In this episode, we explore the concept of diversification by way of capital-efficient investing, through a strategy coined ‘Return Stacking’ and how historically, institutions have traditionally had more access to sophisticated strategies than retail investors and financial advisors. That has changed in the last 2-3 years with the advent of the introduction of ETF wrapped strategies now available to retail investors.

We discuss why diversity and prudent use of implicit leverage are important factors in investing, and how adding leverage to an asset that is already expected to outperform cash can increase excess expected returns. We touched on the performance of a 60/40 portfolio and why adding something to the portfolio that will diversify and have positive expected returns may be beneficial, particularly if you don’t have to trade down or out of core model portfolio allocations.

We also discuss the 2022 market environment as an example of a growth down/inflation up environment and how using capital efficient ETFs can allow investors to introduce a diversifying secondary return stream and enhance returns, without introducing tracking error risks.

The episode also covered the lack of building block solutions in the ETF space, led Newfound Research to partner with Resolve to bring several ETFs to market. The ETFs, called “Return Stacked,” were launched in February 2022, offering diverse combinations of stocks, bonds, and alternative trading strategies as building blocks for diversified portfolios.

Both Newfound Research and ReSolve Asset Management understand deeply the importance of education, which is why we prioritize engaging with the advisor community and providing accessible content.

We encourage you to reach out to us via LinkedIn, Twitter, or our websites (Newfound.com, InvestReSolve.com and Returnstacked.com) with any questions or comments.

We hope this episode provided valuable insights and tools to help you make informed investment decisions.

Thank you for tuning in, and we look forward to bringing you more unique perspectives in future episodes.

[00:07:24] “ETFs: Key Driver in Evolution of Investment Strategies”

[00:14:10] The Capital Efficiency Strategies of Institutions Explained

[00:24:15] “Unlocking Capital Efficiency through Alternative Investments”

[00:35:39] “Exploring how investments respond to economic environments”

[00:38:34] “Managed Futures and Systematic Macro: Diversification Done Right”

[00:43:47] Newfound and ReSolve Launches ETF Building Blocks for Advisors.

[00:48:37] The Pros and Cons of Leverage in Investing

[00:59:51] “Understanding Hurdle Rates and Leveraging Investments”

[01:04:05] “Efficient markets drive fair compensation for risk”

[01:16:37] “Maximizing Advisor Allocation with Passive Investments”

=======================

Where to find Corey Hoffstein, Rodrigo Gordillo, ReturnStackedETFs.com

=======================

Return Stacked ETFs

Newfound Research

ReSolve Asset Management

Corey Hoffstein on Linkedin

Corey Hoffstein on Twitter (@choffstein)

Rodrigo Gordillo on Twitter (@rodgordillop)

=======================

Where to find the Raise Your Average crew:

=======================

ReSolve Asset Management

ReSolve Asset Management Blog

Mike Philbrick on Linkedin

Rodrigo Gordillo on Linkedin

Adam Butler on Linkedin

Pierre Daillie on Linkedin

Joseph Lamanna on Linkedin

AdvisorAnalyst.com

In this episode we get into an insight-filled conversation about the current state of the markets and economy and analyze the potential risks and opportunities on the horizon with Jeffrey Sherman, Deputy CIO, DoubleLine Capital.

Timestamped Highlights

[00:07:52] Bond Market Reacts to Economic Slowdown and Banking Crisis

[00:14:32] “Regional banks face loan cost hikes and credit contraction”

[00:21:06] Banking Crisis Causing Recession Watch to Rise

[00:28:16] “Commodities may be key to combating inflation”

[00:32:49] “Banks brace for coming regulations amid pandemic”

[00:42:21] “Bank Liquidity and Outflows: Understanding the System”

[00:49:39] “The Crisis of Confidence: Crypto and Tech Markets”

[00:58:19] “Credit Suisse’s Risky Business: Warnings Ignored”

[01:00:48] The downfall of Credit Suisse: Privacy and Market Punishment.

[01:03:42] “Managing Risk and the Fragile Economy: Insights”

=======================

Where to find Jeffrey Sherman

=======================

Jeffrey Sherman on Twitter – @ShermanShowPod

Jeffrey Sherman on The Sherman Show

DoubleLine Capital

=======================

Where to find the Raise Your Average crew:

=======================

ReSolve Asset Management

ReSolve Asset Management Blog

Mike Philbrick on Linkedin

Rodrigo Gordillo on Linkedin

Adam Butler on Linkedin

Pierre Daillie on Linkedin

Joseph Lamanna on Linkedin

AdvisorAnalyst.com

On this episode of Raise Your Average™, Dave Nadig – Financial Futurist at VettaFi’s ETFTrends and ETFdb.com, joins us to discuss the interconnectedness of the banking system, the increasingly hyper-compliance culture in investment management, and the impact of emerging technologies like Chat GPT and AI. We dive into the recent banking crisis at SVB and how it highlights, for example, the need for better communication between advisors and clients during uncertain times. We also explore the potential of AI tools like Chat GPT to improve advisor services and the long term impacts of AI on the financial industry. Thank you for joining us for this thought-provoking conversation on the future of finance.

Highlights

[00:04:19] “Polycrisis: Understanding the Interconnectedness of Economic and Market Problems”

[00:07:44] “Financial Advisors React to SVB’s Collapse – how and when matters!”

[00:09:41] Navigating Compliance Culture in Investment Markets.

[00:13:08] Navigating Compliance: Finding Middle Ground for Communication.

[00:21:02] “The Banking Crisis: A Simple Systemic Issue?”

[00:28:36] “Overestimating and Underestimating AI: Mythbusting Explained”

[00:37:07] “e.g. Maximizing Chat GPT’s Editing Potential”

[00:42:03] “Trust and Providence: The Future of Reviews”

[00:46:08] “Improv and Humor: Keys to Achieving Sentience? AI is not capable of either, but it is highly capable and extremely useful.”

[00:47:59] “e.g. Chat GPT and Wolfram Alpha: Creating Connections”

Episode Summary

– The issue in the banking industry is systemic

– Fractional reserve banking allows for asset and liability mismatching, causing systemic risk

– Tightening the system is the solution to prevent people asking for their money back

– Financial advisors with wealthy clients had a different weekend due to SVB banking crisis

– Advisors reassure clients by showing portfolio’s exposure

– Rules in the investment market create a hyper-compliance culture

– Advisors need to find ways to communicate with clients that firms are comfortable with

– Multiple factors contribute to the SVB crisis

– Investing in high volatility opportunities has risks and rewards

– Design collaboration is essential for successful projects

– Advisors should stay informed and learn to effectively use AI tools like Chat GPT

– AI tools are developing quickly and will disintermediate big chunks of financial services workflows.

Where to find Dave Nadig, VettaFi

Dave Nadig on Linkedin

Dave Nadig on Twitter

ETFTrends.com

ETFdb.com

Where to find the Raise Your Average crew

Mike Philbrick on Linkedin

Adam Butler on Linkedin

Rodrigo Gordillo on Linkedin

ReSolve Asset Management

Pierre Daillie on Linkedin

Joseph Lamanna on Linkedin

In this episode, Sri Iyer, Head of i3 (i-cubed) Investments™, and Portfolio Manager at Guardian Capital LP, joined us for a provocative conversation about the banking crisis, the Fed, monetary policy, ChatGPT and AI, and the case for dividends as a core and resilient equity allocation for all portfolios.

We discussed the current state of regional bank stocks in the US, which took a hit due to the uncertainty surrounding the Silicon Valley Bank meltdown/collapse. However, Federal Reserve Chair Janet Yellen’s statement guaranteed all deposits, implying that the US government will guarantee 100% of deposits, providing some relief.

Turbulent Times

In a turbulent period, investors are seeking companies with wider moats and stable or growing dividends, as well as companies whose moats have shrunk. Depositors may pull their money out of lower-tier banks and shift them into tier one banks, while investors default back to high-quality, dividend-paying stocks. So, it’s essential to focus on consistent companies with a proven track record of growing dividends during uncertain times.

Stagflation?

We also discussed the concept of ‘stagflation’, which is a recession amid high inflation. The market believes that the Fed can engineer a soft landing, but this is a mistake. The main components of inflation are supply chain problems and persistent high labor costs due to labor force participation issues.

More Market Volatility Ahead

Geopolitical issues, such as the Ukrainian war and China’s impact on supply chains, are structural issues that cannot be solved by mere rate increases. These structural issues will lead to market volatility and turbulence, making it essential to separate beta and alpha. As a result, many experts believe that active management may be better than passive management right now.

Democratization of AI

We discussed the democratization of AI through open source tools such as Pytorch, which is making AI accessible to a wider audience. Chat GPT is one such AI tool that can be used for making decisions. It has the potential to revolutionize several industries such as software development, big data storage, cybersecurity, search engines, media content generation, music, legal sector, healthcare, pharmaceuticals, predictive analysis, and aerospace engineering.

Dividend Investing

Lastly, we talked about how dividends can provide a good conduit to capture duration visibility and have a mid space between safe deposits and risky duration, playing a vital role in this market. Also, we discussed how the Fed’s response to the market cycle is measured, and it’s more concerned about protecting the average investor than bailing out failing institutions.

Thank you for listening to our podcast. Stay tuned for more exciting episodes!

Timestamped Highlights:

[00:01:46] The Fed is responding to the market in a measured way, balancing inflation and protecting the average investor; not bailing out failing institutions.

[00:06:06] Chad GPT revolutionized the average person’s interaction with AI, leading to new levels of “humans and bots merging” and the emergence of new forms of AI like regenerative AI.

[00:09:00] AI processing data and training has been drastically changed with the introduction of Chat GPT, leading to democratization of AI.

[00:15:30] Chat GPT is a revolutionary AI that can change software development, data centers, cybersecurity, search engines, communication, media content, healthcare, pharmaceuticals, banks, and aerospace engineering.

[00:26:32] Dividend paying stocks help investors in turbulent markets with low volatility, downside capture, cash flow visibility and increased yield at cost.

[00:31:35] Secular cash flow/dividend growth gives consistency to company/cash flow, allowing for cleaner valuation and better market mismatch detection.

[00:39:51] Fed guarantees bank deposits to protect against cascading credit risk and inflation. Dividends provide mid-space between deposits and risky duration.

[00:51:59] Recession and high inflation due to labor costs and geopolitical issues, leading to market volatility and the need for active management.

[00:55:35] Dividend strategy has no cuts since inception; trained model on COVID data to recognize behavior and infer future trends.

[00:59:24] AI using transformers to create abstract data and learn from predictions of other models.

Guardian Capital LP is a sub-advisor on numerous funds for BMO Global Asset Management, BMO Exchange Traded Funds, and Horizons Exchange Traded Funds, in addition to managing its own suite of investment funds, and assets for large institutional clients.

Copyright © AdvisorAnalyst.com

In this episode of Insight is Capital™, we explore the current state of the market and its reaction to both weak and strong data.

Aubrey Basdeo, Head of Canadian Fixed Income at Guardian Capital LP, shares insights on external risks and how they affect the economy. We also discuss the importance of diversification through fixed income and the correlation of equities and fixed income. Basdeo, a pioneer of modern, active, systematic fixed income management, from his beginnings at Ontario Teachers’ Pension Plan, and 14 years at BGI/Blackrock iShares, emphasizes his and his team’s use of technology to make informed decisions.

He also discusses the portfolio management process, including the use of systematic models and the coexistence of scientific and fundamental approaches to manage Fixed Income. Finally, we delve into the delicate balance of the current economic climate and potential risks, such as the recent effects of runs on the banking system (i.e. SVB, First Republic, CS). Finally, Basdeo advises patience and caution when investing for the long term and offers tips for constructing a portfolio for the regime change ahead, where it’s critical to consider liquidity and value.

Highlights:

[00:05:23] Gaining global experience and applying new tools in global markets.

[00:08:16] Analyzing markets systematically with models to reduce cognitive bias and take the best of both fundamental and scientific approaches.

[00:14:18] Analyze data to make informed decisions.

[00:30:23] Potential risk of sharp slowdown, Fed acting decisively to prevent it, need to assess risks and act accordingly.

[00:34:06] Investment in fixed income must account for macroeconomic changes and expected monetary policy. Shorten duration and curve-steepening are likely needed. Opportunities lie in observing individual companies.

[00:38:56] Looser financial conditions may spur activity, but likely CPI decline until year-end; entering new regime of higher inflation, volatility, and terminal rate.

[00:42:29] Terminal rate of 3-3.5%, lower to maintain inflation and employment goals, fracturing of global economy leading to higher production costs.

[00:50:19] Need to diversify portfolio with fixed income to reduce risk and volatility, use cash equivalents to earn 5% return.

[00:55:23] Market reacts more to weak data than strong data; Fed and other central banks trying to balance supply and demand; external political risks difficult to hedge.

[01:01:18] Liquidity, value, patience.

Key Takeaways:

1/ The market is reactive to weak data more than strong data, and external risks of recent regional U.S. bank instability, Russia, Ukraine and China are difficult to hedge.

2/ Aligning with long-term asset management, the Guardian Capital Fixed Income team analyzes markets systematically through building models & interpreting their output to identify opportunities.

3/ Aubrey Basdeo advises caution and monitoring portfolios for potential risks, but doesn’t believe it’s time to make big investments.

4/ The delicate balance in the current economic climate means more volatility to come, particularly because of long and variable lags to monetary policy.

5/ To construct a balanced portfolio, always pay attention to value and don’t deviate from your discipline. Invest for the long term, and don’t rush to buy or sell.

6/ Lastly, don’t forget about the importance of liquidity stress testing – liquidity can disappear quickly in unexpected times.

John De Goey, Senior Investment Advisor and Portfolio Manager at Wellington-Altus Private Wealth joined us for this episode to discuss dangers of complacency arising from the industy’s optimism bias, as well as numerous others, threaten to derail the best laid plans of investment and financial planning and the finances of everyday investors. Our conversation covers a range of topics, including John’s career in finance, his latest book “Bullshift: How Optimism Bias Threatens Your Finances,” and the importance of addressing biases in investing. We also discuss the challenges of introducing new ideas in the financial services industry, the importance of realistic financial planning assumptions, and the need to reassess one’s investment strategy regularly. Among the ideas we emphasized here, was the importance of being ‘prepared’ for potential changes in the market, such as inflation, and building a more balanced portfolio that can withstand unexpected gyrations. Please enjoy our conversation, and thank you for tuning in.

HIGHLIGHTS

John De Goey’s career path [00:01:37] John De Goey moved to finance after studying public administration, has written books and articles to help consumers understand the industry and have better relationships with advisors.

[00:09:04] Advisors can provide value through behavioral coaching, which helps investors remain grounded and stay invested while being realistic.

[00:19:58] Lower expected returns and longer life expectancies may require more savings and a longer working life to achieve desired retirement lifestyle.

[00:26:00] 40-year bull market in bonds ended in 2022, rates to stay high, need to reassess investing strategies, widely anticipated recession.

[00:40:21] Invest in products with reasonable, risk-adjusted returns and non-correlated weekly returns to maintain optimism for the long run.

[00:45:14] Be prepared with two strategies, each less than 5% exposure; consider 15% allocation to alternatives, plan carefully to avoid large losses.

[01:06:30] CAPE is not good for timing markets; past experience doesn’t dictate future outcomes; risk of not paying attention to valuations.

[01:13:18] Central banks need to fight inflation to pivot; pain must be manufactured before pivot is possible.

[01:18:09] Investors may be taking on more risk than they think due to optimism bias and need to reassess, prepare for potential issues, and reflect on their portfolio.

[01:20:41] Advisors must recognize and reflect on their own biases to give better advice.

Where to find John De Goey:

John De Goey on Linkedin

John De Goey at Wellington-Altus Private Wealth

Get the book:

Bullshift: How Optimism Bias Threatens Your Finances

Where to find the RYA Crew:

Rodrigo Gordillo on Linkedin

ReSolve Asset Management

Pierre Daillie on Linkedin

https://AdvisorAnalyst.com

In this podcast episode, Aahan Menon, founder and Strategist at Prometheus Research, a systematic macro research firm, joins us to discuss his work, his firm’s unique approach to providing real-time insights into the evolution of markets and the economy through a data-driven, rules-based process, his model’s economic outlook, and resulting ETF model portfolio.

*****

Aahan’s background and founding of Prometheus Research [00:02:59] Aahan talks about his career journey and how his experiences led him to found Prometheus Research, a systematic macro research firm.

Unique approach of Prometheus Research [00:03:27] Aahan explains how Prometheus Research provides real-time insights into the evolution of markets and the economy through a data-driven, rules-based process, and how they aim to help investors of all sizes navigate macroeconomic cycles.

Navigating the tension between market and macroeconomic modeling [00:06:31] Discussion on how to navigate the tension between the market’s forward-looking discounting mechanism and the utility of macroeconomic series.

Opportunity set in macro investing [00:07:48] Explanation of how understanding the likely gap between a potential acceleration and what’s discounted in terms of a linear path is the opportunity set in macro investing.

Factors driving the forecast [00:19:33] Discussion on the factors driving the current forecast, including monetary tightening and debt service burdens.

Housing activity and employment contraction [00:20:45] Discussion on the contractionary condition of the economy, the impact on the housing sector, and the potential for a recessionary condition.

Softening of the labor market [00:26:34] The potential for a recessionary contraction despite historically low unemployment rates, and the projection of sub 2% unemployment rate by the end of the year.

Employment and Inflation [00:34:25] Discussion on the recent pulse in employment and its impact on inflation, as well as the unlikelihood of it continuing in the future.

Productivity and Economic Growth [00:37:42] Mention of a recent McKinsey paper on the potential impact of productivity increases on inflation and debt, and how it could affect economic growth.

Retirements and Wealth [00:40:46] Discussion on the excess retirements due to windfalls and wealth, especially in housing, and the possibility of retirees returning to work.

Labor Force and Profits [00:43:46] Analysis of the impact of labor force participation and employment growth on the economy, and the squeeze on profits due to businesses’ own reinvestment.

Recomposition of the economy [00:51:04] Explanation of the shift towards a services-oriented economy and the impact of income injection on the economy.

Navigating the cycle [00:53:02] Discussion on navigating the cycle and the relative strength of cyclical sectors.

Investment decisions [00:53:46] Explanation of how Prometheus Research’s algorithmic work informs investment decisions.

Investment Framework [00:54:22] Aahan explains the economic forecasting framework used by Prometheus Research, focusing on growth, inflation, and liquidity. They also discuss the challenges of forecasting and the importance of market regime confirmation.

Portfolio Construction [00:56:02] Aahan discusses the timing tools used by Prometheus Research to create stable return streams that are impervious to any particular regime or auto-correlation structure. They also talk about the importance of managing volatility and risk in the current tightening liquidity environment.

Current Positioning [00:57:57] Aahan shares Prometheus Research’s current positioning, which includes a high level of cash and a focus on relative value trades such as being long the dollar and long T-bills. They also discuss potential trades, such as shorting the two-year and being long bonds.

Term Structure Dynamics [01:17:01] Discussion on the impact of the Fed’s manipulation of the term structure on asset prices and risk premia.

Private sector credit creation and liquidity [01:20:42] Discussion on the impact of private sector credit creation and liquidity on the economy and financial markets.

Improvement in banking and corporate activity [01:22:16] Analysis of the improvement in lending and issuance of commercial paper, high yield, and IG in 2022.

Factors affecting liquidity creation [01:24:00] Explanation of the rush to issue commercial paper in anticipation of rate increases and the impact of nominal activity and inflation on liquidity creation.

Pro-cyclical liquidity and economic activity [01:25:04] Discussion on the potential effects of quantitative tightening and responsible treasury policies.

Where to find Aahan Menon:

Prometheus Research Substack

Where to find the RYA crew:

Adam Butler on Linkedin

Pierre Daillie on Linkedin

Advisors are currently facing some significant challenges when it comes to working with millennial clients. The challenge lies in the fact that most high-net-worth clients are around 70 years old, while millennials are looking for advisors who can offer innovative, non-traditional approaches.

The idea that millennials don’t want professional advice is an under-informed perspective. As a practitioner, it’s not about whether millennials want advice or not; the question that begs an answer is, “What kind of advice do millennials want?” and “How do they want to get it?”

To stay relevant and attract millennial clients, advisors must adapt their strategies and align them with the clients’ objectives. This means that advisors need to change their approach to incorporate new technologies and methods that are in line with the way millennials prefer to manage their finances.

Fintech is a challenge that advisors must consider. With the proliferation of apps available today, millennials can manage their finances without intermediaries, all from their smartphones. Advisors should integrate Fintech into their approach to ensure that they remain relevant and useful to their clients.

Justin Castelli, Investment Advisor and Founder at RLS Wealth, joined us to share some the ways he’s navigated these challenges. One of the reasons he’s uniquely qualified to explore this topic is because he realized and envisioned much of the ideas we discuss at the point of breaking away from a larger financial institution after many years, and becoming an independent advisor.

Fortunately, most of what we discuss here can be, with some tools (including fintech), thought, and effort, painlessly integrated into your existing practice, so as to grow your book into the millenial market, as well as reduce your practice’s potentially high succession risk.

Where to find Justin Castelli:

Justin Castelli on Linkedin

Justin Castelli at RLS Wealth

Justin Castelli at All About Your Benjamins

For a Canadian WealthTech resource/solution, one example to check out is AdvisorFlow that allows you to easily and efficiently onboard new clients of all types. (This is not an endorsement. Canadian advisors use AdvisorFlow as a wealthtech solution).

AA is looking for a subscription platform that can support advisors looking for a solution for flat rate services for smaller clients seeking professional advice.

Copyright © AdvisorAnalyst

Simplify Asset Management’s Chief Strategist, Michael Green, a prolific researcher and writer, with a huge and popular following on Twitter, where he tweets as @ProfPlum 99 and Real Vision where he shares his thoughts and industry contacts in his Mike Green – In Conversation series, as well as a famed observer of probabilistic market and economic outcomes, provides a deep dive into the current economic landscape and his investment strategy. The market is in a state of uncertainty due to various factors, such as inflation data, recession, and passive investing dynamics.

Green discusses the Federal Reserve’s actions and its potential impact on the economy, and explains his thoughts on why, in his opinion, the Fed has overreacted in terms of the bluntness and depth of it’s policy response, and what that means for investors and the economy going forward.

He believes that we are already in a recession (the Fed has gone too far too fast) – without considering that the severity of the recession is often a function of who is trying to get into the job market (e.g. highly skilled, highly paid workers vs. average workers). We examine the unemployment story and the heightened risk of a two-speed economy, as well as specific impacts of recent events such as the Ukraine conflict and the pandemic stimulus.

The episode delves into the potential impact of technological advancements on the economy, such as the deflationary and inflationary effects of technology.

We discuss potential negative impact on equities of profit (EPS) recession on equities, due to less investment as a result of the decrease in capital availability, arising from an increase in unemployment.

Join us for a fascinating, thought-provoking analysis of the economic landscape and provides valuable insights for investors and policymakers alike.

Where to find Michael Green:

Michael Green at Simplify

Michael Green on Twitter

Michael Green on Substack

Copyright © AdvisorAnalyst.com

Alfred Lee, Director, Portfolio Manager, and Investment Strategist at BMO Global Asset Management joined us to discuss his outlook for 2023. 2022 was a year of challenges in the financial markets, with investors facing a lot of uncertainty. For 2023, we talk about whether inflation and interest rates are moving in a positive direction. We cover portfolio strategy, zoom in on interest rate policy, fixed income strategy, and take a look at his 2023 market outlook. We discuss factor and sector equity strategy, banks, energy, gold, alternatives, key risks, and his 50/30/20 asset allocation portfolio framework, risk budgeting and asset mix.

We talk about:

• A lot of investors moved to short term instruments during the last half of 2022. Was that the right move, or was that fear driven?

• What’s the likelihood the Fed as well as BoC will soon pause or slow on hiking rates, and if so, for how long?

• Wild cards? The stickier parts of the economy, labour market, the effect higher interest rates are having on housing prices, discretionary income and spending, 18-24 months lag time, China re-opening

• What’s your fixed income strategy in this climate where we’re hearing a lot of talk about rates remaining where they are for a while, and the high probability of a recession?

• The ‘big story’ for 2023, is fixed income, and what to do with it, where to go?

• the strategic thinking behind the 75 / 25 split in fixed income allocation

• Is it a new regime? Or back to the “Old Normal”

• equities strategy and rationale – Multi-Factor & Sectors?

• alternatives / liquid alternatives strategy?

• The demand for diversifiers, liquid alts

• The 50 / 30 / 20 asset allocation framework.

Where to find Alfred and his team at BMO ETFs:

BMO ETFs Dashboard

BMO ETFs Trade Ideas and Podcasts

Alfred lee on LinkedIn

Copyright © AdvisorAnalyst.com