

: 00:30:07

that was actually, you know, at the end of

the last quarter was kind of right when we

488

: 00:30:12

were flipping from long and, had been…

489

: 00:30:15

It, it sort of went neutral.

490

: 00:30:16

We're still long the products.

491

: 00:30:18

obviously there's strong carry there

492

: 00:30:21

Rodrigo Gordillo: And

then currencies and ags

493

: 00:30:24

Adam Butler: Yep.

494

: 00:30:25

Rodrigo Gordillo: Oh, we're missing

the dots here on this, on the

495

: 00:30:27

agriculture.

496

: 00:30:27

' Adam Butler: cause they weren't in the,

497

: 00:30:28

Rodrigo Gordillo: Oh yeah, they weren't.

498

: 00:30:29

That's right

499

: 00:30:30

Adam Butler: Yeah, yeah.

500

: 00:30:30

But,

501

: 00:30:31

Rodrigo Gordillo: All right.

502

: 00:30:31

So yeah, on the carry side

is we had another, flat.

503

: 00:30:36

If we just extract the carry overlay,

there's another flat, quarter,

504

: 00:30:42

just on the, on the carry side.

505

: 00:30:44

Most of the returns came in--

A lot of the returns came in

506

: 00:30:47

that first quarter of the year.

507

: 00:30:49

And so similar trend in

carry, not much contribution.

508

: 00:30:53

RSSY up around 14%, mainly

due to the equity component.

509

: 00:30:59

RSBY flat, as you can

see, not much happened.

510

: 00:31:03

And then, we can get

into talking about RSBA.

511

: 00:31:06

This is the return

stacked bonds and merger

512

: 00:31:09

arbitrage.

513

: 00:31:10

Adam Butler: wanna,

514

: 00:31:11

Rodrigo Gordillo: Yep

515

: 00:31:11

Adam Butler: do we wanna pro-

pause and answer the question here?

516

: 00:31:14

It's about carry, and trend, and it might

be a good opportunity to chat about that.

517

: 00:31:19

or do you wanna wait till the end?

518

: 00:31:21

Rodrigo Gordillo: why don't

we wait till the end, Adam?

519

: 00:31:22

Let's get through the ETFs and

520

: 00:31:24

Adam Butler: Let's do it.

521

: 00:31:24

Rodrigo Gordillo: can discuss.

522

: 00:31:25

Adam Butler: Yep.

523

: 00:31:27

Rodrigo Gordillo: All

524

: 00:31:27

Adam Butler: So You'll remember--

You'll recall that merger

525

: 00:31:31

arbitrage is, a unique diversifier.

526

: 00:31:35

The, the principle is that you've got a…

527

: 00:31:38

Typically, one company

wants to buy another and…

528

: 00:31:42

But there's several months, in some

cases a, a, a year or more, between

529

: 00:31:48

when the buyer makes a bid for the

company and when the deal closes.

530

: 00:31:53

And, you know, there may

be some frictions, right?

531

: 00:31:57

The- there may be regulatory

issues that arise, that, you

532

: 00:32:02

know, v-various other th-things.

533

: 00:32:04

There's a lot of legal work

to do, obviously, which is

534

: 00:32:06

why it takes so much time.

535

: 00:32:07

and in the meantime, typically, the

company that's being bought doesn't

536

: 00:32:12

trade up fully to the price that

it's expected to be purchased at.

537

: 00:32:18

And the reason for that is because,

you know, th-that deal needs to be

538

: 00:32:21

funded in that time horizon, right?

539

: 00:32:24

So there's a, there's a time discount

on that deal, and there's this risk

540

: 00:32:30

that the deal may not close, right?

541

: 00:32:32

Now, in, in reality, in the modern era,

most of these deals close, but there's

542

: 00:32:37

still an embedded risk premium, okay?

543

: 00:32:39

And that risk premium that the deal

won't closed-- close, plus the cost

544

: 00:32:44

of carrying the position until it

closes, is the return that you earn on

545

: 00:32:49

the merger arbitrage strategy, right?

546

: 00:32:51

So, you know, we don't…

547

: 00:32:53

The s- the strategy that we use, the

merger arbitrage strategy, doesn't

548

: 00:32:58

just buy into every deal, okay?

549

: 00:33:00

We've got a sophisticated algorithm

that we use to identify which

550

: 00:33:05

deals are implying a sufficient

yield between now and when the deal

551

: 00:33:11

closes to justify the expected risk.

552

: 00:33:13

So you can, you can measure some

of the different risk factors,

553

: 00:33:17

and you can measure, obviously,

the difference between the current

554

: 00:33:19

price and the expected deal price.

555

: 00:33:22

Net of the cost of financing is the

expected return over that period, right?

556

: 00:33:27

So between all those factors, we're

only selecting a subset of all the deals

557

: 00:33:32

that we think represent the best value.

558

: 00:33:35

And at any given time, we

may not be fully invested.

559

: 00:33:39

There just may not be an, a

sufficient number of high-quality

560

: 00:33:42

deals that meet our thresholds

to allow us to be fully invested.

561

: 00:33:47

And if you pull up the chart, in, in

the piece, you can see how the number

562

: 00:33:52

of deals and our total exposure to the

merger arbitrage sleeve within the merger

563

: 00:33:57

arbitrage, ETF changes over time, right?

564

: 00:34:00

So each of those colors is a position

in the portfolio representing a deal

565

: 00:34:07

that we felt was, y-you know, met the,

the threshold to go into the portfolio.

566

: 00:34:13

At the moment, actually, we have

quite a few deals in the portfolio,

567

: 00:34:18

but sometimes we don't, right?

568

: 00:34:20

so I want you to scroll down

because I think this, this strategy

569

: 00:34:24

gets way too little respect.

570

: 00:34:26

Rodrigo Gordillo: Agreed

571

: 00:34:27

Adam Butler: And, you know, when, when

you, when you look at this kind of…

572

: 00:34:32

The, the way to think about the merger

arbitrage strategy, which we stack on

573

: 00:34:36

top of a treasury bond ladder, okay,

is it's effectively the same as or,

574

: 00:34:43

or a substitution for corporate bonds.

575

: 00:34:47

Okay?

576

: 00:34:47

It has approximately the same kind

of risk over the long term, but the

577

: 00:34:52

risk arises not from the probability

that the bonds will def- be defaulted

578

: 00:35:00

on, but rather the risk that these

merger arbitrage deals won't close.

579

: 00:35:04

Okay?

580

: 00:35:05

It's a completely

different source of risk.

581

: 00:35:07

It has very low correlation to

typical corporate credit risk, and

582

: 00:35:12

it's a really great complement to a

corporate credit book for that reason.

583

: 00:35:17

Approximately the same risk.

584

: 00:35:19

It's effectively a credit premium,

but you're pricing a different risk.

585

: 00:35:23

And over the long term, it has

very competitive, risk return

586

: 00:35:27

characteristics to corporate bonds.

587

: 00:35:29

Historically, it's got a nice

little edge over corporate bonds

588

: 00:35:32

from a sharpe ratio standpoint.

589

: 00:35:33

Rodrigo Gordillo: Yeah.

590

: 00:35:34

Adam Butler: so, I mean, it's

like Rodney Dangerfield, man.

591

: 00:35:37

It just don't get no respect.

592

: 00:35:39

I think it really needs

a lot more respect.

593

: 00:35:41

It, it earns a substantial sleeve in

portfolios alongside corporate bonds, and

594

: 00:35:47

I would urge you to take a closer look

595

: 00:35:49

Rodrigo Gordillo: Yeah, if you're

looking at corporate bonds, high-yield

596

: 00:35:51

bonds, what you are doing is you're

taking-- So, so again, I think it's

597

: 00:35:54

super important what Adam said, right?

598

: 00:35:56

If we disaggregate your high-yield

bonds, your corporate bonds, if we

599

: 00:35:59

actually examine where the returns come

from of tho- of, of that, it's a stack.

600

: 00:36:03

Let's, even though you don't

think it's a stack, it is.

601

: 00:36:05

It's basically the return of

Treasury, a la- the Treasury ladder,

602

: 00:36:09

and the credit, premium, okay?

603

: 00:36:12

That's what you are getting when

you are taking on, when you're

604

: 00:36:15

buying a cr- a, corporate bond fund.

605

: 00:36:18

All we're saying here is like, look,

we got-- we're giving you that Treasury

606

: 00:36:22

ladder, and we're stacking something

different, something that has, as

607

: 00:36:25

a stack, a similar risk profile as

the other stack that you're used

608

: 00:36:29

to, that tends to have a 10% to 20%

allocation in most advisors' portfolios.

609

: 00:36:36

And we're saying, "Look, do

you want the same level of

610

: 00:36:40

directional risk as your equities?"

611

: 00:36:41

'Cause that's what credit…

612

: 00:36:42

We've always heard, like, corporate

bonds act like a bond on the way up and

613

: 00:36:46

act like the st- stocks on the way down.

614

: 00:36:48

We saw it in 2008.

615

: 00:36:49

We saw, we've seen it numerous times.

616

: 00:36:51

You kind of saw it here in this chart, the

black line taking a massive dip, right?

617

: 00:36:55

That's the credit acting in the

same direction as your equities.

618

: 00:36:58

That's not the diversifier

part of your bonds.

619

: 00:37:01

It's the Treasury ladder that's

a diversifier part of your bonds.

620

: 00:37:03

And so, what do you want to stack on

top to give the, the-- if you were to

621

: 00:37:07

get, switch out of credit, funds and

high-yield funds into another bond fund,

622

: 00:37:12

I think this is a great substitute.

623

: 00:37:14

And, uh, and you can see here by the green

line just how, how much smoother the ride

624

: 00:37:17

is and less risky it is on the downside.

625

: 00:37:21

So, do not sleep on this.

626

: 00:37:23

We have a couple of pieces that

really lay this out simply.

627

: 00:37:26

Go to the website, go to the literature

page, and, and explore, the merger

628

: 00:37:30

arbitrage and RSBA component.

629

: 00:37:33

if there are any questions on that,

just please post them on the site.

630

: 00:37:38

Okay.

631

: 00:37:38

RSBA for the last three months, was up

one point four three percent versus US

632

: 00:37:43

Treasury ladder at zero point three two.

633

: 00:37:46

same kind of return as US corporates and,

uh, slightly higher in, in US T-bills.

634

: 00:37:51

So it's doing its job slowly

but surely edging forward.

635

: 00:37:56

All right, now to the fun one, RSSX.

636

: 00:38:00

So RSSX is stacking a, a gold Bitcoin

strategy on top of US equities.

637

: 00:38:08

The gold Bitcoin strategy is a equal

risk contribution, strategy, so it's

638

: 00:38:13

not set weights to gold or Bitcoin.

639

: 00:38:17

It's looking at the recent history,

and as volatilities change between

640

: 00:38:22

the two, we are giving more

weight to one versus the other.

641

: 00:38:26

Gold tends to have significantly less

volatility than Bitcoin, therefore gold

642

: 00:38:30

tends to represent a higher, weight

in the overlay, in the, in the stack.

643

: 00:38:35

So that ratio will change over time,

but the goal here is that they both

644

: 00:38:41

contribute the same amount of risk.

645

: 00:38:43

Okay?

646

: 00:38:43

Now, for Q1, the diversification

benefits of this stack were

647

: 00:38:50

quite clear to everybody, right?

648

: 00:38:52

Gold did fantastic.

649

: 00:38:54

Bitcoin didn't do so well,

but it was a great diversifier

650

: 00:38:57

for the equity portfolio.

651

: 00:38:59

Gold was up, Bitcoin was down.

652

: 00:39:01

In the second half, both

gold and Bitcoin were down.

653

: 00:39:03

But actually, from a risk-adjusted

perspective, Bitcoin was down less.

654

: 00:39:07

Even though they seem like they've

gone and, and looked in the same

655

: 00:39:10

direction, the drift seems very similar.

656

: 00:39:12

The correlation between gold and Bitcoin

was around point four nine for the, for

657

: 00:39:17

the year, and the same for the quarter.

658

: 00:39:19

So correlation's still low.

659

: 00:39:21

It just happens to be one of those

quarters where both of them are

660

: 00:39:23

down, at a time when equities are up.

661

: 00:39:25

So equity's up around

fourteen, fifteen percent.

662

: 00:39:27

The gold-Bitcoin, match was down

around fourteen-plus percent.

663

: 00:39:31

Okay, so not a great quarter

for this, but as a diversifier,

664

: 00:39:36

we see the benefits, right?

665

: 00:39:37

It- it's zigging when the

other assets are zagging.

666

: 00:39:42

so it's not a, not much more of a story

there other than it's doing exactly

667

: 00:39:46

what we expect it to do, and it's,

it's, tracking the indices quite well.

668

: 00:39:51

But sadly, for that quarter, the

gains from the S&P 500 were more

669

: 00:39:56

than offset by the losses of the

stack, so we're down around two

670

: 00:39:59

percent for the quarter, or 1.55

671

: 00:40:02

when you look at the NAV.

672

: 00:40:04

You can see here bit gold down

fourteen percent, Bitcoin down twelve.

673

: 00:40:07

Risk-adjusted, Bitcoin did,

obviously better if we were

674

: 00:40:10

to match the volatilities.

675

: 00:40:14

So that was an easy one.

676

: 00:40:15

so- That's, that's the

the quarterly report.

677

: 00:40:21

let's go ahead and, you know, before

we open it up for questions, I do

678

: 00:40:25

want-- I think we're talking about a

great analogy as to what we're trying

679

: 00:40:29

to do here with the Return Stack ETFs.

680

: 00:40:31

what we've seen, obviously, is

that there are a few favorites.

681

: 00:40:33

I think we came to market and really went

after a market of advisors that had been

682

: 00:40:38

pitched diversification for decades, but

every time they tried it, they got burnt.

683

: 00:40:44

And that diversifier that, that they've

heard the pitch for for 20-plus years,

684

: 00:40:49

I, I certainly heard it when I was,

when I started in the business in the

685

: 00:40:52

early noughts, where trend following was

the clear winner of, as a diversifying

686

: 00:40:59

asset class that really had, like, zero

correlation to equities, and, you would

687

: 00:41:03

see charts of managed futures trend

match with S&P 500, and if you put them

688

: 00:41:08

together, they're, they're pretty good.

689

: 00:41:10

And, and then you bought it, and you had

to, to sell your S&P 500 to buy this weird

690

: 00:41:14

thing, and the weird thing did flat for

three years as S&P 500 ended up, did 20%.

691

: 00:41:19

You, you just got sick of it.

692

: 00:41:20

So three years later, you

get pitched at it again, you

693

: 00:41:23

try it again, you get burned.

694

: 00:41:24

So it's been a couple decades where

advisors have been pitched trend

695

: 00:41:27

following, gotten burned, and I think

the r- the magic of, the Return Stack

696

: 00:41:31

concept is that we're able to blend

those and allow for diversification

697

: 00:41:39

without a lot of sacrifice from your

core stock and bond allocations.

698

: 00:41:43

And because it's blended in a single line

item, it's, it's masked from a lot of

699

: 00:41:47

pain of pointing to that particular asset

class and saying, "Hey, I want that."

700

: 00:41:51

But because they've been pitched trend

following for 20 years We got a, one

701

: 00:41:56

of our, our biggest ETF is RSST, right?

702

: 00:42:00

It, it, it's obvious.

703

: 00:42:01

Nobody really had been pitched

a lot of-- Nobody's pitched-- I,

704

: 00:42:05

I haven't seen a carry strategy

before, managed futures carry.

705

: 00:42:08

gold has always been a weird one because

it, it's a diversifier that nobody

706

: 00:42:13

really understands, so it falls in the

same category of people knowing gold

707

: 00:42:16

but not being able to allocate to it.

708

: 00:42:18

And then, of course,

Bitcoin is a small weight.

709

: 00:42:21

All of these are kind of becoming

more popular, but as a diversifier,

710

: 00:42:26

especially if they're stacked.

711

: 00:42:27

But I think the whole purpose of this

is not to say that, "Hey, one of our

712

: 00:42:32

stacks is better than the other."

713

: 00:42:33

What we want you guys to take away is

if you don't have perfect foresight,

714

: 00:42:38

if you don't have, a crystal ball

and you're bought into this concept

715

: 00:42:42

of return stacking and portable

alpha, and you're questioning

716

: 00:42:45

like, "What should my stack be?"

717

: 00:42:47

I think we would encourage

you to diversify your

718

: 00:42:52

diversifiers as much as you can.

719

: 00:42:54

And I know we're talking about an

analogy, especially when people

720

: 00:42:57

look at, managed futures trend

and, the futures yield strategies.

721

: 00:43:01

They see the same universe and we're

attacking it from different angles.

722

: 00:43:05

it's tough for them to say, "Well,

if you put them together, aren't

723

: 00:43:07

we gonna get a zero return?"

724

: 00:43:09

you were, you had, you were

in a couple podcasts this week

725

: 00:43:11

and had a pretty neat analogy.

726

: 00:43:12

Why don't we go through that to

see if we can kind of crystallize

727

: 00:43:14

the concept here a little bit?

728

: 00:43:17

Adam Butler: Yeah.

729

: 00:43:17

Well, it sort of resurrected a metaphor

that we, I remember we used to use

730

: 00:43:21

quite a bit, a few years ago, and

I think it just is so apropos here.

731

: 00:43:25

But the idea is you guys may be

familiar or have seen the picture

732

: 00:43:30

of the black hole that, was making

the rounds a few years ago, right?

733

: 00:43:35

And you may remember that that, that

image was constructed using a, a coalition

734

: 00:43:44

of telescopes that collectively they

called the Event Horizon Telescope.

735

: 00:43:49

but they were spread out

all over the world, okay?

736

: 00:43:51

So they were s- s- in some cases,

several thousand, kilometers apart.

737

: 00:43:56

Each individual telescope often had

dozens or sometimes hundreds of these,

738

: 00:44:02

dishes pointed at the sky, right?

739

: 00:44:04

they were measuring the, or observing

the event in a wide variety of the

740

: 00:44:12

electromagnetic spectrum, right?

741

: 00:44:13

From sort of X-rays up to

ultraviolet, infrared, et cetera.

742

: 00:44:17

and if you were to just take one

telescope's view at one spectrum of

743

: 00:44:24

the infrared, o- one, part of the

infrared, the electromagnetic spectrum,

744

: 00:44:29

to view the black hole, y- it would

not look at all like a black hole.

745

: 00:44:32

It would look…

746

: 00:44:33

It would have zero resolution.

747

: 00:44:35

It would look terrible, right?

748

: 00:44:36

It was only by virtue of viewing this

object from so many different perspectives

749

: 00:44:42

that you were allowed to have this, this

resolution of information that allowed

750

: 00:44:47

us to construct this amazing image.

751

: 00:44:49

Now, let's look at what

trend and carry are doing.

752

: 00:44:53

Trend is kind of looking in the back, in

the rear view mirror at what the markets

753

: 00:44:58

have done and expecting that to continue.

754

: 00:45:01

And historically, that's

been a good strategy, okay?

755

: 00:45:05

No question.

756

: 00:45:06

But it's just one source of information

Carry is looking at a completely

757

: 00:45:11

different source of information.

758

: 00:45:12

It's what is-- how is the front

month currently relative to the other

759

: 00:45:18

liquid back-month contracts, okay?

760

: 00:45:20

What's the slope of that

futures term structure?

761

: 00:45:23

What does that tell us about current

supply-demand dynamics, okay?

762

: 00:45:28

Those are completely different views

on the same object, and the magic is

763

: 00:45:35

in the resolution of con- of combining

the trend views and the carry views.

764

: 00:45:41

And you see that obviously in the low

correlation between the carry strategy

765

: 00:45:46

returns and the trend strategy returns,

which we've observed s- in live trading

766

: 00:45:50

since inception, but we also see

over very long time horizons, and in

767

: 00:45:55

how they have responded to different

shocks, different market shocks.

768

: 00:45:59

About half the time, trend rises

to the occasion during a market

769

: 00:46:03

shock, but it doesn't always work.

770

: 00:46:06

And about half the time, carry rises to

the occasion, but it doesn't always work.

771

: 00:46:10

When you combine them in a portfolio,

now you've got a pretty decent

772

: 00:46:14

chance that one or the other is

gonna be activated in the right way

773

: 00:46:18

during the next market shock, right?

774

: 00:46:21

So there's just so many different

reasons why you wanna own both of

775

: 00:46:25

them in the portfolio rather than

just sticking with the one you know.

776

: 00:46:29

And I recognize that, that there's

a little discomfort with carry.

777

: 00:46:33

It's a little harder to wrap your head

around, but that's why we are here.

778

: 00:46:37

You know, it's why we spend so much time

trying to write articles and reports.

779

: 00:46:42

We get on…

780

: 00:46:42

Corey was just on, not so long ago

with a, a webinar on trend and carry.

781

: 00:46:49

Spent a lot of time

continuing to build intuition.

782

: 00:46:52

and that's why the sales team is

here and why we're here to help

783

: 00:46:55

build intuition for these strategies.

784

: 00:46:57

So it is worth getting over the hump.

785

: 00:47:00

help us help you.

786

: 00:47:01

We are here to help and, and,

and I think it'll make a big

787

: 00:47:03

difference for you and your clients

788

: 00:47:05

Rodrigo Gordillo: Yeah.

789

: 00:47:05

And on that note, we are continuing

to push out tools and, and

790

: 00:47:10

articles that'll help you along.

791

: 00:47:11

So if you go to the Return Stacked

ETFs website and you hover over

792

: 00:47:14

the tools header, you'll note that

there is an optimize your stack mix.

793

: 00:47:20

There's a couple of other visualizer

tools that allow you to kind of mix

794

: 00:47:23

and match the kind of allocations

to-- for you to see for yourself,

795

: 00:47:27

whether these make sense and, you know,

what you feel more comfortable in.

796

: 00:47:31

What do you believe in more than,

you know, if you don't believe in

797

: 00:47:34

gold and Bitcoin, you try just carry.

798

: 00:47:35

And you'll, you get a, you

get a sense for all of that.

799

: 00:47:38

And we just launched, the advisor

portal, completely revamped.

800

: 00:47:42

We're gonna add to it.

801

: 00:47:43

So if you're an advisor out there

and you go to, to the, uh, tools,

802

: 00:47:47

the advanced tools section, you'll

be able to register, log in.

803

: 00:47:51

We'll, we'll have to review your

application to make sure that

804

: 00:47:54

you're a financial professional.

805

: 00:47:56

But, you'll then get access to,

to these advanced tools and model

806

: 00:47:59

portfolios that'll help you really,

really understand on your own.

807

: 00:48:03

And then you can save portfolios, you

can download PDF versions of what you've

808

: 00:48:07

looked at, and, and a few more tools

are coming down the pipe in the next

809

: 00:48:12

couple of weeks as well that that'll

help, like retirement tools and, you

810

: 00:48:16

know, build your own stack type of

tools where you can upload your own

811

: 00:48:19

portfolio and, and then see what you

can jig around in order to, to add more,

812

: 00:48:24

to add Return Stacked ETFs, what that

would look like, et cetera, et cetera.

813

: 00:48:27

So this is brand new.

814

: 00:48:28

If you're an advisor still listening

here, I would urge you to sign up.

815

: 00:48:32

and again, it's on-- Just go to

the tools, in Return Stacked ETFs,

816

: 00:48:36

and you'll be able to get there.

817

: 00:48:38

we've also published a

f- a couple new pieces.

818

: 00:48:41

Again, I emphasize go to,

to the literature page,

819

: 00:48:43

returnstackedetfs.com/literature,

820

: 00:48:46

and take a look at the latest

articles, especially the start here

821

: 00:48:49

articles, if you're st-still kind of

wrapping your head around the concept.

822

: 00:48:53

And ultimately, look, we're here to help.

823

: 00:48:55

We have a large team of really good

professionals and, and portfolio

824

: 00:49:01

specialists that can just help you,

like, look at the portfolio, see

825

: 00:49:04

where we can find small wins, and

help you build something, help you

826

: 00:49:09

start crawling into the Return Stack

concept, and then we, we can think about

827

: 00:49:13

walking and running at a later time.

828

: 00:49:16

so yes, that's-- I just-- You know,

those are brand new things, that, that'll

829

: 00:49:21

really get you along and do reach out.

830

: 00:49:24

And again, the last, the ultimate thing

we want people to realize is that it's

831

: 00:49:28

just about diversification, right?

832

: 00:49:29

We're not, we, we're not really

pitching one over the other.

833

: 00:49:33

We don't have favorite stacks.

834

: 00:49:35

we just want to add

diversifiers to the community.

835

: 00:49:38

And if you don't like the r-diversifiers

we have, that's where we have the

836

: 00:49:41

100% global equity, 100% bond, when

you can choose your own adventure.

837

: 00:49:45

And look out for articles on

that as well in ways that you

838

: 00:49:48

can use that in creative ways.

839

: 00:49:50

Um,

840

: 00:49:51

Adam Butler: answer this

question, I think, right?

841

: 00:49:52

Someo- someone asked about trade

netting opportunities between

842

: 00:49:55

trend and carry strategies.

843

: 00:49:57

And, I mean, look, it's a wonderful

question, and it, it ends up

844

: 00:50:00

being a bit of a trade-off.

845

: 00:50:02

I think, our experience is that many

advisors like the opportunity to be able

846

: 00:50:08

to mix and match and, and add the right

amount of trend and carry and other

847

: 00:50:13

alternatives to the portfolio without

being kind of forced to hold equal risk

848

: 00:50:20

in, in trend and carry, and I guess in

other potential diversifying factors.

849

: 00:50:26

and, I mean, if you do combine them in

a fund, the fact that they get their

850

: 00:50:31

signals from different, from different

sources of information means that they

851

: 00:50:36

are sometimes trading against one another.

852

: 00:50:39

And if you do that in the same portfolio,

obviously if, if one strategy is saying

853

: 00:50:45

you wanna buy a new contract in a

market and the other is saying you'd

854

: 00:50:49

wanna sell another contract in the

market, you just don't trade that day.

855

: 00:50:53

And so you do trade…

856

: 00:50:53

You do save on, on trading costs, right?

857

: 00:50:57

so yeah, there's trend netting if

you, if you run them both in a fund

858

: 00:51:01

like we do in SMAs and like we do in,

in our mutual funds and hedge funds.

859

: 00:51:05

But then you give up the flexibility,

that you get with running them in

860

: 00:51:09

individual strategies like in the

return stacked ETFs, where you get

861

: 00:51:14

to control how much exposure you

want to allocate to one or the other.

862

: 00:51:18

So I

863

: 00:51:18

Rodrigo Gordillo: Transparency ends

up being, as we know, we've gotten

864

: 00:51:22

a lot of love for our transparency.

865

: 00:51:24

You- we've shown you our, our website

and the kind of the widgets in order

866

: 00:51:30

to show you w- how carry is measured

and how transition plots work and,

867

: 00:51:35

and trend and carry and, you know.

868

: 00:51:38

Transparency goes a long way

in people being able to s-

869

: 00:51:41

hang in there for the long run.

870

: 00:51:42

And so it's a trade-off between behavioral

success and then, you know, edging out

871

: 00:51:48

some benefits on the trade netting.

872

: 00:51:50

what's another question here?

873

: 00:51:51

so h-

874

: 00:51:52

Adam Butler: much in the way

of, of hidden financing costs

875

: 00:51:55

Rodrigo Gordillo: Yeah.

876

: 00:51:55

Well, let's a- let's ask a question first.

877

: 00:51:57

So let's show everybody

what the question is.

878

: 00:52:00

s- struggle to understand the differences

in hidden financing costs spread for

879

: 00:52:04

rolling futures between RSST and RSBT.

880

: 00:52:07

Where can I find more

information on those?

881

: 00:52:10

All right.

882

: 00:52:11

So Adam, you were saying?

883

: 00:52:14

Adam Butler: Yeah.

884

: 00:52:14

I, so I mean, the, the bulk of both of

those funds is the beta is invested in,

885

: 00:52:22

you know, c- a cash equity ETF, right?

886

: 00:52:25

and then there's a, a sleeve of, call

it 20, 25% that is invested in, in

887

: 00:52:31

futures because we need to also free up

capital to invest to collateralize the

888

: 00:52:37

managed futures stack overlays, right?

889

: 00:52:40

so call it 75% is just like being invested

in, in the lowest cost, or we try to keep

890

: 00:52:46

it to the lowest cost cash-based ETF.

891

: 00:52:49

so the only financing cost is

in the futures, portion of it.

892

: 00:52:54

And yeah, I mean, the, the, the funding

cost will be a little bit different.

893

: 00:52:58

Right now, for example, the

funding cost in S&P 500 index

894

: 00:53:02

futures is higher than average.

895

: 00:53:05

the same is not true for Treasury futures.

896

: 00:53:08

So the, the funding cost will be a

little bit different from time to time,

897

: 00:53:13

depending on the funding markets really.

898

: 00:53:16

over time, we don't expect that

to have a, a super meaningful

899

: 00:53:20

impact on, on, on the portfolios.

900

: 00:53:23

And, and if we look back through time and

we measure that, certainly the benefits

901

: 00:53:28

you get from, from being able to stack the

diversifiers have dramatically overwhelmed

902

: 00:53:34

whatever the, the variation in funding

costs might be on that sliver that we

903

: 00:53:39

use futures for instead of, of cash.

904

: 00:53:42

Rodrigo Gordillo: Yeah.

905

: 00:53:42

So we're not using-- we're not

funding our equity allocation

906

: 00:53:46

with 100% futures contracts.

907

: 00:53:48

We're not funding 100% of

RSBT with treasury futures.

908

: 00:53:53

We are getting as much as we can from cash

securities, so you're gonna get exactly

909

: 00:53:57

what those cash securities provide.

910

: 00:54:00

Invest the rest in T-bills, and then

whatever collateral we need to fund

911

: 00:54:05

those futures contracts will go in.

912

: 00:54:06

Yes, recently the funding costs

in the S&P 500 has been higher.

913

: 00:54:11

That, that vacillates,

that goes, high and low.

914

: 00:54:13

So over long periods of time, we're

looking at, you know, 10, 10 to 40

915

: 00:54:19

basis points in moving up and down for

the financing costs on average, right?

916

: 00:54:24

You'll have times where th-

there'll be momentary, increases

917

: 00:54:28

in that and decreases, but on

average, that's what you get.

918

: 00:54:31

three minutes left.

919

: 00:54:32

I wanna remind everybody

of one last thing.

920

: 00:54:35

We have the symposium, the Return

Stack Symposium coming up in October.

921

: 00:54:42

If you don't know about that,

last year was a fantastic success.

922

: 00:54:45

We had incredible speakers.

923

: 00:54:46

We had the, the CIO of Delta Pension

Plans talking about how he brought

924

: 00:54:51

an under, funded, pension plan,

significantly underfunded pension

925

: 00:54:55

plan, like, I think underfunded by

60%, to funded by a combination of

926

: 00:55:01

working with Delta Airlines and doing

portable alpha and return stacking.

927

: 00:55:05

This year, if you go to our website

and, and go to Insights and then

928

: 00:55:10

Events, you will see the-- I'll

share my screen just quickly.

929

: 00:55:15

you will see that the

event is a stacked lineup.

930

: 00:55:17

We're starting it off with Cliff Asness

of the-- of AQR, who of course, has

931

: 00:55:24

been doing this and talking about this,

putting his money where his mouth is

932

: 00:55:28

since the beginning of his career.

933

: 00:55:29

but it, you know, it has been-- It

was such a great event last year.

934

: 00:55:34

Our speakers are also, you know,

we got it from, uh, allocators from

935

: 00:55:40

Memco, JP Morgan, Man Investments, AQR.

936

: 00:55:43

And we're gonna be walking through a

combination of like how the institution's

937

: 00:55:46

doing and why it works, and then how you

bring it down to a level of the advisory

938

: 00:55:50

space and how we implement and we help

advisors really simplify and implement

939

: 00:55:57

in that crawl, walk, run, framework.

940

: 00:55:59

So go to returnstacked.com,

941

: 00:56:03

go to Insights and Events, or you

can do /return-stacking-symposium.

942

: 00:56:09

We gotta get better at these

URL naming conventions.

943

: 00:56:12

And, and register.

944

: 00:56:13

You can go all the way, reserve

your seat here at the bottom

945

: 00:56:15

and put in your information.

946

: 00:56:17

We will review your application

and, And we will let you know.

947

: 00:56:21

That is on October 28th in

Chicago's, s- old main post office.

948

: 00:56:26

It's a beautiful space.

949

: 00:56:27

lots of stuff to do in Chicago.

950

: 00:56:29

There's also blocks, hotel

blocks available, and that's

951

: 00:56:33

first come, first serve.

952

: 00:56:34

So please do make your

way there, examine it.

953

: 00:56:37

I promise you it'll be worth your time

if you can, if you can head out to

954

: 00:56:40

Chicago for a quick, one-day event.

955

: 00:56:44

All right

956

: 00:56:45

Adam Butler: It's a lot of fun, and

we're at, right at the hour, Rodrigo.

957

: 00:56:48

Rodrigo Gordillo: And, and you're gonna

get to meet the whole Return Stack team.

958

: 00:56:50

Every single one of us is gonna be

there, so, you know, we'll, we'll be

959

: 00:56:54

able to answer all of your questions

live and in person All right.

960

: 00:56:58

Thanks everybody.

961

: 00:56:59

Thank you, Adam

962

: 00:57:01

Adam Butler: Thank you, sir.

963

: 00:57:01

Well done.

964

: 00:57:02

Thanks, guys.

965

: 00:57:03

See you next time