Welcome to Trillans. I'm Joel Webber and I'm Eric bel Tunis. Eric, the sixty portfolio is really the bedrock of investing has taken a ton of arrows, but we're gonna spend some time today talking about maybe how can be even better. Yeah, there's a couple of smart guys who I largely met on Twitter, but they have ETFs invest in ETFs have mutual funds there in the asset management world. But they have really done something that I think we'll find an audience, which is everybody loves sixty. I mean it's a smash hit. Look at any Advisor PORTFOLI it's usually some derivative of sixty. And yet everybody is worried about the sixty and the forty both falling at the same time, right because they both went up for the same time. So how do you hedge against that and yet keep your sixty forty because no one wants to let go of that because every time people try to hedge, they've been they would lose money because the market rebounds almost every single time. Yet there could be a time when it doesn't. So how do you like have your cake and need it too? And these these two guys have have seemingly come with a way to do this that involves a model portfolio, which is a whole another trend. Model portfolios are very popular. UM that invests in ETFs and mutual funds, that tries to allow advisors to have it all. And um, it's really fascinates called return stacking and I'm excited to dive into it. So joining us on this episode Corey Hofstein, Newfound Research Chief investment Officer and Rodrigo Gordio, Resolve President and portfolio manager. You can read more about their research at return stacking dot com or follow along at return Stacking dot Live, this time on Trilliance return Stacking Corey Rodrigo, Welcome to Trillions. Thank you so much for having us excited to be here, thanks to Okay, Corey, I want to start with you. How did you guys find each other? Because you guys don't even like officially worked together, right, Like this kind of unusual to have two different firms that collaborate like this. Yeah, this is definitely a little weird to have two in theory competing asset managers work on research and launch product together. But this was really born out of a mutual respect. For years and years and years, Rodrigo and his team have been publishing research that I've read and really enjoyed, and I hope they would say the same about my team and the research that we've written. We ended up getting introduced to one another through that mutual respect for research, and then ultimately found that we had a large number of clients in common, or clients who would learn about one of us and ask about the other, and ultimately found that a lot of the approaches we were taking in from a philosop topical perspective, we're very much aligned, but from an actual product perspective, we're very complementary. And so it really made natural sense for us to work together on a lot of things. And Rodrigo, what, what was the thing that they did that you were like, Oh, man, that's really good. I wish I had thought of that. Oh my god, I mean it's you know what, Like like Corey said, we constantly found ourselves talking about similar topics, and as you know, when you're talking about complex issues, you try to create a language around them when the average investor can understand. I've always been envious of you know, we'll go out and we'll talk about ensemble methods for quantitative investing, and then Corey would say timing luck is a thing. So it's just a much much better language. Often like you're looking at them like that's this, We're talking about the same thing. But his language was just so much more beautiful and accessible than we often often struggle with that a resolved So that's I think that's what I've always been envous a. Corey is a fantastic writer and communicator. Okay, so what's the product that you guys have come to market with? Calling it a product, it's interesting what we what we came up with, uh, and we started noodling this over the summer of was the concept of these new funds that had come out in the market, including our funds. So Corey has gone through a bit of evolution and in the product lined up. Even though he's been talking about capital efficiency for years and using capital efficiency for years in many respects, the product that he launched or relaunched in November was able to create give you some unique alpha's and unique bade us stacked on top of each other using capital efficiency. We had been doing that for ten years in our fun but it was tough for us to communicate that to the audience. And then we started seeing et F providers like wisdom Tree and Standpoint and not Standpoint Simplify also come up with stacking ideas, and well like, how do we how do we use these new products that have never existed before in the retail space, how do we put them together in such a way that we can get people to do better to create much more robust portfolios. And so we started thinking about it, and we we came up with again language right this idea. Instead of calling it capital efficient or leverage or or structural alpha, we named it return stacking, and we did it in such a way that was the most accessible to the average investor, even foundations and small corporations. And so in the summer we started noodling this and we decided to write a paper about the idea of stacking returns how to improve a sixty forty portfolio through these new products and putting them together in unique ways. And that led to then a demand for some sort of solution, which led to this index that has a bout of bts and mutual funds that we've structured together to create uh profile that we're gonna I'm sure to talk about the rest of this podcast. Let me jump in here, um and really get down to this stacking issue. And I want to go back a couple of years with you, Cory. There's a product that was launched called nt SX, which is the wisdom Tree US Efficient Core e t F. It used to be called the nine sixty and that was born out of a Twitter conversation with you and a couple other people. And this was interesting to me at the time because, um, I was on Twitter and I thought it was interesting. It was one of the first e t s that was born out of people just talking about something wisdom Tree launched that. I was skeptical. I thought advisors just don't want to They typically don't like to have all the asset classes together. They want to pick the pieces. But it's got a billion dollars and it's a success and they've launched. I think other versions of it explain to me the sixt what and I think this is essentially what return stacking is, and this is one of the e t s you use in your model. So I guess walk us through how this fun gets the exposure and how it gets the extra how it stacks, and I think that will be a metaphor for the bigger model, right absolutely so. As you mentioned this e t F that was launched by Wisdom Tree, Jeremy Schwartz at wisdom Tree was really the driver behind. That was born out of a conversation that was taking place on Twitter between me and to actually anonymous Twitter accounts non related sense who has unfortunately since passed away, and another Twitter user named Jake and Jeremy Sawton thought it was a really unique innovative idea and was able to breathe life into it. The core concept is to take a sixty forty portfolio and lever it up one point five times, and that's going to give you a N sixty. Now how is that done in practice? Well, what happens is for every dollar you invest in the fund, the fund is gonna take ninety cents and invest it in the SMP five and it's gonna leave ten sense aside in cash or cash equivalence very short term US treasuries for example, as collateral to then buy a ladder of US Treasury futures, It's going to be a blend of two year, five year, ten year, and twenty plus year US Treasury futures percent in each and that will give you sixt notional exposure. So you got ninety in the SMP plus sixty using treasury futures. Now we could stop there and say, well, that is stacking. What we've done is we've stacked treasury returns on top of equity returns, which may or may not be a just a very interesting solution as an alternative to someone who's very equity heavy. Clifford ass At, a q R. Wrote a paper twenty five thirty years ago called why not just equities? And he showed actually, a levered sixty forty over the long run does much better than just equities. Jeremy Schwartz recently published an update to that for plus years about a sample. But I think where this gets really interesting is to say, let's actually not use it as an alternative to equities. Let's use it as an alternative to a sixty forty. And by that I mean if I just invest sixty six percent of my capital in this levered sixty forty, then I get equivalent exposure to what investing a hundred percent of my capital in a sixty forty would have given me. But I'm left with thirty three of my capital left over that I can do whatever I want with. And then it becomes a very interesting question of what do you do with that leftover capital, which then in effect is going to be a return stacked on top of that six return profile. So we're able to retain the sixty forty that everyone wants and loves, but use a bunch of leftover capital to potentially stack something diversifying in return generating on top. So this fund is and we're gonna get to the bigger model first, but this fund, essentially UH is up about seventy since launching. Would you would you say it? Would you compare this to a balance like a balanced fund or the SMP. What's the right benchmark here? Well, my guess is it's probably benchmark to the SMP. I would argue that's not a great benchmark. The reason I love the phrase return stacking, which I have to give all credit to Rodrigo for coming up with, though I do plan over time to whitewash history and take that from him. Actually on the term, I wrote this book back in the day called The Institutional E T F Toolbox, which is available on Amazon in case you're curious anyway, I interviewed some institutions and I think they refer to this as portable alpha. So are you sort of rebranding it or is there a difference between portable alpha and return stack. There's a slight difference. Uh. Portable alpha really from an institutional perspective. Back in the two tho era was all about stacking alpha on top of your exposure. So if you look at something like an nts X, which is just SMP beta plus bond beta, well that's not really portable alpha. I might call that portable beta. Right You're you're porting beta on top of beta. There's no alpha there. The return stacking concept is more generic than portable alpha because it's a question of what do you do with the extra capital you free up? That capital efficiency you create and you could go out and buy alpha strategies, which then it does, I think, become very similar to portable alpha. But a lot of the nuance comes into how are you actually generating that capital efficiency, how much does it cost you, where is it coming from? And that's sort of a difference in terms of how portable alpha used to work versus what we're doing here. Everything that clos has talked about has allowed an investor to increase portfolio real estate. Right. An institutional investor has a vast, a wide expanse of real estate that they could create. They get a hundred dollars, they could invest a thousand dollars if they want to, through derivatives, through borrowing and the like. Retail investors, retail advisors, a lot of small pensions and institutions are stuck with a hundred cents on the dollar. You give them a hundred dollars, they only have that to spend, and that's because they don't necessarily have access to leverage, have access to derivatives, has the expertise to do it, don't want to do it all of a sudden. In the last two years, with products like ours in nts X, you now are able to buy instead you want sixty forty, you only have to spend sixty seven dollars of your hundred to get sixty forty returns for the year, And now you've created thirty three dollars of portfolio real estate. Right. And what the reason we started with return stacking the language stack returns is that if you do it right, if you choose the right thing to put onto your thirty three percent you're getting, you're gonna get that six return, and whatever you make in that extra thirty three dollars, that return is going to stack on top the six forty. So this the paper is is about, you know, how to stack returns in a low return environment, because I think that's what everybody's worried about sixty forty, like Eric said, where they're terrified of getting away. You know, they know that it might be low returns in the future of sixty forty. They know there might be higher correlations, but they're terrified and moving away from it. This this allows investors to both have their cake and eat it two through stacking something thoughtful on top. Right. Okay, so I want to talk about the thirty three dollars a little bit more, but before we do that, let's just talk about the the bigger model, because you're you're adding a few other things into that, right, correct? Yeah, So what are those and how do how does it all work? Yeah? So the idea. First, the paper goes through a simple example like we just discussed, right, But then we say a lot, very few investors will actually buy a single et F and then have that be their portfolio and then stack you know, whatever they want to do on that. But it's time out real quick, and let's just hone in on that. This is crucial because a lot of people ask me, why isn't there just one e TF for everything? Or you know and or why don't ask the dellocation which holds like balanced ETF are weren't they more popular? And advisors just are the word us, the word terrified. They're terrified of having one line item that they want to have more in there. And so I guess just just I just want to stop there for one second and also address that because Joel, you had that idea for why isn't there a hole inch alata ETF. Ironically it probably wouldn't sell that much because advisors want to be the deciders. They want the pieces in there. So I'll pass it back to Rodrigo, who obviously is making the pieces. Well, this is this is from years of interacting with advisors, right There's it's really a tough to get through your compliance that you're gonna put sixties six cents on the dollar in a single service provider. It's just not a thing. And then from a optics respective with clients. Let's say you have a single company that has five beautiful et s. It's very rare to find the advisor that's okay with giving it all to a single provider. And so you you certainly want to have manager diversity. You want to have you want to minimize the risk there from one single manager blown up or not doing well. But if you're looking at return stacking, then you only had one product to play with, it would be a problem. What we found, which was very refreshing, is that as you start digging in, you find that there were, at the time of writing the paper, we found ten very clear return stacked funds, and they were stacking different things. Some were stacking equity beta on top of bond beta. Some were stacking s p y and then you know, fifty cents of spy and a hundred cents of trend manu futures trend, another one with sacking global equities with managed futures trend. We were stacking global risparity, and then on top of that global macro like rules base, Global macro cory was active equity on top of active bonds and tail protection wrapped around that. So all of a sudden you start finding these really exciting products that you can now put together in a way that makes that creates an exposure of six equities bonds, and then what we stacked on top was thirty cents of systematic um trends that's just like managed future trends or ct A s, and then another thirty percent of global macro or systematic global macro. And the difference between CTA and global macro they're both futures based. One does pure trend the other one uses value factor, the momentum fact, the momentum trend factor, the carry factor, some use seasonality, some use me in reversion, right, so it's just a bit more diversive. We jump in here. So, uh, what what you just went over was hedge fund strategies or alts, And they're called alts because they're alternative the stocks and bonds and they don't have they have very low correlation to that category. There are et s, net Corey, but they totally ignored because they just don't really do much compared to stocks and bonds in the last ten years. But I think there is a knowledge that they when the market does sell off, those hedge fund ish kind of strategies rise to the top. They tend to be the top performers when the both the sixty and the forty or down. I've seen it happen. It's only little windows because then the FED steps in and everything goes up again. But is that why you're using your thirty three cents on that instead of in the NTSX situation more treasuries because you're like, we already had that covered. Now let's get some alts in there just in case the world goes to hell. That will help you on the protection side. That's the idea here, just to try to simplify it. The nail on the head that at the end of the day, there are these really interesting and attractive alternative strategies from a diversification perspective. The problem is most allocators have been stuck with this either or problem over the last decade that to introduce these diversifiers they have to sell stocks or bonds. So you look at something like managed futures, which had a total return the stock gain Managed Future ct A index I think at a total return of between twenty and for the entire last decade. Right, So if you sold stocks or bonds to buy managed futures, you were very disappointed in the total return, but it is a phenomenal diversifier historically, particularly during periods of inflation fear. So if you can have your sixty forty and then stack those extra managed futures are alternative returns on top. Not only are you potentially earning the extra return, but you are whole fully making your portfolio more resilient by adding a diversifier that particularly attacks what a sixty portfolio is weak two, which is inflation risk that tends to cause stock and bond correlations UH to turn positive. Okay, I like this, although I will just question the fact that you know, plus thirty three plus all this other stuff does not equal one hundred. So there's some really basic math that I want to take you guys up one but as a joke. But I do want to just talk about this thirty three and sort of the competition there, because it sounds like there's a lot of very technical things that are happening there that a normal retail investor isn't going to understand. You're you're probably catering to an advisor more than anything there. And I'm also just you know, genuinely curious here, like how are you supposed to figure out what you're supposed to do with that thirty three? I mean there there's probably a version of that that I should put in crypto even right, Sure, look, there's it's not necessarily I mean, the index is meant to be prescriptive, but the paper is not right. So what you do with that thirty three cents? A lot of it has to do with your own values, right. For example, if you're a value manager, if you truly believe in buying cheap then all this time. You know, if you're like Warren Buffett that leaves some cash on the sidelines and waits for the opportunities, you can't do that as an advisor. Investors have a hard time staying in cash until value comes up again they can snatch things up. You know, a few people can actually accomplish that. But again, having your cake and eating it too. Now you get full exposure to sixty by only investing sixty seven cents, you have thirty three dollars. It's on the sidelines. March happens. If you're a value guy, you can you can pick up a lot of cheap stocks, right, And because you can buy you really, like you said, adding it, it's you're getting a hundred cents plus another thirty three cents, a hundred percent exposure thirty three cents. We're in cash. Now you've invested it in March twenty, you've bought all the chief stocks. You stacked a bunch of return. So that's one way of return stacking. Right. The problem is that once you're there, now you're exposed not sixty forty, but you're now exposed ninety forty. You're you're very, very heavily intequities, and that becomes a long term problem in our view, Right, So what we tend to espouse and lean on if what are you gonna do with that thirty three You want to do things that can thrive when equities and bonds don't thrive. And I think you, guys. I was just listening to a podcast of Years with Gina Martin Adams, your your boss, Eric uh and she was talking about you, guys. Talked about a bunch of very interesting things, one of which was inflation and the fact that when we've seen periods of inflation and rising rates, we've seen bonds and equities not only lose money, but lose money at the same time. The correlations went up, so what does well, what can you do for that? Other one of the things you could explore is a diverseified commodity index, right. Another thing you could explore are these c t A s and global macro funds that can both make money and inflation markets, and then when the inevitable FED comes to break the back of inflation, it can also profit from downward deflation, which they did beautifully in the two thousand's right. So that's that's kind of what some of the things that you can do with that three cents it would be. It depends on just how I guess your tolerance for risk, But it seems to me it would be kind of dangerous to put it into something like crypto, which has acts like a high beta stock. If that goes down, then you're down. Then you're all all hundred and thirty three is down. Where you want the thirty three largely to offset the potential for the six going down, I would guess. But I guess you could go all out and add on to from from my value, that would be my preference, But everybody has a different set of values, right, I think I think when someone hears this, they go well, you're just leveraged, and that's we know how that ends. But I think that's the main point is if you use your leverage to add on more of the same thing you just bought, clearly that's where it gets dangerous. But if you buy something that can offset or work against or go up when the other parts go down, that seems like a responsible way to leverage, which I could see appealing to advitor people who are probably worried about those kind of things. I mean, there's a lot of target outcome ets have become popular for the same reason they sculpt your returns, they give you some sleep at night feeling because they use options in a certain way to limit your downside. People are very quick to point out that almost every major financial catastrophe, both globally as well as every hedge fund that's blown up, has been due to leverage, which is pretty much true. But it's also been due to concentrated leverage. Right, there's a very big difference between diversified leverage and concentrated leverage. Right. If I said, let's take this sixty already in layer on top very very short term, very high quality investment grade bonds, that's very different than saying let's take this sixty forty and layer on top thirty three cents of bitcoin and ethereum. Right, those return profiles are going to be very different, and the risk you're taking is different, even though the quote unquote notional leverage to thirty three cents is the same. And so again we think it's really crucial when you're taking this return stacking concept and considering it to think about what are you trying to stack on top of your portfolio? And for us it was really important in the paper to consider, Okay, everyone we know is already starting with the sixty basis, how can we make sure we're not just tacking on more risk? How can we really try to attack the core risks facing a sixty forty today? How can we help reduce that risk? And let me give you a perfect contemporaneous example for year today. I was just looking at up right now. So year today smps down four or four and a half percent. Right, the supposed protective layer, which is UH sovereign U S treasuries, the TLT is down around six percent. So both equities and bonds are down together, much like Gina had said, might happen an inflation regime. What is DBC doing the Deutsche Bank Commodity Index fund direction? And I think it is UM it's up six percent? Right, What are managed futures funds doing? They're up a couple of percent. This is exactly the type of diversification you need to protect against the blind spots of UM. So anyway, these are these are the reasons that it's for us, it's at a timely period for us to be discussing the stacking concept. It just allows clients to not have to if we're wrong, if Corey and I or any any gena is wrong about our our future predictions of correlation of equities and bonds, then they can get their six return and if we're right, they can protect some of that. One of the one of the things is that you're sort of optimized for these moments of time where things might move in lockstep. Right, So, how long of a window does this approach? Last four how long of a window does this approach as in your your view or your positing that these events like we've seen the last month are few and far between, and so you know, how how much of a benefit is it really? UM? Well, this is assuming this is again, I'm just going back to Gina's conversation. You think this is few and far between, but in fact, if you look back in the seventies, bonds and equities were highly correlated most of the time for over a decade. Right, So just because we haven't seen that in a rising rate environment a falling rate environment, doesn't mean we are not going to see it for a decade or more in the future. Um So, I don't know if you have anything to add to the correlation between bos necros or not. Yeah, let's let's assume we're wrong. That's always the best place to go. When you're an asset manager. You should probably assume that whatever narrative you're telling is wrong. What I would point to is in the last decade, right where this certainly wasn't true. I mentioned that c T A s, which dramatically underperformed stocks and bonds still had a positive return. Right. So let's say we're wrong and the next decade is just like the last, and stocks and bonds have negative correlations. It's a wonderful diversifier. Well, if we stack commodity trend advisors managed futures on top of the sixty forty it's still hopefully not a problem because that tends to exhibit an absolute return profile. It's actually one of the reasons in the paper we didn't stack raw commodities, because what you find is that while commodities tend to do well during periods of high inflation shocks, they tend to do quite poorly during disinflationary periods, and so what we wanted to stack on top was something a little bit more absolute return. So if that things do revert back to how they were over the last decade, and these fears about inflation go away, and correlations go back to being negative and nice, and diversification between stocks and bonds, what we're stacking on top is hopefully not a drag on the portfolio. So to your point, Joel, it's it's ultimately hopefully not an issue either way. What we're trying to stack on top is supposed to be absolute return. The drag issue is that's what There's been a bunch of downside hedge dtfs. Some have used a little VIX futures, which can be awesome when VIX is up, but man, they drag and they really just corrode your returns. Phdges that e t F. I mean it was underformed SMP by like over like three or four years because of that that drag um. So I this is I think what also makes the alts probably the sweet spot, right, because I also was wondering why not just use your THT on t LT. I have noticed t LT, which is twenty of your treasuries, has a real nice um record of off setting stock declines. But are you worried that even long dated treasuries could go down at some point to or um? I guess you ever think about just using long dated treasuries instead of alts or adding some of that in there. Okay, I think Corey can speak to this better because that's kind of his his first four into this return stacking concept. So Corey, why don't you take it? And then I have some thoughts on that. Yeah, I mean I think the big risk eric for us when we're considering this return stacking concept is what are the core economic risks that sixty already has? So if we start to take that extra capital and allocated to long dated treasuries, you probably get a profile that's a little bit more balanced from a risk contribution between stocks and bonds. But you're still introducing a lot more of that inflation sensitivity risk. Right, So again talking year to date, we are seeing that equities and long dated treasuries are both down at the same time and exhibiting positive correlation to one another. So adding more treasuries to the portfolio doesn't really do anything to solve the potential inflation risk that's inherent in the portfolio that's so popular. So if we go back and rewind the clock twenty years, that would have been a brilliant trade. But what we're trying to do is set us up today not knowing what the future is gonna look like, not having a crystal ball, and trying to develop the most resilient portfolio we can while still having that core sixty forty exposure that clients and allocators want. One thing is advisors, especially for the fee based advisors, which is where they get a percentage of the assets that swept over the country. Used to be they get a commission for the mutual fund. Now they get a percentage of fees. That's turned them all into like host obsessed people. They they that's why all the money goes to everything below ten bibs. Here you have this portfolio I would say it's probably all in at the level of maybe an active mutual fund back in the day, like it looks like it might be seventy or eighty. Maybe I'm wrong there, but let's just say you need to now explain why they want to replace something that's ten with that. And so you got I think you have your hands full. Your case is very compelling, though, I guess can you talk a little bit about how that's going. Yeah, I mean, let's go back to what the word return stacking means. If we're not stacking returns, it's not worth it. Right. This is this is the key thing. In the last decade, it has been very easy as a domestic advisor an investor to make money and the things that you are comfortable with and no it is s P Y and I e F for t lt so bonds and equities domestic have had a sharp ratio in theele of its history. It is some of the best returns we've ever seen. Ever, so when you look at your options bonds and equities, you can get dirt cheap ETFs and the regulators are coming in and creating complex language that might maybe have forced advisers to do that so I understand where everybody's coming from. We're trying to get people to see is the next decade. The next decade is going to require something beyond the mestay equities and hans. In my opinion, you're gonna have to deal with inflation. You're gonna have to deal with inflation and deflation and back to reflation again. There's gonna be a lot of volatility. For that, you need active management, which has been out of favor for ten years. That active management that we are proposing goes on top of these betas and stacked betas and stacked alphas need to provide enough value whereafter fees the stack is still above sixty. And so if you look at if you read the paper, we take fees off of everything, you'll see that in most years from seven to today, the the index of the approach stacks returns on top after fees, transaction costs and slippage, the index is the same thing you. I think we come in at one point to nine m e R or E ER sorry MR as a Canadian term expense ratio. That seems like a lot, But then you look at the index and it's sixty forty returns and then on top of that for the last three for the last year and a bit, it's been three stacked on top in spite of those fees. Right, So this is out of all the types of active management, this is the most straightforward. Do you care about your fees if the returns are being stacked every year? Right? I could be terry. What if I get an indext and and average five if the returns are above sixty forty, that's that's all you care about? Right? So I think for for the equity part of the portfolio, you're using something equivalent to the SMP, Right, isn't that the NTSX part? Well yeah, as and yes, where NTSX is SMP, but they're fun provide active but it's not what people think of where we're picking stocks. This is a whole different level of active. This is an asset allocation active. Well, you got your you have access to very, very cheap leverage, and that's the magic here. Let's start with that. What is different. NTSX provides us a hundred and fifty percent exposure to a balance fund you can't with the cheapest possible leverage you can get your hands on retail investors and advisors have not historically been able to get that, So that already is amazing structural alpha okay, and NTSX is twenty BIPs, which is which is on the low sides for right and then. But if you want that other protection, that active long short trend c t A, that active long short managed futures that requires daily trading, a team reconciliation, you're not going to find very cheap exposure to those things. But we believe that absolutely turn concept is important, and we found products that have the cheap spy and then stack on top of that in that structural outlet, stack on top of that that that trend and and active futures mandates. So it's a bit about it, just real quick again, just for anyone listening who thinks hedge funds, there's this sort of drumbeat of like how hedge funds can't beat the SMP, but you're bringing up absolute return. And for the institutional minded person, hedge funds are not being the SMP. Really isn't what most of them do. So when you say hedge fund, you're thinking something has uh hedges off a lot of the risk and ends up having like the same volatility as like as like bonds. Right, it's very low right in the ballpark of say, I don't know, maybe half of the SMP is that fair historically that's that's true. Um, I think zero coraline. You're looking at this managed futures, which have a unique profile really like they are. I think they're a category apart from this hedge fund category. I think hedge funds are generally long short equities where you're trying to hedge out the beta and just capture that differential alpha and that will have very very low correlation, very low correlation, very low volatility, and single digit returns that you stack on top. When we talk about long short c t a s and long short systematic global macros were now like even in the ets available, we're looking at the volatilities between eight and twelve, which is now similar to like uh, you know eight twenty sorry, uh, fifty fifty bond equity portfolio to sixty forty bond equity portfolio. Is that type of level of risk, and that's crucial because you want volatility as long as it's lowly correlated and and from my point of view, managed futures and c t a S out of all the hedge funds out there are the least correlated long term to a sixty forty portfolio. We keep going back to this core concept of what are you stacking on top? What you stacking on top, and what we're trying to stack on top are these absolute return alternatives that have historically been very disappointing when you have to sell equities to buy them right when you have to make this either or decision. The whole return stacking and concept is about turning this into a conversation about saying and instead of or, we're saying, can we get the sixty forty and these hedge fund type exposures rather than six or the hedge fund and I think in that sense it totally changes the conversation. I do just want to make one really quick point about the fees. Two quick points. First, I will say, with all the new products coming to market, again, if you read the paper, you can do this in a low fee way. It's just going to change what you can necessarily stack on top. Or you could do this with all E T f s, or you could do this with E T S mutual funds and go out and buy hedge funds as a compliment as well. You can take this concept and apply it to whatever fees you want. I think what is important Eric, you talked about having your cake and eating it too. With the sixty forty, I think of return to stacking is take the cake and putting some icing on top. Then the question is how much of that icing does the fees Ultimately your road and as long as there's icing left over, I'm not sure it really matters that there are higher fees there. You just need to make sure that they're still icing there. Okay, so really interesting time to introduce this concept to people too. I'm curious if we had you back on in the future, when are we going to know if you guys hit it? When are you gonna know? Um, Look, we've the index has been it goes back to November twenty twenty. Go to return stacking dot live to see the results. You know it's there. I think year today we are stacking in s your fifty basis points on top. I think I personally from um just from my macro view, which is always wrong. I think we're gonna be in an inflationary volatility environment, which means eighteen months of massive alatility three to six months of downward deflation, and you're gonna have to navigate that in a way where bonds and equities are gonna act very differently than they have in the past. And one thing I'll just we've been talking about how problematic investing in UM in alts and especially in managed futures have been to the last decade because of their single digit returns. From two thousand to two thousand eleven, the peak of the last commodity cycle, c t A s and managed futures were doing double digits every year, So the stacking goes way up. In an environment like that. I would say, if we're back in three years and my tradition comes through, we're going to be very very much ahead. Worth mentioning, we've we've talked about this paper throughout the conversation. You can find that at return stacking dot com, Rodrigo. Where do you find find more about the model? A return stacking dot live? Is it where you can get to see it? And now I want to ask a question that we always ask at the end of jillions. What's your favorite et F ticker other than around favorite e t F ticker other than my own? UM? I am going to have to say t y A from Simplify because it just it does such a good job of increasing that portfolio real estate that everybody needs to do some of that return sack. And we got Corey. Well, so I'm gonna answer this two ways. One, what's my my favorite e t F is nts X. That is hands down my favorite et F that's ever been launched. It's a super simple concept, but I think it's got so much power. My favorite e t F ticker that's been launched has got to be the new one from Simplify c y A, which is their tail hedging Cover your assets perhaps is the way we'll put it all. Right, there you go, Corey Rodrigo, thanks for joining us in Trillions. Thank you very much for having us guys. Thanks for listening to Trillions. Until next time. You can find us the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wharver else you like to listen. We'd love to hear from you. We're on Twitter. I'm at Joel Webber Show, He's at Eric Falcinas. This episode of Trillions was produced by Magnus and Rickson. Francesca Levie is the head of Bloomberg Podcasts by

Welcome to Trillans. I'm Joel Webber and I'm Eric bel Tunis. Eric, the sixty portfolio is really the bedrock of investing has taken a ton of arrows, but we're gonna spend some time today talking about maybe how can be even better. Yeah, there's a couple of smart guys who I largely met on Twitter, but they have ETFs invest in ETFs have mutual funds there in the asset management world. But they have really done something that I think we'll find an audience, which is everybody loves sixty. I mean it's a smash hit. Look at any Advisor PORTFOLI it's usually some derivative of sixty. And yet everybody is worried about the sixty and the forty both falling at the same time, right because they both went up for the same time. So how do you hedge against that and yet keep your sixty forty because no one wants to let go of that because every time people try to hedge, they've been they would lose money because the market rebounds almost every single time. Yet there could be a time when it doesn't. So how do you like have your cake and need it too? And these these two guys have have seemingly come with a way to do this that involves a model portfolio, which is a whole another trend. Model portfolios are very popular. UM that invests in ETFs and mutual funds, that tries to allow advisors to have it all. And um, it's really fascinates called return stacking and I'm excited to dive into it. So joining us on this episode Corey Hofstein, Newfound Research Chief investment Officer and Rodrigo Gordio, Resolve President and portfolio manager. You can read more about their research at return stacking dot com or follow along at return Stacking dot Live, this time on Trilliance return Stacking Corey Rodrigo, Welcome to Trillions. Thank you so much for having us excited to be here, thanks to Okay, Corey, I want to start with you. How did you guys find each other? Because you guys don't even like officially worked together, right, Like this kind of unusual to have two different firms that collaborate like this. Yeah, this is definitely a little weird to have two in theory competing asset managers work on research and launch product together. But this was really born out of a mutual respect. For years and years and years, Rodrigo and his team have been publishing research that I've read and really enjoyed, and I hope they would say the same about my team and the research that we've written. We ended up getting introduced to one another through that mutual respect for research, and then ultimately found that we had a large number of clients in common, or clients who would learn about one of us and ask about the other, and ultimately found that a lot of the approaches we were taking in from a philosop topical perspective, we're very much aligned, but from an actual product perspective, we're very complementary. And so it really made natural sense for us to work together on a lot of things. And Rodrigo, what, what was the thing that they did that you were like, Oh, man, that's really good. I wish I had thought of that. Oh my god, I mean it's you know what, Like like Corey said, we constantly found ourselves talking about similar topics, and as you know, when you're talking about complex issues, you try to create a language around them when the average investor can understand. I've always been envious of you know, we'll go out and we'll talk about ensemble methods for quantitative investing, and then Corey would say timing luck is a thing. So it's just a much much better language. Often like you're looking at them like that's this, We're talking about the same thing. But his language was just so much more beautiful and accessible than we often often struggle with that a resolved So that's I think that's what I've always been envous a. Corey is a fantastic writer and communicator. Okay, so what's the product that you guys have come to market with? Calling it a product, it's interesting what we what we came up with, uh, and we started noodling this over the summer of was the concept of these new funds that had come out in the market, including our funds. So Corey has gone through a bit of evolution and in the product lined up. Even though he's been talking about capital efficiency for years and using capital efficiency for years in many respects, the product that he launched or relaunched in November was able to create give you some unique alpha's and unique bade us stacked on top of each other using capital efficiency. We had been doing that for ten years in our fun but it was tough for us to communicate that to the audience. And then we started seeing et F providers like wisdom Tree and Standpoint and not Standpoint Simplify also come up with stacking ideas, and well like, how do we how do we use these new products that have never existed before in the retail space, how do we put them together in such a way that we can get people to do better to create much more robust portfolios. And so we started thinking about it, and we we came up with again language right this idea. Instead of calling it capital efficient or leverage or or structural alpha, we named it return stacking, and we did it in such a way that was the most accessible to the average investor, even foundations and small corporations. And so in the summer we started noodling this and we decided to write a paper about the idea of stacking returns how to improve a sixty forty portfolio through these new products and putting them together in unique ways. And that led to then a demand for some sort of solution, which led to this index that has a bout of bts and mutual funds that we've structured together to create uh profile that we're gonna I'm sure to talk about the rest of this podcast. Let me jump in here, um and really get down to this stacking issue. And I want to go back a couple of years with you, Cory. There's a product that was launched called nt SX, which is the wisdom Tree US Efficient Core e t F. It used to be called the nine sixty and that was born out of a Twitter conversation with you and a couple other people. And this was interesting to me at the time because, um, I was on Twitter and I thought it was interesting. It was one of the first e t s that was born out of people just talking about something wisdom Tree launched that. I was skeptical. I thought advisors just don't want to They typically don't like to have all the asset classes together. They want to pick the pieces. But it's got a billion dollars and it's a success and they've launched. I think other versions of it explain to me the sixt what and I think this is essentially what return stacking is, and this is one of the e t s you use in your model. So I guess walk us through how this fun gets the exposure and how it gets the extra how it stacks, and I think that will be a metaphor for the bigger model, right absolutely so. As you mentioned this e t F that was launched by Wisdom Tree, Jeremy Schwartz at wisdom Tree was really the driver behind. That was born out of a conversation that was taking place on Twitter between me and to actually anonymous Twitter accounts non related sense who has unfortunately since passed away, and another Twitter user named Jake and Jeremy Sawton thought it was a really unique innovative idea and was able to breathe life into it. The core concept is to take a sixty forty portfolio and lever it up one point five times, and that's going to give you a N sixty. Now how is that done in practice? Well, what happens is for every dollar you invest in the fund, the fund is gonna take ninety cents and invest it in the SMP five and it's gonna leave ten sense aside in cash or cash equivalence very short term US treasuries for example, as collateral to then buy a ladder of US Treasury futures, It's going to be a blend of two year, five year, ten year, and twenty plus year US Treasury futures percent in each and that will give you sixt notional exposure. So you got ninety in the SMP plus sixty using treasury futures. Now we could stop there and say, well, that is stacking. What we've done is we've stacked treasury returns on top of equity returns, which may or may not be a just a very interesting solution as an alternative to someone who's very equity heavy. Clifford ass At, a q R. Wrote a paper twenty five thirty years ago called why not just equities? And he showed actually, a levered sixty forty over the long run does much better than just equities. Jeremy Schwartz recently published an update to that for plus years about a sample. But I think where this gets really interesting is to say, let's actually not use it as an alternative to equities. Let's use it as an alternative to a sixty forty. And by that I mean if I just invest sixty six percent of my capital in this levered sixty forty, then I get equivalent exposure to what investing a hundred percent of my capital in a sixty forty would have given me. But I'm left with thirty three of my capital left over that I can do whatever I want with. And then it becomes a very interesting question of what do you do with that leftover capital, which then in effect is going to be a return stacked on top of that six return profile. So we're able to retain the sixty forty that everyone wants and loves, but use a bunch of leftover capital to potentially stack something diversifying in return generating on top. So this fund is and we're gonna get to the bigger model first, but this fund, essentially UH is up about seventy since launching. Would you would you say it? Would you compare this to a balance like a balanced fund or the SMP. What's the right benchmark here? Well, my guess is it's probably benchmark to the SMP. I would argue that's not a great benchmark. The reason I love the phrase return stacking, which I have to give all credit to Rodrigo for coming up with, though I do plan over time to whitewash history and take that from him. Actually on the term, I wrote this book back in the day called The Institutional E T F Toolbox, which is available on Amazon in case you're curious anyway, I interviewed some institutions and I think they refer to this as portable alpha. So are you sort of rebranding it or is there a difference between portable alpha and return stack. There's a slight difference. Uh. Portable alpha really from an institutional perspective. Back in the two tho era was all about stacking alpha on top of your exposure. So if you look at something like an nts X, which is just SMP beta plus bond beta, well that's not really portable alpha. I might call that portable beta. Right You're you're porting beta on top of beta. There's no alpha there. The return stacking concept is more generic than portable alpha because it's a question of what do you do with the extra capital you free up? That capital efficiency you create and you could go out and buy alpha strategies, which then it does, I think, become very similar to portable alpha. But a lot of the nuance comes into how are you actually generating that capital efficiency, how much does it cost you, where is it coming from? And that's sort of a difference in terms of how portable alpha used to work versus what we're doing here. Everything that clos has talked about has allowed an investor to increase portfolio real estate. Right. An institutional investor has a vast, a wide expanse of real estate that they could create. They get a hundred dollars, they could invest a thousand dollars if they want to, through derivatives, through borrowing and the like. Retail investors, retail advisors, a lot of small pensions and institutions are stuck with a hundred cents on the dollar. You give them a hundred dollars, they only have that to spend, and that's because they don't necessarily have access to leverage, have access to derivatives, has the expertise to do it, don't want to do it all of a sudden. In the last two years, with products like ours in nts X, you now are able to buy instead you want sixty forty, you only have to spend sixty seven dollars of your hundred to get sixty forty returns for the year, And now you've created thirty three dollars of portfolio real estate. Right. And what the reason we started with return stacking the language stack returns is that if you do it right, if you choose the right thing to put onto your thirty three percent you're getting, you're gonna get that six return, and whatever you make in that extra thirty three dollars, that return is going to stack on top the six forty. So this the paper is is about, you know, how to stack returns in a low return environment, because I think that's what everybody's worried about sixty forty, like Eric said, where they're terrified of getting away. You know, they know that it might be low returns in the future of sixty forty. They know there might be higher correlations, but they're terrified and moving away from it. This this allows investors to both have their cake and eat it two through stacking something thoughtful on top. Right. Okay, so I want to talk about the thirty three dollars a little bit more, but before we do that, let's just talk about the the bigger model, because you're you're adding a few other things into that, right, correct? Yeah, So what are those and how do how does it all work? Yeah? So the idea. First, the paper goes through a simple example like we just discussed, right, But then we say a lot, very few investors will actually buy a single et F and then have that be their portfolio and then stack you know, whatever they want to do on that. But it's time out real quick, and let's just hone in on that. This is crucial because a lot of people ask me, why isn't there just one e TF for everything? Or you know and or why don't ask the dellocation which holds like balanced ETF are weren't they more popular? And advisors just are the word us, the word terrified. They're terrified of having one line item that they want to have more in there. And so I guess just just I just want to stop there for one second and also address that because Joel, you had that idea for why isn't there a hole inch alata ETF. Ironically it probably wouldn't sell that much because advisors want to be the deciders. They want the pieces in there. So I'll pass it back to Rodrigo, who obviously is making the pieces. Well, this is this is from years of interacting with advisors, right There's it's really a tough to get through your compliance that you're gonna put sixties six cents on the dollar in a single service provider. It's just not a thing. And then from a optics respective with clients. Let's say you have a single company that has five beautiful et s. It's very rare to find the advisor that's okay with giving it all to a single provider. And so you you certainly want to have manager diversity. You want to have you want to minimize the risk there from one single manager blown up or not doing well. But if you're looking at return stacking, then you only had one product to play with, it would be a problem. What we found, which was very refreshing, is that as you start digging in, you find that there were, at the time of writing the paper, we found ten very clear return stacked funds, and they were stacking different things. Some were stacking equity beta on top of bond beta. Some were stacking s p y and then you know, fifty cents of spy and a hundred cents of trend manu futures trend, another one with sacking global equities with managed futures trend. We were stacking global risparity, and then on top of that global macro like rules base, Global macro cory was active equity on top of active bonds and tail protection wrapped around that. So all of a sudden you start finding these really exciting products that you can now put together in a way that makes that creates an exposure of six equities bonds, and then what we stacked on top was thirty cents of systematic um trends that's just like managed future trends or ct A s, and then another thirty percent of global macro or systematic global macro. And the difference between CTA and global macro they're both futures based. One does pure trend the other one uses value factor, the momentum fact, the momentum trend factor, the carry factor, some use seasonality, some use me in reversion, right, so it's just a bit more diversive. We jump in here. So, uh, what what you just went over was hedge fund strategies or alts, And they're called alts because they're alternative the stocks and bonds and they don't have they have very low correlation to that category. There are et s, net Corey, but they totally ignored because they just don't really do much compared to stocks and bonds in the last ten years. But I think there is a knowledge that they when the market does sell off, those hedge fund ish kind of strategies rise to the top. They tend to be the top performers when the both the sixty and the forty or down. I've seen it happen. It's only little windows because then the FED steps in and everything goes up again. But is that why you're using your thirty three cents on that instead of in the NTSX situation more treasuries because you're like, we already had that covered. Now let's get some alts in there just in case the world goes to hell. That will help you on the protection side. That's the idea here, just to try to simplify it. The nail on the head that at the end of the day, there are these really interesting and attractive alternative strategies from a diversification perspective. The problem is most allocators have been stuck with this either or problem over the last decade that to introduce these diversifiers they have to sell stocks or bonds. So you look at something like managed futures, which had a total return the stock gain Managed Future ct A index I think at a total return of between twenty and for the entire last decade. Right, So if you sold stocks or bonds to buy managed futures, you were very disappointed in the total return, but it is a phenomenal diversifier historically, particularly during periods of inflation fear. So if you can have your sixty forty and then stack those extra managed futures are alternative returns on top. Not only are you potentially earning the extra return, but you are whole fully making your portfolio more resilient by adding a diversifier that particularly attacks what a sixty portfolio is weak two, which is inflation risk that tends to cause stock and bond correlations UH to turn positive. Okay, I like this, although I will just question the fact that you know, plus thirty three plus all this other stuff does not equal one hundred. So there's some really basic math that I want to take you guys up one but as a joke. But I do want to just talk about this thirty three and sort of the competition there, because it sounds like there's a lot of very technical things that are happening there that a normal retail investor isn't going to understand. You're you're probably catering to an advisor more than anything there. And I'm also just you know, genuinely curious here, like how are you supposed to figure out what you're supposed to do with that thirty three? I mean there there's probably a version of that that I should put in crypto even right, Sure, look, there's it's not necessarily I mean, the index is meant to be prescriptive, but the paper is not right. So what you do with that thirty three cents? A lot of it has to do with your own values, right. For example, if you're a value manager, if you truly believe in buying cheap then all this time. You know, if you're like Warren Buffett that leaves some cash on the sidelines and waits for the opportunities, you can't do that as an advisor. Investors have a hard time staying in cash until value comes up again they can snatch things up. You know, a few people can actually accomplish that. But again, having your cake and eating it too. Now you get full exposure to sixty by only investing sixty seven cents, you have thirty three dollars. It's on the sidelines. March happens. If you're a value guy, you can you can pick up a lot of cheap stocks, right, And because you can buy you really, like you said, adding it, it's you're getting a hundred cents plus another thirty three cents, a hundred percent exposure thirty three cents. We're in cash. Now you've invested it in March twenty, you've bought all the chief stocks. You stacked a bunch of return. So that's one way of return stacking. Right. The problem is that once you're there, now you're exposed not sixty forty, but you're now exposed ninety forty. You're you're very, very heavily intequities, and that becomes a long term problem in our view, Right, So what we tend to espouse and lean on if what are you gonna do with that thirty three You want to do things that can thrive when equities and bonds don't thrive. And I think you, guys. I was just listening to a podcast of Years with Gina Martin Adams, your your boss, Eric uh and she was talking about you, guys. Talked about a bunch of very interesting things, one of which was inflation and the fact that when we've seen periods of inflation and rising rates, we've seen bonds and equities not only lose money, but lose money at the same time. The correlations went up, so what does well, what can you do for that? Other one of the things you could explore is a diverseified commodity index, right. Another thing you could explore are these c t A s and global macro funds that can both make money and inflation markets, and then when the inevitable FED comes to break the back of inflation, it can also profit from downward deflation, which they did beautifully in the two thousand's right. So that's that's kind of what some of the things that you can do with that three cents it would be. It depends on just how I guess your tolerance for risk, But it seems to me it would be kind of dangerous to put it into something like crypto, which has acts like a high beta stock. If that goes down, then you're down. Then you're all all hundred and thirty three is down. Where you want the thirty three largely to offset the potential for the six going down, I would guess. But I guess you could go all out and add on to from from my value, that would be my preference, But everybody has a different set of values, right, I think I think when someone hears this, they go well, you're just leveraged, and that's we know how that ends. But I think that's the main point is if you use your leverage to add on more of the same thing you just bought, clearly that's where it gets dangerous. But if you buy something that can offset or work against or go up when the other parts go down, that seems like a responsible way to leverage, which I could see appealing to advitor people who are probably worried about those kind of things. I mean, there's a lot of target outcome ets have become popular for the same reason they sculpt your returns, they give you some sleep at night feeling because they use options in a certain way to limit your downside. People are very quick to point out that almost every major financial catastrophe, both globally as well as every hedge fund that's blown up, has been due to leverage, which is pretty much true. But it's also been due to concentrated leverage. Right, there's a very big difference between diversified leverage and concentrated leverage. Right. If I said, let's take this sixty already in layer on top very very short term, very high quality investment grade bonds, that's very different than saying let's take this sixty forty and layer on top thirty three cents of bitcoin and ethereum. Right, those return profiles are going to be very different, and the risk you're taking is different, even though the quote unquote notional leverage to thirty three cents is the same. And so again we think it's really crucial when you're taking this return stacking concept and considering it to think about what are you trying to stack on top of your portfolio? And for us it was really important in the paper to consider, Okay, everyone we know is already starting with the sixty basis, how can we make sure we're not just tacking on more risk? How can we really try to attack the core risks facing a sixty forty today? How can we help reduce that risk? And let me give you a perfect contemporaneous example for year today. I was just looking at up right now. So year today smps down four or four and a half percent. Right, the supposed protective layer, which is UH sovereign U S treasuries, the TLT is down around six percent. So both equities and bonds are down together, much like Gina had said, might happen an inflation regime. What is DBC doing the Deutsche Bank Commodity Index fund direction? And I think it is UM it's up six percent? Right, What are managed futures funds doing? They're up a couple of percent. This is exactly the type of diversification you need to protect against the blind spots of UM. So anyway, these are these are the reasons that it's for us, it's at a timely period for us to be discussing the stacking concept. It just allows clients to not have to if we're wrong, if Corey and I or any any gena is wrong about our our future predictions of correlation of equities and bonds, then they can get their six return and if we're right, they can protect some of that. One of the one of the things is that you're sort of optimized for these moments of time where things might move in lockstep. Right, So, how long of a window does this approach? Last four how long of a window does this approach as in your your view or your positing that these events like we've seen the last month are few and far between, and so you know, how how much of a benefit is it really? UM? Well, this is assuming this is again, I'm just going back to Gina's conversation. You think this is few and far between, but in fact, if you look back in the seventies, bonds and equities were highly correlated most of the time for over a decade. Right, So just because we haven't seen that in a rising rate environment a falling rate environment, doesn't mean we are not going to see it for a decade or more in the future. Um So, I don't know if you have anything to add to the correlation between bos necros or not. Yeah, let's let's assume we're wrong. That's always the best place to go. When you're an asset manager. You should probably assume that whatever narrative you're telling is wrong. What I would point to is in the last decade, right where this certainly wasn't true. I mentioned that c T A s, which dramatically underperformed stocks and bonds still had a positive return. Right. So let's say we're wrong and the next decade is just like the last, and stocks and bonds have negative correlations. It's a wonderful diversifier. Well, if we stack commodity trend advisors managed futures on top of the sixty forty it's still hopefully not a problem because that tends to exhibit an absolute return profile. It's actually one of the reasons in the paper we didn't stack raw commodities, because what you find is that while commodities tend to do well during periods of high inflation shocks, they tend to do quite poorly during disinflationary periods, and so what we wanted to stack on top was something a little bit more absolute return. So if that things do revert back to how they were over the last decade, and these fears about inflation go away, and correlations go back to being negative and nice, and diversification between stocks and bonds, what we're stacking on top is hopefully not a drag on the portfolio. So to your point, Joel, it's it's ultimately hopefully not an issue either way. What we're trying to stack on top is supposed to be absolute return. The drag issue is that's what There's been a bunch of downside hedge dtfs. Some have used a little VIX futures, which can be awesome when VIX is up, but man, they drag and they really just corrode your returns. Phdges that e t F. I mean it was underformed SMP by like over like three or four years because of that that drag um. So I this is I think what also makes the alts probably the sweet spot, right, because I also was wondering why not just use your THT on t LT. I have noticed t LT, which is twenty of your treasuries, has a real nice um record of off setting stock declines. But are you worried that even long dated treasuries could go down at some point to or um? I guess you ever think about just using long dated treasuries instead of alts or adding some of that in there. Okay, I think Corey can speak to this better because that's kind of his his first four into this return stacking concept. So Corey, why don't you take it? And then I have some thoughts on that. Yeah, I mean I think the big risk eric for us when we're considering this return stacking concept is what are the core economic risks that sixty already has? So if we start to take that extra capital and allocated to long dated treasuries, you probably get a profile that's a little bit more balanced from a risk contribution between stocks and bonds. But you're still introducing a lot more of that inflation sensitivity risk. Right, So again talking year to date, we are seeing that equities and long dated treasuries are both down at the same time and exhibiting positive correlation to one another. So adding more treasuries to the portfolio doesn't really do anything to solve the potential inflation risk that's inherent in the portfolio that's so popular. So if we go back and rewind the clock twenty years, that would have been a brilliant trade. But what we're trying to do is set us up today not knowing what the future is gonna look like, not having a crystal ball, and trying to develop the most resilient portfolio we can while still having that core sixty forty exposure that clients and allocators want. One thing is advisors, especially for the fee based advisors, which is where they get a percentage of the assets that swept over the country. Used to be they get a commission for the mutual fund. Now they get a percentage of fees. That's turned them all into like host obsessed people. They they that's why all the money goes to everything below ten bibs. Here you have this portfolio I would say it's probably all in at the level of maybe an active mutual fund back in the day, like it looks like it might be seventy or eighty. Maybe I'm wrong there, but let's just say you need to now explain why they want to replace something that's ten with that. And so you got I think you have your hands full. Your case is very compelling, though, I guess can you talk a little bit about how that's going. Yeah, I mean, let's go back to what the word return stacking means. If we're not stacking returns, it's not worth it. Right. This is this is the key thing. In the last decade, it has been very easy as a domestic advisor an investor to make money and the things that you are comfortable with and no it is s P Y and I e F for t lt so bonds and equities domestic have had a sharp ratio in theele of its history. It is some of the best returns we've ever seen. Ever, so when you look at your options bonds and equities, you can get dirt cheap ETFs and the regulators are coming in and creating complex language that might maybe have forced advisers to do that so I understand where everybody's coming from. We're trying to get people to see is the next decade. The next decade is going to require something beyond the mestay equities and hans. In my opinion, you're gonna have to deal with inflation. You're gonna have to deal with inflation and deflation and back to reflation again. There's gonna be a lot of volatility. For that, you need active management, which has been out of favor for ten years. That active management that we are proposing goes on top of these betas and stacked betas and stacked alphas need to provide enough value whereafter fees the stack is still above sixty. And so if you look at if you read the paper, we take fees off of everything, you'll see that in most years from seven to today, the the index of the approach stacks returns on top after fees, transaction costs and slippage, the index is the same thing you. I think we come in at one point to nine m e R or E ER sorry MR as a Canadian term expense ratio. That seems like a lot, But then you look at the index and it's sixty forty returns and then on top of that for the last three for the last year and a bit, it's been three stacked on top in spite of those fees. Right, So this is out of all the types of active management, this is the most straightforward. Do you care about your fees if the returns are being stacked every year? Right? I could be terry. What if I get an indext and and average five if the returns are above sixty forty, that's that's all you care about? Right? So I think for for the equity part of the portfolio, you're using something equivalent to the SMP, Right, isn't that the NTSX part? Well yeah, as and yes, where NTSX is SMP, but they're fun provide active but it's not what people think of where we're picking stocks. This is a whole different level of active. This is an asset allocation active. Well, you got your you have access to very, very cheap leverage, and that's the magic here. Let's start with that. What is different. NTSX provides us a hundred and fifty percent exposure to a balance fund you can't with the cheapest possible leverage you can get your hands on retail investors and advisors have not historically been able to get that, So that already is amazing structural alpha okay, and NTSX is twenty BIPs, which is which is on the low sides for right and then. But if you want that other protection, that active long short trend c t A, that active long short managed futures that requires daily trading, a team reconciliation, you're not going to find very cheap exposure to those things. But we believe that absolutely turn concept is important, and we found products that have the cheap spy and then stack on top of that in that structural outlet, stack on top of that that that trend and and active futures mandates. So it's a bit about it, just real quick again, just for anyone listening who thinks hedge funds, there's this sort of drumbeat of like how hedge funds can't beat the SMP, but you're bringing up absolute return. And for the institutional minded person, hedge funds are not being the SMP. Really isn't what most of them do. So when you say hedge fund, you're thinking something has uh hedges off a lot of the risk and ends up having like the same volatility as like as like bonds. Right, it's very low right in the ballpark of say, I don't know, maybe half of the SMP is that fair historically that's that's true. Um, I think zero coraline. You're looking at this managed futures, which have a unique profile really like they are. I think they're a category apart from this hedge fund category. I think hedge funds are generally long short equities where you're trying to hedge out the beta and just capture that differential alpha and that will have very very low correlation, very low correlation, very low volatility, and single digit returns that you stack on top. When we talk about long short c t a s and long short systematic global macros were now like even in the ets available, we're looking at the volatilities between eight and twelve, which is now similar to like uh, you know eight twenty sorry, uh, fifty fifty bond equity portfolio to sixty forty bond equity portfolio. Is that type of level of risk, and that's crucial because you want volatility as long as it's lowly correlated and and from my point of view, managed futures and c t a S out of all the hedge funds out there are the least correlated long term to a sixty forty portfolio. We keep going back to this core concept of what are you stacking on top? What you stacking on top, and what we're trying to stack on top are these absolute return alternatives that have historically been very disappointing when you have to sell equities to buy them right when you have to make this either or decision. The whole return stacking and concept is about turning this into a conversation about saying and instead of or, we're saying, can we get the sixty forty and these hedge fund type exposures rather than six or the hedge fund and I think in that sense it totally changes the conversation. I do just want to make one really quick point about the fees. Two quick points. First, I will say, with all the new products coming to market, again, if you read the paper, you can do this in a low fee way. It's just going to change what you can necessarily stack on top. Or you could do this with all E T f s, or you could do this with E T S mutual funds and go out and buy hedge funds as a compliment as well. You can take this concept and apply it to whatever fees you want. I think what is important Eric, you talked about having your cake and eating it too. With the sixty forty, I think of return to stacking is take the cake and putting some icing on top. Then the question is how much of that icing does the fees Ultimately your road and as long as there's icing left over, I'm not sure it really matters that there are higher fees there. You just need to make sure that they're still icing there. Okay, so really interesting time to introduce this concept to people too. I'm curious if we had you back on in the future, when are we going to know if you guys hit it? When are you gonna know? Um, Look, we've the index has been it goes back to November twenty twenty. Go to return stacking dot live to see the results. You know it's there. I think year today we are stacking in s your fifty basis points on top. I think I personally from um just from my macro view, which is always wrong. I think we're gonna be in an inflationary volatility environment, which means eighteen months of massive alatility three to six months of downward deflation, and you're gonna have to navigate that in a way where bonds and equities are gonna act very differently than they have in the past. And one thing I'll just we've been talking about how problematic investing in UM in alts and especially in managed futures have been to the last decade because of their single digit returns. From two thousand to two thousand eleven, the peak of the last commodity cycle, c t A s and managed futures were doing double digits every year, So the stacking goes way up. In an environment like that. I would say, if we're back in three years and my tradition comes through, we're going to be very very much ahead. Worth mentioning, we've we've talked about this paper throughout the conversation. You can find that at return stacking dot com, Rodrigo. Where do you find find more about the model? A return stacking dot live? Is it where you can get to see it? And now I want to ask a question that we always ask at the end of jillions. What's your favorite et F ticker other than around favorite e t F ticker other than my own? UM? I am going to have to say t y A from Simplify because it just it does such a good job of increasing that portfolio real estate that everybody needs to do some of that return sack. And we got Corey. Well, so I'm gonna answer this two ways. One, what's my my favorite e t F is nts X. That is hands down my favorite et F that's ever been launched. It's a super simple concept, but I think it's got so much power. My favorite e t F ticker that's been launched has got to be the new one from Simplify c y A, which is their tail hedging Cover your assets perhaps is the way we'll put it all. Right, there you go, Corey Rodrigo, thanks for joining us in Trillions. Thank you very much for having us guys. Thanks for listening to Trillions. Until next time. You can find us the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wharver else you like to listen. We'd love to hear from you. We're on Twitter. I'm at Joel Webber Show, He's at Eric Falcinas. This episode of Trillions was produced by Magnus and Rickson. Francesca Levie is the head of Bloomberg Podcasts by