For decades, investors have faced a fundamental challenge: how to effectively diversify their portfolios without sacrificing returns. The conventional wisdom has been that adding alternative investments requires selling a portion of core holdings, often leading to underperformance when traditional assets rally. But what if there was a way to achieve diversification without making that trade-off? Enter Return Stacking and the newly launched Return StackedĀ® Global Balanced & Macro ETF (ticker:RGBM), the first of its kind to be listed on the Toronto Stock Exchange, which seeks to provide a more capital-efficient approach to portfolio construction. This launch builds on the success of the Return StackedĀ® suite of U.S. ETFs, which has amassed over $1.4 billion CAD in AUM in under two years, this Canadian ETF marks another milestone for the group.
RGBM is now the second ETF launched under LongPoint's unique ETF partnership platform.
"LongPoint simplifies the launch, operation and growth of ETFs which can be daunting and commercially unviable for many asset managers looking to enter the Canadian ETF market. With our flexible platform, it can allow our partners to focus on their own areas of expertise while we operate and oversee the ETF," said Steven Hawkins, CEO of LongPoint. "LongPoint is excited to be partnering with ReSolve, ReSolve Global and Newfound on RGBM and I am personally thrilled to be working again with the teams at ReSolve and ReSolve Global."
"We knew we wanted to bring our RGBM strategy to Canadian investors in an ETF wrapper and are very excited to be partnering with leading firms like LongPoint and the TSX to do so," said Mike Philbrick, CEO of ReSolve Global. "Collaborating again with Steve Hawkins under his innovative ETF partnership platform is highly beneficial for us, given his deep product expertise and proven success in the Canadian ETF industry."
The Challenge of Traditional Diversification
The traditional 60/40 portfolioā60% equities, 40% bondsāhas long been a mainstay of balanced investing. However, recent market conditions have exposed some of its weaknesses. Periods of rising inflation, interest rate volatility, and increased market correlations have challenged the assumption that bonds will always serve as a hedge against equity declines.
Historically, investors seeking diversification have turned to alternative strategies such as managed futures, commodities, and systematic macro strategies. However, the need to fund these allocations by reducing stock and bond holdings has created a dilemma. If alternatives underperform during equity bull markets, investors may experience a drag on returns, leading to frustration and second-guessing their diversification choices.
"We are incredibly excited to bring RGBM's innovative investment approach to the ETF market, allowing Canadian investors to allocate in a similar manner to how many of our world-class pension plans have done for decades," said Rodrigo Gordillo, President of ReSolve Global. "RGBM has the potential to completely change how asset allocation is approached by providing investors access to a liquid alternative packaged in a way that can align with their behavioral preferences.ā
Return Stacking: An Innovative Approach
Return Stacking offers a different way to think about portfolio construction. Rather than reallocating capital away from traditional assets to alternatives, this approach enables you to overlay new return streams on top of existing ones. Through the use of capital-efficient instruments such as futures, investors can āyes, andā the allocation problem by maintaining their core stock and bond allocations while adding exposure to complementary strategies.
This method has been employed by institutions for decades under the concept of portable alpha, but until recently has often been out of reach for individual investors due to regulatory constraints. Now, with the introduction of liquid new liquid alternative regulations and ETFs like RGBM, return stacking is becoming more accessible to a broader range of investors.
RGBM: A Capital-Efficient Solution
The Return Stacked Global Balanced & Macro ETF (RGBM) is designed to provide $1 of exposure to a global balanced portfolio (50% global equities, 50% Canadian bonds) while also layering on $1 of exposure to a systematic macro strategy. This means that for every $1 invested, the fund provides $2 of diversified exposure, enhancing both return potential and risk mitigation.
RGBMās systematic macro strategy employs a data-driven, rules-based approach to trading across dozens of equities, bonds, commodities, and currencies. By taking both long and short positions, it seeks to capitalize on macroeconomic trends and market dislocations, offering a return stream that has historically exhibited low correlation to traditional stocks and bonds.
Key Benefits for Investors
RGBM introduces a number of potential advantages for investors looking to improve portfolio resilience and efficiency:
- Enhanced Diversification Without Sacrificing Core Holdings: Investors can gain exposure to alternative return streams while maintaining their traditional stock and bond allocations.
- Capital Efficiency: By layering exposure, RGBM allows for more strategic portfolio construction, maximizing the use of each invested dollar.
- Potential Inflation Protection: Systematic macro strategies have historically performed well in inflationary environments, providing an additional hedge.
- Tax Efficiency: RGBM aims to minimize taxable distributions, offering a potential advantage over traditional funds.
"For allocators, liquid alternative diversification has historically been a process of addition through subtraction, where investors are forced to sell core stocks and bonds to make room in their portfolio. Return Stacking enables an entirely different paradigm of portfolio construction by allowing investors to gain 2 for 1 exposure to distinct strategies inside a single investment," said Adam Butler, Chief Investment Officer of ReSolve Global.
A New Perspective on Portfolio Construction
RGBM represents a step forward in how investors can think about diversification. Rather than being forced to choose between traditional assets and alternatives, investors now have a way to incorporate both in a more capital-efficient manner. For example, investors can sell 5% of their bonds and 5% of their equities then buy 10% of RGBM where they will get their 5% of equities and 5% of bonds right back but with the additional benefit of stacking a further 10% of strong diversifier that historically has shown to make positive returns during equity bear markets and periods of inflationary shock.
While the traditional 60/40 model remains a foundational approach for many, innovations like Return Stacking are opening the door to more flexible and resilient portfolio designs. RGBM is the first ETF launched in Canada to package this strategy for wider adoption, providing Canadian investors with new tools to navigate evolving market conditions.
In an environment where uncertainty is the only constant, the ability to maintain a balanced core while incorporating diversifying return streams could prove to be an invaluable advantage. RGBM offers a compelling solution for those looking to embrace this new way of thinking about portfolio construction.
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About LongPoint Asset Management Inc.
LongPoint Asset Management Inc. delivers innovative ETF solutions designed to enhance your Canadian investing journey. With over 50 years of combined expertise in the ETF market, our dedicated team leverages deep industry connections and local insights to design, build and launch exceptional ETFs tailored for Canadian investors. Discover the value of investing with LongPoint.
About ReSolve Asset Management Inc.
ReSolve is an alternative asset management firm focused on providing globally diversified systematic investment strategies for Canadian and U.S. private wealth, investment advisors, foundations, and institutional clients. ReSolve also offers high-end trading, operations, and distribution capabilities.
About ReSolve Global
ReSolve Global develops globally diversified systematic investment strategies and provides research and trading signals to global firms. The firm also sub-advises on various private hedge funds and public funds in Canada, the U.S. and offshore markets.
About Newfound Research LLC
Newfound is a quantitative investment and research firm dedicated to helping investors unlock the benefits of diversification through Return Stacking. The firm manages alternative strategies and capital-efficient solutions that allow investors to implement Return Stacking concepts effectively.
