WEBVTT
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It. Welcome to let's Talk Ats. I'm your host, Jason Capool,
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and I've been monitoring the investment space
throughout my entire career here at seeking Alpha.
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I'm an ETF strategist and my role
is to uncover and bring forward news
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and information to the investor community that
is meaningful and actionable. Each week,
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a different guest and I will take
an indepth look at a particular aspect of
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the rapidly evolve in exchange traded fund
space, with a focus on how investors
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can best utilize ets to reach their
investment goals. Before we begin, a
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brief disclaimer. This podcast is for
entertainment and educational purposes only. Nothing said
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here should be taken as investment advice. All opinions expressed on this show are
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those of individuals expressing them alone.
A full set of disclosures will be included
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at the end of this show.
You can subscribe to let's talk ets on
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apple podcasts, Google podcasts, spotify
or whichever podcast platforms you prefer. For
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reference purposes. This podcast is being
recorded on the afternoon of November, thirty
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two thousand and twenty one. Today. Our guest joining us is Johan Grand
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Vice President and head of ets for
alliance life. Johan comes to us today
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with an extensive background to the financial
markets, where he's spent currently five years
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of his experience within his own current
organization, Shan. Additionally, Johan has
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spent over four years with metlife and
he has a degree in international business from
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Johnson and Welles University, as well
as a master's in investments and securities from
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briant university. We're very excited to
have him here to speak with us around
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our topic of how to manage risks
with exchange traded funds. So, without
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further introduction, I like to welcome
our guest today, Johan Grunt Yep.
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Thank you. It's great to be
thank you absolutely. How's everything going over
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there for you today? Good,
good, it's a Suni Day in Minneapolis,
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Minnesota, so we'll take those days
when we can, and it's it's
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looking pretty good here. Absolutely if
that's fantastic to hear so Yoan. Before
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we kind of jump into everything,
the way we usually kind of kick off
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the podcast is to allow our audience
to kind of get a little bit of
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a better grasp of who they're speaking
with. I know I kind of gave
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you a little bit of a brief
Intro, but a lot of times it's
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better from the the voice of the
guests themselves. So would you be able
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to kind of give us a little
bit of background to who you are,
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what you're all about, your organization
responsibilities, what you're doing over there,
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kind of paint a better picture of
who are going to be listening to today?
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Yeah, sure, happy to thank
you and maybe I can start off
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to by saying that my my voice
is normally not quite this deep, but
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I'm I'm fighting off the last components
of covid right now, so if I
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do need to sneeze or cough,
please, please forgive me up front for
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that. Yeah, I know it's
so. I work for audiance investment management
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and maybe, maybe, just to
start off, it's a little known firm
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within a within a much broader and
bigger organization. Many of you and your
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listeners have heard of alliance right,
and within the alliance group you have also
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pim go, for example, but
also alliance investment management, which is wholly
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owned subsidiary of alliance life, the
Insurance Company that space here in Minneapolis with.
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Most people don't know is that aliens
investment management is the part of the
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organization that's managing risk on behalf of
the larger alliance group, so across different
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countries and regions all over the world. So we have a trading and derivative
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space, trading team that space here
in Minneapolis, and we do in manage
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to risk to the tune of roughly
hundred and fifty billion dollars. Most of
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that is managed through options and other
types of derivatives. So it's a rather
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sizeable operation and we just relatively recently. This is back in June of last
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years, of June two thousand and
twenty, during the the the early days
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or early months of the pandemic,
we launched an ETF business. So we're
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new to the ETF industry as an
issuer, but we've managed the type of
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strategies and options based strategies for for
a very long time as an organization and
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they're basically risk managed strategies. And
I know Jason will talk a little bit
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more about this later, but the
the reason for why I find this to
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be really exciting and having launched this
for big organization with a small entrepreneurial team,
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is that the the solutions are very
lean and simple and make a lot
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of sense also in today's environment also. But maybe there's quickly. By Way
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of background is that I've been in
the call of the asset allocation, portfolio
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construction, manager selection industry for a
good two decades now. So I've managed
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as sets for an Endowment Fund and
I've also helped the institutional investors construct portfolios
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and build their build their programs out
so and downments and foundations and so on.
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And you mentioned my stint, that
met life, where I oversaw a
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risk managed franchise, so subadvised franchise, where we, in conjunction with other
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asset managers out there, developed some
pretty cool and cutting at sea at the
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time risk management strategies. So whether
that was managed volatility products or risk parody
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products or momentum based type of draw
down strategies, very interesting way of glizing
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and diicing the risk management conundrum.
And also more recently now with with alien's
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life, as we've constructed, you
know, portfolios that are trying to solve
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for this risk management issue. We've
been able to do this in a different
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format in the CTF wrapper with option
space contracts. It's been really interesting.
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But they long story short, I
guess is that I've been in this this
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world of risk management for many years
and I think we have something that's really
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exciting to talk about. Absolutely,
and I'm glad to hear that you're getting
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over the spouts of Covid and we
are getting back in the groove and it's
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going to be exciting to get your
input on the kind of a risk management
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space someone with illustrious career like yourself. I'm sure we're going to have a
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lot of insight. So, you
know, obviously investors are worried about risk
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and market turmoil as we're kind of
going into two thousand and twenty two.
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Some we call it maybe cautiously optimistic, but you know, with the latest
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covid variant now hitting the market,
many investors, you know, appear to
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would be looking to hedge their portfolidios. They're watching volatility levels rise a little
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bit. What sort of risk are
you seeing that's lingering into two thousand and
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twenty two? How should investors be
approaching that space in kind of your viewpoint
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or alliance's point? So it really
it really comes down to what your investment
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objectives are and where you are in
terms of time you know, and how
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much time, you might have to
invest in your style and there's a huge
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variation of the of the investing things
team. But but I would say that
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for most investors, you know,
you're looking at having a holistically put together
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portfolios, I think portfolio construction.
And for the most part, you know,
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investors will have some allocation to equities
and some advocation to bonds or fixed
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income and in many cases there are
allocations to other types of acid classes,
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you know, whether it's some variation
of the fixed income or high yield or
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if it's real estate or commodities or
whatever else have you. And that,
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of course, as you the greater
the portfolio is, the more sophisticate and
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the more complex those type of diversifying
allocations might be. But but that at
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the end of the day, there
it comes down to the three core acid
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classes. At the end of the
day you have an equity risk premia,
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if you have a fixed income risk
premia and you have cash and everything else
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is some kind of variation of that
in the capital stack. But the so
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the general question really is, you
know, how do you want to wait
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between the risk assets in equity and, on the other hand, how much
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do you want to invest into the
Fixed Income Sleeve and the risks that we're
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seeing and having seeing. There's shifting
paradigm to in the market with especially and
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on the two key components, one
being on the Equity Valuation side and one
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being on the right side with low
rates that are coming off, you know,
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a three thousand forty year rally,
if you will, in the fixed
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income space. So you have of
this this environment where it's been really easy
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for investors who go from you know, if they want to de risk their
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portfolio, they move some of their
portfolio from equities into fixed income, and
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if they want to re risk,
they move some of that allocation from fixed
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income into equities. And it's been
relatively straightforward and relatively simple and all the
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textbooks have been written on you know, model modern portfolio theory for the past
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several decades. I've kind of dictated
how you alter, you know, to
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some degree, the advocation between those
primary asset classes, and that's been all
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well and good for a long time, but currently what we're seeing in the
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market place and also looking back in
history where we're at and where it's been
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getting us to today, it's kind
of putting that to real test. It's
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much more difficult to make a recommendation
today to move, if you want to
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do risk your portfolio, to just
move into a way from equities and it
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fixed income, given where the rates
are and giving what the outlook is.
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And now shorter term level, hopefully, when you start building in ideas of
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inflation coming through the system. The
way it is, the short intermediate term
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for fixed income is it is pretty
tricky to see a ton of value and
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also it's hard to find strong correlation
benefits between equities and fixed incomes. But
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will you know, have been for
a for a long time providing this probable
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free lunch. That doesn't quite exist
to the same degree anymore, and so
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would argue that it's it's gone completely
to start as well. So those are
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some of the things that were battling
it with. It's not new. This
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has been a trend that's been here
for a while, but coming into two
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thousand and twenty two, to address
your question, these headwinds are becoming more
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and more pronounced. In my opinion, excellent and yeah, I guess we'll
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have to kind of take it with
a grain assault and as days go by
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it kind of seems like we're in
such a short term viewpoint of you know,
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things could switch on a dime.
But yeah, we'll just have to
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keep an eye out on the overall
market landscape and investors will have to kind
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of stay vigilant on their portfolios on
how to optimize themselves for the best positions
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looking forward. I do want to
get a little bit into the ETF aspect
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of this conversation and obviously we kind
of touched out on the beginning. I
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know that you guys have recently launched
some new ETF and welcome to the market,
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of course, but I think I
know you guys have the buffered outcome
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ETF series and I was wondering if
you could kind of give us a little
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bit of a breakdown to what is
behind that approach and that idea. You
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know, what is that ETF series
all about, and what should investors you
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know, what are the more important
things that investors should know and understand about,
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you know, when approaching fun like
that? Yeah, it's actually it's
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pretty straightforward. You know, it's
a completely a little bit more complex behind
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the scenes and putting all the components
together right, but that's that's what we
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do in housing on a trading desk, right. So, aside from the
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technical aspects of this, basically it's
a it's a strategy whereby you have a
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known level of risk metigation on the
downside, and we just refer to that.
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As to buffer, and we have
two different buffer levels. One is
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ten percent and one is twenty percent. And and basically what that means is
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that if the SMP five hundred drops
by ten percent or less, you in
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the case of the ten percent buffer, you don't lose any money until you
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breach that ten percent. So if
the market is down ten percent flat,
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if the market is down eleven percent, you lose one percent and if it's
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down fifteen, you lose five and
so on and so forth. And since,
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since there's no free launch in this
case, right, if you want
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to chop off the tail on the
risk side, you're going to have to
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give something up for that, and
that, in this case is the upside.
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So you'll effectively have a cap on
the upset in terms of how much
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you can gain. So just by
what? By example here the ten percent
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BUFFERYTF over a twelve month period,
which is another critical component to keep in
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mind. Over twelve months, if
the market is, let's say, I'm
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going to make up that the cap
is twelve and a half percent. That
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was one of our funds that we
recently had in the market. Here you
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can make no more than twelve and
a half percent on the upside and if
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the market is, as I mentioned, down by less than ten, than
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you your flat. Now, if
the market rallies, of course you still
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capped at twelve and a half.
So you won't make any more than that.
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That's the tradeoff and for a lot
of investors this tradeoff makes makes a
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lot of sense, because you if
your goal is to make five, six,
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seven, if you're comfortable making,
you know, single digit returns on
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your equity side, but do you
put you're not willing really to take the
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risk on the downside? And this
to do that. And the beauty is
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that you can invest you know with
confidence. You'll know exactly what to expect.
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You know the day that you invest. And the same thing holds true
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for the twenty percent buffer them we
have, and the differences that you're effectively
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getting more downside risk mitigation and therefore
your cap in terms of how much you
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might be able to make. That
cap is lower. So if you have
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a five percent cap, on the
upside, for example over twelve month period,
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and in twenty percent downside buffer than
a lot of times you can look
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at that and say, you know
what, I'll be happy to take my
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five percent. I don't need to
make fifteen, but I really don't want
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to lose a lot either. So
so what we see is effectively three different
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ways that this is being used and
it all comes back down to ask a
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location and how you think about risk
for those investors that that are looking to
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you know, let's say that you're
nearing retirement, you're getting into retirement,
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you're getting a bit more risk averse. You look at the equity market,
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you get perhaps a little bit nervous. You know the multiples are pretty high,
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rich by any standards and arguably some
bubbles playing around as well, and
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you want to take some of that
risk off the table. But you look
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over the fence and you look at
Fixed Income and you say, well,
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Gee, you know, I'm not
quite seeing a pride future, you know,
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in the near term here either.
So what do you do? You
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can obviously go to cash, right, and that that's totally fine, but
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that's also dead money and and really
dead money in it in an inflation of
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our inflationary environment like the one we're
in. So one simple solution that that
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we've see, we've seen a lot
of advisors and investors applies to move from
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move their equity holding sort of partial, partial allocations of their equity positions into
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let's say abouffer twenty, where it's
okay if you have a five percent return,
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should the markets continue to grind up, but if they dropped by ten,
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fifteen or even down to twenty percent
over the next twelve months, you're
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still flat. You effectively didn't lose
anything on that position, and that's that's
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a good tradeoff that we've seen a
big appetite for. So that's on the
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Equity d risking side. And then
you have the opposite, right, if
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you look at investors that are holding
on to their fixed income portfolios, of
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the bond out locations and feel like
they're being a little bit cheated because there's
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not a lot of Jews coming from
from from that autocation, at least for
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sure not the way it used to
ten and twenty years ago, when it
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was a little bit easier of an
investment decision to make, and those investors
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might trade off some of that bond, a location for for twenty percent buffer,
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for example. The third thing that
we see, and then I'll Palk
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and had it back to you,
but the third reason that we see for
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how these portfolios or dctfs are being
a being used is for those who investors
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that are sitting on cash but they're
also nervous about deploying it right then you
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know you're going. I mean it's
losing purchasing power to to a much greater
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degree today than just six months ago, and that's probably going to be with
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us for a while. So really
dead money again. If you want to
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give yourself an opportunity to create some
type of return, the question is the
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same. Where do you put it? and a buffery TF. We found
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that that's been a good, good
solution for for those investors that are not
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comfortable jumping into the equative market but
also don't really see that the point of
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jumping into the fixed income market.
Yeah, I like the option, the
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optionality of it, where you know
it really could be used and fit in
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for all different degrees and types of
investors. Like you said, someone coming
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closer to the retirement age, individual
that just really looking to perhaps juice up
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they're fixing it fixed income aspect aspect
of their portfolio and then the cash individuals.
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So kind of offers that wide variety
of range depending on what you're looking
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to do with your portfolio. It's
an interesting outlook and I think it's probably
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going to be, or at least
I hope it is going to be,
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successful for you guys, you know, entering the ets space. It's definitely
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an edge that can be out there
that individuals are looking for. I guess
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what sort of reception have you seen
with it? Obviously you guys are a
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little bit newer to the space,
at least an ETF wrapper world. How
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has the investment reaction been to these
products in terms of, you know,
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investor flows, feedback, what sort
of information has resonated with you guys?
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It's been really quite incredible in terms
of rescectivity in the market place and it's
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really as an industry, the defined
outcome ETF space. It's only just over
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three years old and for anything that's
new, it's it takes time for it
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to build and to gain interest,
number one, and understanding number two,
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and then track records and some stress
testing and you know it takes a little
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bit, little bit of time for
any new business endeavor to take hold and
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and what we've seen industry wide couple
of things. Number One, being new
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to the TF world, even with
a a big company, name brand,
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name if you will, of alliance, it takes time for for the for
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the news to spread, so to
speak, and make sure that people,
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number one, even know that you're
in the industry right. So that's it.
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There's a natural curve to that.
But what we've seen also throughout the
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industry that's really interesting is that asked
the defined out COMMITTF space has grown in
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maturity and also grown in terms of
understanding and acceptance. More broadly, it's
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still has it's still been a bit
of a grassroots type of exercise, and
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by that I mean is that individual
beds and ours and advisors have uncovered and
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discovered and decided to to invest because
they think it makes sense. And it's
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grass roots because this is happening before
many of the larger firms have given the
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proverbial stamp of approval, approval throughout
the gatekeeping community. So it's really extraordinary
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when you look at the numbers.
Now, like in less than three years
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we're just now approaching the nine billion
dollar mark in defined out committfs and the
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vast majority is in the the SMP
five hundred core kind of buffer product.
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So the reception has been quite extraordinary
and it's a it's for a couple of
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reasons, I think, number one
of them being that it's literally a type
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of strategy that you've been able to
apply. So what I when I was
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on the institutional side right you could
see some of the bigger the bigger pools
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of assets. They will run their
own options overlays on their portfolios. If
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there is something inside of their multi
hundred billion dollar, a billion dollar portfolio
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that they don't like, they can
hedge it out and they can do all
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kinds of things with derivatives. Most
people don't do that. It's time consuming,
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it's complicated and you got to keep
track of it and from most people
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it's not even worth the time.
So that's one concept of where it's been
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applied in the past. The other
one is in the structure notes market.
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That's a that's a pretty sizable market. Sixty, give or take billion dollar
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annual writing about of structure notes in
the United States and much, much bigger
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globally. So a structure note works
in a very similar way, or said
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differently, the buffer TTF works in
a very similar way to a structure note.
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It's the structure inside of the TF
that's been put together to deliver a
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certain outcome. As I mentioned before, there's only four different ways that the
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outcome can play out. If you're
buying into one of these ctfs and you're
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either matching or how performing the SMP
five hundred in three of those four scenarios
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and the only on your lagging as
if the s p five hundred is doing
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better than the cap of the portfolio. So in three out of four scenarios
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you're going either to match or outperform, and that's pretty attractive to begin with.
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But it's also providing liquidity that you
can't really find in the in the
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hedge fund world or in the structure
notes world, because it's an ETF wrappers.
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You can trade it whatever you want
and that gives you some pretty unique
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opportunities to invest or go in and
out of these funds, you know,
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any more tactical fashion as well,
and we we've seen some really interesting ways
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that this can be applied. Or
for perhaps some of the more sophisticated investors
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that have time on their hands to
evaluate and and jump in and out that
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opportunity of times. Yeah, I
mean I think ultimately you made it easier
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for the investor to kind of have
their mind at ease for an individual that's,
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you know, willing to give up
a slight haircut of their longer term
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gains, but their ultimate goal and
objective is to conserve wealth at the given
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moment, you know, of their
investment. So I think that you guys
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have definitely done an excellent job in
that front and I'm sure it will continue
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to grow out that way. I
kind of a question that I had for
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you was around, I guess.
I know we kind of went over how
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an individual would play this per se
and you know that that three front approach
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that we went over just a few
minutes ago. But in terms of hold
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times and kind of that aspect,
is it a I don't want to say
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a short term hold because it's not
an interday thing for any for anything of
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that nature. But you know,
when it's a clear wide open bull market,
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I would assume there's going to be
less involvement in an ETF like this,
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and I noticed both on the ten
percent and twenty percent buffer you guys
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have a January, April, July, October series. I was kind of
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curious see if you could kind of
elaborate on that how that's broken down and
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and again, what that kind of
holding structure is for an individual. And
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I guess it will be different for
individuals having different objectives. But you know,
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if you could shed some light around
that sort of phase. Yeah,
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sure, and you're exactly right.
That depends on the investment objective at the
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end of the day, right.
So if you have a and it ranges
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right, so you have investors stuff
will view this as the new strategic acid,
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a location in their portfolio, and
I think it's it might be just
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a matter of time before you start
seeing some mentioning of defined out COMMITTFC in
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the see if a literature, you
know, and more broadly, I I
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see pop up in a few different
places. Obviously it's not its own ascid
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class. It's still equity exposure,
but it's structured that could exposure in a
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liquid wrapper and that never really existed
before, you know, call it until
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three years ago. So that being
said, you know, we see some
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investors, if you if you think
about it as a strategic as a location
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then there's no reason why I can't
hold it for, you know, called
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an indefinite amount of time. It's
how I full disclosure. It's how I'm
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invest in these buffer etfs has in
my own personal account. And if you
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if you have a medium term view, you know, and you want to
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play something on the on the right
side, or if you're looking at you
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know, you're replacing the fixed incomes
leave versus the acquitous leave. You have
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different holding periods and that that's the
primary application. To think about this as
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the strategic holding. But we also
have a shorter term version of this,
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is sixmonth outcome period. It's also
a has a ten percent buffer, you
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know. So it's you have the
sixmonth outcom period instead of a twelvemonth outcome
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period. And what I haven't mentioned, I guess, is that at the
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end of the outcome period the funds
reset when and all that means is that
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to get a fresh buffer and a
fresh cap at the anniversary date, so
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to speak. So on the twelvemonthcom
periods, it's every twelve months it's going
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to reset, and the fund funds
that have a sixmonth outcomperiod, it's going
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to reset every six months. So
if you have a if you're an investor
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and you looking to put your money
away for a short amount of time or
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longer amount of time, or if
you have a certain view on the market,
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you can buy the six month or
the twelve month, depending on what
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your your thoughts are the on the
near term market environment, for example.
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So they're all kinds of ways you
can do it and also what tends to
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make sense if you're looking for that
risk mitigation is to buy, if you
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buy, for example, equal shares
of the buffer twenty. Now you have
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four different twelve month outcome periods.
So if you have a quarter of your
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of that part of your portfolio,
a quarter each and each one of the
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series also twenty five percent in the
January, twenty five percent in April,
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July and October. Now you have
for different outcome period spanning twelve months,
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and the also of the market being
down by twenty percent or more over for
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consecutive twelve month outcome periods. It's
pretty small. So obviously there's no guarantee
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to be had right, but it's
a pretty comfortable cushion and if you're okay
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with the cap on the upside being
where it's at for these funds. Then
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that's a tradeoff that that that you
can hold in your portfolio for for quite
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some time. And when you layer
in the fact that you have, well,
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you can probably take any asset manager, all of them, and combine
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the expected returns on the equitive markets
for the next nail five to ten years.
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It's pretty weak in terms of expectations, right, but let's say that
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it's five percent or if it's seven
percent, if you're comfortable having an ETF
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with the ten percent buffer that might
have a cap of ten percent, then
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you know, over time you'll the
that might be. That might be more
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comfortable position to hold for the longer
term. Yeah, and I think that's
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a great aspect. The flexibility that
you could have, that kind of six
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month or twelve month aspect to you
again, depending on where you view risk,
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if it's you know, in six
months we should be in greener pastures,
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or if it's a little bit longer
from a duration standpoint, and then
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at the end of that lifeline it
just recycles back to square one. So,
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worse comes to worst, you're just
always kind of in that mindset.
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So I think it offers investors a
phenomenal aspect to hedge their way into the
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future through what we mentioned earlier,
through the equities and liquidity space. You
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know, that's a little bit maybe
non traditional for an investor that might be
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out there. So I think that's
an excellent way to go about it and
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I appreciate that. A little bit
deeper dive that we just kind of went
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into, I guess, kind of
lastly, because I know we're kind of
375
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getting a little bit towards the tail
end of the podcast, I was curious,
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you know, in your mindset,
you know, viewing us in six
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months and a little bit maybe more
of a macro and opinionated question. You
378
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know, where do you see the
markets, or does where does I'll once
379
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see the markets? Obviously there's the
inflation aspects, there's a continued bullsh back
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bullish aspect to the market. There's
the covid variant. You know, there's
381
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so many layers that kind of are
hitting, hitting the cylinder all at one
382
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angle. Curious to see, you
know, what the bigger picture of you
383
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is in your standpoint. Yeah,
bigger picture. You know, there are
384
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a few few things that for sure
you know are going to linger for a
385
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while and the one that will hit
you in the face right now is as
386
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a head wind is in is clearly
inflation, and I know there's been a
387
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lot of debate and you know whether
you know it's transitory or not, and
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we've been on the opinion that the
word transitory was probably misplaced a long time
389
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ago and should have been retired.
I think now that's probably the path that
390
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the Fed is going down. If
you if you can, if you're reading
391
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the tea leaves a little bit.
It's interesting, though, like we think
392
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longer term, right, but even
today, when there's a more hawkish stance
393
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coming out from the Fed, it's
almost like it's taken the market by surprise,
394
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which is kind of surprising to us
because it seems like that was just
395
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a natural way to to bring it
forward in terms of pulling back on some
396
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of the stimulus, which, by
the way, has been incredibly tiny frankly.
397
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I mean I know that the last
one they talked about was, you
398
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know, or implicate, implemented in
November, was only fifteen billion. It's
399
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a drop in the bucket right.
There's it's all about the signaling and it's
400
00:31:15.369 --> 00:31:18.519
all about the rhetoric in terms of
what they think might they think might take
401
00:31:18.599 --> 00:31:25.359
place, you know, down the
road. And one thing that's noteworthy with
402
00:31:25.480 --> 00:31:27.880
the Fed in particular is that their
job is to focus on things that are
403
00:31:27.920 --> 00:31:33.750
much longer, longer trends, you
know. They they can't make decisions based
404
00:31:33.829 --> 00:31:37.309
on what what flavor of the day
is right. So they have to like
405
00:31:37.470 --> 00:31:41.910
stick to stick to the narrative and
change it very, very marginally over time,
406
00:31:42.109 --> 00:31:48.019
or they run the risk of losing
the credibility and that's the last thing
407
00:31:48.059 --> 00:31:52.660
that they want to do. So
it's it seems like poor timing were,
408
00:31:52.140 --> 00:31:56.740
with the new variant coming out and
then the Fed becoming more hawkish, you
409
00:31:56.779 --> 00:32:00.779
know, just a couple of days
later. But it's they don't really have
410
00:32:00.900 --> 00:32:05.490
a choice in the matter but to
come out the way they did, and
411
00:32:06.089 --> 00:32:07.410
my guess is that that's going to
be reflected in the market. So I
412
00:32:07.450 --> 00:32:12.089
can see that they're already recovering a
little bit today. So, all these
413
00:32:12.170 --> 00:32:16.119
things being said, though, it
does show you how jitdery things are and
414
00:32:16.240 --> 00:32:20.759
how unstable it is, and,
by the way, I'm by no means
415
00:32:20.839 --> 00:32:24.359
a doomsday say are. But what
we do see, though, is that
416
00:32:24.519 --> 00:32:30.430
the sensitivity right now, because we
were sitting here having this podcast and it's
417
00:32:30.470 --> 00:32:35.789
great to talk about high valuations,
and I've been talking about high valuations and
418
00:32:35.910 --> 00:32:40.109
low rates and the lack of correlation
between Fixed Income and equity is for for
419
00:32:40.430 --> 00:32:46.140
quite some time and it's becoming more
painful every time because it feels like it
420
00:32:46.460 --> 00:32:51.099
there is no end to it.
But also for every time we're just cussing
421
00:32:51.140 --> 00:32:54.299
this, we're getting closer and closer
to that critical tipping point and when you
422
00:32:54.460 --> 00:33:00.450
have a combination of these forces all
coming together, and we haven't really talked
423
00:33:00.490 --> 00:33:05.009
about the labor market and you can
maybe save that for another time, but
424
00:33:06.450 --> 00:33:10.170
it's all seems to be coming together
in a bit of a start constellation,
425
00:33:10.329 --> 00:33:15.559
and it's not the good kind.
And that that has that has US pretty
426
00:33:15.559 --> 00:33:19.519
concerned about you know what the next
you know even three, six, twelve
427
00:33:19.559 --> 00:33:23.440
months out here, and you layer
in the fact that you know have retail
428
00:33:23.480 --> 00:33:28.509
investors that have been emboldened by the
past, you know, several years easy
429
00:33:28.630 --> 00:33:31.390
money, so to speak. That's
great, but it worries me as well
430
00:33:31.509 --> 00:33:36.589
because you have so much money now
and we all have neighbors that know now
431
00:33:36.750 --> 00:33:40.460
know how to pick the best investment
and you know there's always a new meme,
432
00:33:40.539 --> 00:33:45.059
stock or something in the metaphors that
you can buy and, you know,
433
00:33:45.700 --> 00:33:50.380
triple your money. And we know
that people are buying more options contracts
434
00:33:50.420 --> 00:33:57.569
now than perhaps ever before to to
to leverage in put leverage in the portfolio.
435
00:33:57.650 --> 00:34:00.049
We know that people are borrowing more
money in the brokerage accounts. All
436
00:34:00.089 --> 00:34:04.450
these things are signs that are pointing
in one direction. It's and it's the
437
00:34:04.529 --> 00:34:09.079
direction of this word. I see
the biggest risk right when, when you
438
00:34:09.159 --> 00:34:17.280
see corrections, the proverbial idea of
buying the dip, that only works if
439
00:34:17.320 --> 00:34:22.760
you have cash. So know,
if you have leverage in a portfolio and
440
00:34:22.840 --> 00:34:27.190
you've borrowed money to invest because you
want to capture the upside and only the
441
00:34:27.269 --> 00:34:30.150
upside and you don't really worry about
the outside, what happens when the market
442
00:34:30.230 --> 00:34:34.429
corrects five? Well, you know, maybe you'll see some selling, maybe
443
00:34:34.469 --> 00:34:37.469
there's little bit of cash coming in, and then the markets down another five
444
00:34:37.550 --> 00:34:43.539
or ten from there, or fifteen. That's when you you're going to reach
445
00:34:43.659 --> 00:34:50.380
that breaking point where you have that
forced selling and a really dangerous territory for
446
00:34:50.780 --> 00:34:55.690
the equity markets per se. Right
and it might seem like a sound like
447
00:34:55.769 --> 00:35:00.570
a doom stay scenario, but it's
it's looking like it's coming a little bit
448
00:35:00.050 --> 00:35:05.090
too close for comfort right now.
Yeah, I mean I'm I kind of
449
00:35:05.130 --> 00:35:07.880
agree with you in a large portion
of what you said, and by no
450
00:35:07.039 --> 00:35:12.239
means I'm a dooms there as well. But you know, you're we're getting
451
00:35:12.239 --> 00:35:15.360
close to the red line. You
could balance that sort for so long,
452
00:35:15.639 --> 00:35:22.869
and I think you said it eloquently
with you know, for selling can potentially
453
00:35:22.869 --> 00:35:27.349
come into the play down the road
as things get too levered up. So
454
00:35:27.469 --> 00:35:29.989
we'll just have to kind of wait
and see how that all plays out.
455
00:35:30.670 --> 00:35:34.909
But again, I want to thank
you for joining us today and kind of
456
00:35:34.989 --> 00:35:37.699
before we go, I wanted to
kind of give you the last word,
457
00:35:37.860 --> 00:35:39.340
if there I know we covered a
lot of information today, but if there
458
00:35:39.420 --> 00:35:45.420
was anything that you would like to
kind of leave with our audience before more
459
00:35:45.619 --> 00:35:47.820
than welcome to do so. And
and also if you could just share with
460
00:35:49.059 --> 00:35:53.969
individuals where they can find yourself your
organization online, if they're interested in finding
461
00:35:53.969 --> 00:35:58.889
out more information about some of the
information we discussed today. Yeah, so
462
00:35:59.130 --> 00:36:02.210
maybe I'll start with that. You
know, allions, I amcom would be
463
00:36:02.289 --> 00:36:07.559
the website you can go to and
there is a product table on the website
464
00:36:07.599 --> 00:36:10.559
that will show you all of our
etfs. It will show you exactly where
465
00:36:10.599 --> 00:36:15.079
they're trading. So if you decide
to purchase it, you can buy them
466
00:36:15.119 --> 00:36:19.949
obviously entra period right. You can
buy them any any day, anytime during
467
00:36:19.989 --> 00:36:23.309
the day, since they're exchange trader
and so on. The website you will
468
00:36:23.349 --> 00:36:29.030
see exactly where they're trading relative to
the CAP and the buffer, how much
469
00:36:29.030 --> 00:36:30.269
you have left of the buffer,
how much you are left of the CAP,
470
00:36:30.750 --> 00:36:36.300
and so on and so forth.
And what we see here actually some
471
00:36:36.500 --> 00:36:39.019
investors go in and and buy these
ctfs, and there is one of the
472
00:36:39.820 --> 00:36:45.300
pretty cool ideas actually where you have
some of the more sophisticated investors and probably
473
00:36:45.340 --> 00:36:50.690
some of the investors that are listening
to your podcast as well. If you
474
00:36:50.809 --> 00:36:52.730
look at it and eat buffery TF. That is close to the end of
475
00:36:52.730 --> 00:36:58.610
the outcome period and the market has
rallied like it has now, you might
476
00:36:58.730 --> 00:37:04.480
have fifty basis points left before you
hit the cap with sixty days left in
477
00:37:04.519 --> 00:37:07.000
the outcome period. Of Forty five
days left in the outcome period and the
478
00:37:07.079 --> 00:37:10.840
market is way beyond the CAP.
Let's say it's fifteen percent about the CAP.
479
00:37:12.719 --> 00:37:15.829
The factively, the market would have
to drop a fifteen percent before it
480
00:37:15.909 --> 00:37:19.150
comes below the cap again. And
if you believe that it's going to stay
481
00:37:19.150 --> 00:37:22.150
about of that line and you can
pick up that fifty basis points over sixty
482
00:37:22.150 --> 00:37:25.869
days, which one an annual life, spaces, pretty good return. So
483
00:37:27.030 --> 00:37:29.230
we see. We see some of
those type of trays and you can,
484
00:37:29.630 --> 00:37:31.659
for those of you got that are
interested, you can pick up on all
485
00:37:31.699 --> 00:37:38.900
the nuances on our website. So
again, alliance, I AMCOM I would
486
00:37:38.900 --> 00:37:42.539
also say I'd be Missy, but
didn't bring this up. One one of
487
00:37:42.579 --> 00:37:45.969
our ETF specialists was that I was
talking about talking to the other day.
488
00:37:46.010 --> 00:37:52.570
I'm I'm from Sweden. I grew
up in Sweden, spend my first twenty
489
00:37:52.610 --> 00:37:55.889
years there before I moved to the
US, and my my friend and colleague,
490
00:37:55.929 --> 00:38:00.039
who has a big fan of the
Vikings and also have some skin of
491
00:38:00.119 --> 00:38:05.320
baby and background, he said going
into the market today without a buffery TF,
492
00:38:06.079 --> 00:38:08.280
it's like being a Viking go going
into battle with just a sort of
493
00:38:08.400 --> 00:38:12.949
leaving the shield at home. It
might, might work for a little bit
494
00:38:12.989 --> 00:38:15.869
of time, but not for a
very long time. So I can maybe
495
00:38:15.949 --> 00:38:20.230
end up that point because I think
that was a pretty if nothing else.
496
00:38:20.269 --> 00:38:23.550
That humors analogy absolutely and I think
that is a good way to wrap it
497
00:38:23.630 --> 00:38:28.619
up. And again, obviously want
to thank you for joining us today.
498
00:38:28.619 --> 00:38:30.099
I know I gained a lot of
insight, knowledge and I'm sure a lot
499
00:38:30.099 --> 00:38:35.380
of our listeners and audience out there
did as well. So again we're going
500
00:38:35.380 --> 00:38:38.179
to wrap up this episode of Let's
Talk Ets. Again want to thank our
501
00:38:38.219 --> 00:38:43.969
guest, Johan Grand, vice president
and head of etfs over at Allians.
502
00:38:44.690 --> 00:38:46.929
But until next time, I'm your
host, Jason Copool. Signing off
1
00:00:00.000 --> 00:00:05.200
It. Welcome to let's Talk Ats. I'm your host, Jason Capool,
2
00:00:05.559 --> 00:00:10.869
and I've been monitoring the investment space
throughout my entire career here at seeking Alpha.
3
00:00:11.029 --> 00:00:15.589
I'm an ETF strategist and my role
is to uncover and bring forward news
4
00:00:15.710 --> 00:00:20.949
and information to the investor community that
is meaningful and actionable. Each week,
5
00:00:20.989 --> 00:00:25.100
a different guest and I will take
an indepth look at a particular aspect of
6
00:00:25.219 --> 00:00:30.500
the rapidly evolve in exchange traded fund
space, with a focus on how investors
7
00:00:30.539 --> 00:00:36.090
can best utilize ets to reach their
investment goals. Before we begin, a
8
00:00:36.450 --> 00:00:42.810
brief disclaimer. This podcast is for
entertainment and educational purposes only. Nothing said
9
00:00:42.850 --> 00:00:48.530
here should be taken as investment advice. All opinions expressed on this show are
10
00:00:48.689 --> 00:00:53.640
those of individuals expressing them alone.
A full set of disclosures will be included
11
00:00:53.679 --> 00:00:57.399
at the end of this show.
You can subscribe to let's talk ets on
12
00:00:57.520 --> 00:01:04.269
apple podcasts, Google podcasts, spotify
or whichever podcast platforms you prefer. For
13
00:01:04.349 --> 00:01:10.150
reference purposes. This podcast is being
recorded on the afternoon of November, thirty
14
00:01:10.189 --> 00:01:14.549
two thousand and twenty one. Today. Our guest joining us is Johan Grand
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00:01:14.709 --> 00:01:19.980
Vice President and head of ets for
alliance life. Johan comes to us today
16
00:01:21.060 --> 00:01:26.140
with an extensive background to the financial
markets, where he's spent currently five years
17
00:01:26.340 --> 00:01:30.420
of his experience within his own current
organization, Shan. Additionally, Johan has
18
00:01:30.459 --> 00:01:37.170
spent over four years with metlife and
he has a degree in international business from
19
00:01:37.170 --> 00:01:42.049
Johnson and Welles University, as well
as a master's in investments and securities from
20
00:01:42.049 --> 00:01:46.810
briant university. We're very excited to
have him here to speak with us around
21
00:01:46.810 --> 00:01:52.000
our topic of how to manage risks
with exchange traded funds. So, without
22
00:01:52.200 --> 00:01:56.359
further introduction, I like to welcome
our guest today, Johan Grunt Yep.
23
00:01:56.560 --> 00:02:00.799
Thank you. It's great to be
thank you absolutely. How's everything going over
24
00:02:00.879 --> 00:02:06.629
there for you today? Good,
good, it's a Suni Day in Minneapolis,
25
00:02:06.709 --> 00:02:10.069
Minnesota, so we'll take those days
when we can, and it's it's
26
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looking pretty good here. Absolutely if
that's fantastic to hear so Yoan. Before
27
00:02:15.539 --> 00:02:19.500
we kind of jump into everything,
the way we usually kind of kick off
28
00:02:19.620 --> 00:02:23.539
the podcast is to allow our audience
to kind of get a little bit of
29
00:02:23.539 --> 00:02:24.939
a better grasp of who they're speaking
with. I know I kind of gave
30
00:02:24.939 --> 00:02:28.340
you a little bit of a brief
Intro, but a lot of times it's
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better from the the voice of the
guests themselves. So would you be able
32
00:02:31.370 --> 00:02:34.370
to kind of give us a little
bit of background to who you are,
33
00:02:34.569 --> 00:02:38.449
what you're all about, your organization
responsibilities, what you're doing over there,
34
00:02:38.169 --> 00:02:40.889
kind of paint a better picture of
who are going to be listening to today?
35
00:02:40.930 --> 00:02:46.919
Yeah, sure, happy to thank
you and maybe I can start off
36
00:02:46.039 --> 00:02:51.080
to by saying that my my voice
is normally not quite this deep, but
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00:02:52.280 --> 00:02:57.120
I'm I'm fighting off the last components
of covid right now, so if I
38
00:02:57.280 --> 00:03:00.909
do need to sneeze or cough,
please, please forgive me up front for
39
00:03:00.990 --> 00:03:06.110
that. Yeah, I know it's
so. I work for audiance investment management
40
00:03:06.310 --> 00:03:09.189
and maybe, maybe, just to
start off, it's a little known firm
41
00:03:09.310 --> 00:03:15.060
within a within a much broader and
bigger organization. Many of you and your
42
00:03:15.099 --> 00:03:21.500
listeners have heard of alliance right,
and within the alliance group you have also
43
00:03:21.860 --> 00:03:25.340
pim go, for example, but
also alliance investment management, which is wholly
44
00:03:25.340 --> 00:03:30.930
owned subsidiary of alliance life, the
Insurance Company that space here in Minneapolis with.
45
00:03:31.090 --> 00:03:37.090
Most people don't know is that aliens
investment management is the part of the
46
00:03:37.129 --> 00:03:43.800
organization that's managing risk on behalf of
the larger alliance group, so across different
47
00:03:43.840 --> 00:03:50.319
countries and regions all over the world. So we have a trading and derivative
48
00:03:50.319 --> 00:03:55.469
space, trading team that space here
in Minneapolis, and we do in manage
49
00:03:55.509 --> 00:04:00.629
to risk to the tune of roughly
hundred and fifty billion dollars. Most of
50
00:04:00.750 --> 00:04:04.710
that is managed through options and other
types of derivatives. So it's a rather
51
00:04:05.150 --> 00:04:13.819
sizeable operation and we just relatively recently. This is back in June of last
52
00:04:13.860 --> 00:04:17.540
years, of June two thousand and
twenty, during the the the early days
53
00:04:17.579 --> 00:04:23.019
or early months of the pandemic,
we launched an ETF business. So we're
54
00:04:23.100 --> 00:04:27.889
new to the ETF industry as an
issuer, but we've managed the type of
55
00:04:27.970 --> 00:04:36.209
strategies and options based strategies for for
a very long time as an organization and
56
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they're basically risk managed strategies. And
I know Jason will talk a little bit
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more about this later, but the
the reason for why I find this to
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be really exciting and having launched this
for big organization with a small entrepreneurial team,
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is that the the solutions are very
lean and simple and make a lot
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00:04:58.509 --> 00:05:02.110
of sense also in today's environment also. But maybe there's quickly. By Way
61
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of background is that I've been in
the call of the asset allocation, portfolio
62
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construction, manager selection industry for a
good two decades now. So I've managed
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as sets for an Endowment Fund and
I've also helped the institutional investors construct portfolios
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00:05:20.420 --> 00:05:26.009
and build their build their programs out
so and downments and foundations and so on.
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And you mentioned my stint, that
met life, where I oversaw a
66
00:05:30.970 --> 00:05:36.319
risk managed franchise, so subadvised franchise, where we, in conjunction with other
67
00:05:36.399 --> 00:05:42.000
asset managers out there, developed some
pretty cool and cutting at sea at the
68
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time risk management strategies. So whether
that was managed volatility products or risk parody
69
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products or momentum based type of draw
down strategies, very interesting way of glizing
70
00:05:56.029 --> 00:06:01.670
and diicing the risk management conundrum.
And also more recently now with with alien's
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life, as we've constructed, you
know, portfolios that are trying to solve
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for this risk management issue. We've
been able to do this in a different
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format in the CTF wrapper with option
space contracts. It's been really interesting.
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But they long story short, I
guess is that I've been in this this
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world of risk management for many years
and I think we have something that's really
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exciting to talk about. Absolutely,
and I'm glad to hear that you're getting
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over the spouts of Covid and we
are getting back in the groove and it's
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going to be exciting to get your
input on the kind of a risk management
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space someone with illustrious career like yourself. I'm sure we're going to have a
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lot of insight. So, you
know, obviously investors are worried about risk
81
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and market turmoil as we're kind of
going into two thousand and twenty two.
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00:06:47.589 --> 00:06:51.670
Some we call it maybe cautiously optimistic, but you know, with the latest
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00:06:51.790 --> 00:06:57.149
covid variant now hitting the market,
many investors, you know, appear to
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00:06:57.189 --> 00:07:01.180
would be looking to hedge their portfolidios. They're watching volatility levels rise a little
85
00:07:01.220 --> 00:07:06.259
bit. What sort of risk are
you seeing that's lingering into two thousand and
86
00:07:06.259 --> 00:07:12.100
twenty two? How should investors be
approaching that space in kind of your viewpoint
87
00:07:12.139 --> 00:07:16.569
or alliance's point? So it really
it really comes down to what your investment
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00:07:16.610 --> 00:07:20.370
objectives are and where you are in
terms of time you know, and how
89
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much time, you might have to
invest in your style and there's a huge
90
00:07:25.410 --> 00:07:30.160
variation of the of the investing things
team. But but I would say that
91
00:07:30.319 --> 00:07:33.079
for most investors, you know,
you're looking at having a holistically put together
92
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portfolios, I think portfolio construction.
And for the most part, you know,
93
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investors will have some allocation to equities
and some advocation to bonds or fixed
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00:07:45.310 --> 00:07:49.949
income and in many cases there are
allocations to other types of acid classes,
95
00:07:50.110 --> 00:07:56.189
you know, whether it's some variation
of the fixed income or high yield or
96
00:07:56.189 --> 00:08:00.420
if it's real estate or commodities or
whatever else have you. And that,
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00:08:00.579 --> 00:08:03.259
of course, as you the greater
the portfolio is, the more sophisticate and
98
00:08:03.339 --> 00:08:09.339
the more complex those type of diversifying
allocations might be. But but that at
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00:08:09.379 --> 00:08:13.370
the end of the day, there
it comes down to the three core acid
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00:08:13.449 --> 00:08:16.329
classes. At the end of the
day you have an equity risk premia,
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00:08:16.329 --> 00:08:20.209
if you have a fixed income risk
premia and you have cash and everything else
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00:08:20.370 --> 00:08:24.290
is some kind of variation of that
in the capital stack. But the so
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00:08:24.449 --> 00:08:26.839
the general question really is, you
know, how do you want to wait
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00:08:28.040 --> 00:08:31.000
between the risk assets in equity and, on the other hand, how much
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do you want to invest into the
Fixed Income Sleeve and the risks that we're
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seeing and having seeing. There's shifting
paradigm to in the market with especially and
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on the two key components, one
being on the Equity Valuation side and one
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being on the right side with low
rates that are coming off, you know,
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a three thousand forty year rally,
if you will, in the fixed
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income space. So you have of
this this environment where it's been really easy
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for investors who go from you know, if they want to de risk their
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portfolio, they move some of their
portfolio from equities into fixed income, and
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if they want to re risk,
they move some of that allocation from fixed
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income into equities. And it's been
relatively straightforward and relatively simple and all the
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textbooks have been written on you know, model modern portfolio theory for the past
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several decades. I've kind of dictated
how you alter, you know, to
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some degree, the advocation between those
primary asset classes, and that's been all
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well and good for a long time, but currently what we're seeing in the
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market place and also looking back in
history where we're at and where it's been
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getting us to today, it's kind
of putting that to real test. It's
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much more difficult to make a recommendation
today to move, if you want to
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do risk your portfolio, to just
move into a way from equities and it
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fixed income, given where the rates
are and giving what the outlook is.
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And now shorter term level, hopefully, when you start building in ideas of
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inflation coming through the system. The
way it is, the short intermediate term
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for fixed income is it is pretty
tricky to see a ton of value and
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also it's hard to find strong correlation
benefits between equities and fixed incomes. But
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will you know, have been for
a for a long time providing this probable
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free lunch. That doesn't quite exist
to the same degree anymore, and so
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would argue that it's it's gone completely
to start as well. So those are
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some of the things that were battling
it with. It's not new. This
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has been a trend that's been here
for a while, but coming into two
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thousand and twenty two, to address
your question, these headwinds are becoming more
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and more pronounced. In my opinion, excellent and yeah, I guess we'll
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have to kind of take it with
a grain assault and as days go by
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it kind of seems like we're in
such a short term viewpoint of you know,
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things could switch on a dime.
But yeah, we'll just have to
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keep an eye out on the overall
market landscape and investors will have to kind
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of stay vigilant on their portfolios on
how to optimize themselves for the best positions
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looking forward. I do want to
get a little bit into the ETF aspect
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of this conversation and obviously we kind
of touched out on the beginning. I
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know that you guys have recently launched
some new ETF and welcome to the market,
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of course, but I think I
know you guys have the buffered outcome
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ETF series and I was wondering if
you could kind of give us a little
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bit of a breakdown to what is
behind that approach and that idea. You
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know, what is that ETF series
all about, and what should investors you
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know, what are the more important
things that investors should know and understand about,
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you know, when approaching fun like
that? Yeah, it's actually it's
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pretty straightforward. You know, it's
a completely a little bit more complex behind
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the scenes and putting all the components
together right, but that's that's what we
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do in housing on a trading desk, right. So, aside from the
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technical aspects of this, basically it's
a it's a strategy whereby you have a
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known level of risk metigation on the
downside, and we just refer to that.
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As to buffer, and we have
two different buffer levels. One is
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ten percent and one is twenty percent. And and basically what that means is
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that if the SMP five hundred drops
by ten percent or less, you in
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the case of the ten percent buffer, you don't lose any money until you
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breach that ten percent. So if
the market is down ten percent flat,
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if the market is down eleven percent, you lose one percent and if it's
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down fifteen, you lose five and
so on and so forth. And since,
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since there's no free launch in this
case, right, if you want
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to chop off the tail on the
risk side, you're going to have to
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give something up for that, and
that, in this case is the upside.
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So you'll effectively have a cap on
the upset in terms of how much
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you can gain. So just by
what? By example here the ten percent
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BUFFERYTF over a twelve month period,
which is another critical component to keep in
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mind. Over twelve months, if
the market is, let's say, I'm
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going to make up that the cap
is twelve and a half percent. That
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was one of our funds that we
recently had in the market. Here you
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can make no more than twelve and
a half percent on the upside and if
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the market is, as I mentioned, down by less than ten, than
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you your flat. Now, if
the market rallies, of course you still
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capped at twelve and a half.
So you won't make any more than that.
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That's the tradeoff and for a lot
of investors this tradeoff makes makes a
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lot of sense, because you if
your goal is to make five, six,
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seven, if you're comfortable making,
you know, single digit returns on
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your equity side, but do you
put you're not willing really to take the
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risk on the downside? And this
to do that. And the beauty is
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that you can invest you know with
confidence. You'll know exactly what to expect.
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You know the day that you invest. And the same thing holds true
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for the twenty percent buffer them we
have, and the differences that you're effectively
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getting more downside risk mitigation and therefore
your cap in terms of how much you
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might be able to make. That
cap is lower. So if you have
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a five percent cap, on the
upside, for example over twelve month period,
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and in twenty percent downside buffer than
a lot of times you can look
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at that and say, you know
what, I'll be happy to take my
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five percent. I don't need to
make fifteen, but I really don't want
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to lose a lot either. So
so what we see is effectively three different
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ways that this is being used and
it all comes back down to ask a
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location and how you think about risk
for those investors that that are looking to
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you know, let's say that you're
nearing retirement, you're getting into retirement,
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you're getting a bit more risk averse. You look at the equity market,
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you get perhaps a little bit nervous. You know the multiples are pretty high,
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rich by any standards and arguably some
bubbles playing around as well, and
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you want to take some of that
risk off the table. But you look
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over the fence and you look at
Fixed Income and you say, well,
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Gee, you know, I'm not
quite seeing a pride future, you know,
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in the near term here either.
So what do you do? You
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can obviously go to cash, right, and that that's totally fine, but
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that's also dead money and and really
dead money in it in an inflation of
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our inflationary environment like the one we're
in. So one simple solution that that
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we've see, we've seen a lot
of advisors and investors applies to move from
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move their equity holding sort of partial, partial allocations of their equity positions into
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let's say abouffer twenty, where it's
okay if you have a five percent return,
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should the markets continue to grind up, but if they dropped by ten,
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fifteen or even down to twenty percent
over the next twelve months, you're
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still flat. You effectively didn't lose
anything on that position, and that's that's
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a good tradeoff that we've seen a
big appetite for. So that's on the
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Equity d risking side. And then
you have the opposite, right, if
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you look at investors that are holding
on to their fixed income portfolios, of
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the bond out locations and feel like
they're being a little bit cheated because there's
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not a lot of Jews coming from
from from that autocation, at least for
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sure not the way it used to
ten and twenty years ago, when it
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was a little bit easier of an
investment decision to make, and those investors
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might trade off some of that bond, a location for for twenty percent buffer,
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for example. The third thing that
we see, and then I'll Palk
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and had it back to you,
but the third reason that we see for
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how these portfolios or dctfs are being
a being used is for those who investors
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that are sitting on cash but they're
also nervous about deploying it right then you
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know you're going. I mean it's
losing purchasing power to to a much greater
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degree today than just six months ago, and that's probably going to be with
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us for a while. So really
dead money again. If you want to
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give yourself an opportunity to create some
type of return, the question is the
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same. Where do you put it? and a buffery TF. We found
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that that's been a good, good
solution for for those investors that are not
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comfortable jumping into the equative market but
also don't really see that the point of
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jumping into the fixed income market.
Yeah, I like the option, the
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optionality of it, where you know
it really could be used and fit in
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for all different degrees and types of
investors. Like you said, someone coming
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closer to the retirement age, individual
that just really looking to perhaps juice up
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they're fixing it fixed income aspect aspect
of their portfolio and then the cash individuals.
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So kind of offers that wide variety
of range depending on what you're looking
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to do with your portfolio. It's
an interesting outlook and I think it's probably
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going to be, or at least
I hope it is going to be,
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successful for you guys, you know, entering the ets space. It's definitely
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an edge that can be out there
that individuals are looking for. I guess
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what sort of reception have you seen
with it? Obviously you guys are a
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little bit newer to the space,
at least an ETF wrapper world. How
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has the investment reaction been to these
products in terms of, you know,
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investor flows, feedback, what sort
of information has resonated with you guys?
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It's been really quite incredible in terms
of rescectivity in the market place and it's
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really as an industry, the defined
outcome ETF space. It's only just over
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three years old and for anything that's
new, it's it takes time for it
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to build and to gain interest,
number one, and understanding number two,
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and then track records and some stress
testing and you know it takes a little
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bit, little bit of time for
any new business endeavor to take hold and
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and what we've seen industry wide couple
of things. Number One, being new
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to the TF world, even with
a a big company, name brand,
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name if you will, of alliance, it takes time for for the for
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the news to spread, so to
speak, and make sure that people,
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number one, even know that you're
in the industry right. So that's it.
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There's a natural curve to that.
But what we've seen also throughout the
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industry that's really interesting is that asked
the defined out COMMITTF space has grown in
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maturity and also grown in terms of
understanding and acceptance. More broadly, it's
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still has it's still been a bit
of a grassroots type of exercise, and
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by that I mean is that individual
beds and ours and advisors have uncovered and
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discovered and decided to to invest because
they think it makes sense. And it's
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grass roots because this is happening before
many of the larger firms have given the
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proverbial stamp of approval, approval throughout
the gatekeeping community. So it's really extraordinary
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when you look at the numbers.
Now, like in less than three years
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we're just now approaching the nine billion
dollar mark in defined out committfs and the
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vast majority is in the the SMP
five hundred core kind of buffer product.
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So the reception has been quite extraordinary
and it's a it's for a couple of
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reasons, I think, number one
of them being that it's literally a type
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of strategy that you've been able to
apply. So what I when I was
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on the institutional side right you could
see some of the bigger the bigger pools
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of assets. They will run their
own options overlays on their portfolios. If
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there is something inside of their multi
hundred billion dollar, a billion dollar portfolio
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that they don't like, they can
hedge it out and they can do all
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kinds of things with derivatives. Most
people don't do that. It's time consuming,
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it's complicated and you got to keep
track of it and from most people
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it's not even worth the time.
So that's one concept of where it's been
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applied in the past. The other
one is in the structure notes market.
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That's a that's a pretty sizable market. Sixty, give or take billion dollar
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annual writing about of structure notes in
the United States and much, much bigger
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globally. So a structure note works
in a very similar way, or said
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differently, the buffer TTF works in
a very similar way to a structure note.
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It's the structure inside of the TF
that's been put together to deliver a
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certain outcome. As I mentioned before, there's only four different ways that the
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outcome can play out. If you're
buying into one of these ctfs and you're
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either matching or how performing the SMP
five hundred in three of those four scenarios
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and the only on your lagging as
if the s p five hundred is doing
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better than the cap of the portfolio. So in three out of four scenarios
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you're going either to match or outperform, and that's pretty attractive to begin with.
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But it's also providing liquidity that you
can't really find in the in the
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hedge fund world or in the structure
notes world, because it's an ETF wrappers.
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You can trade it whatever you want
and that gives you some pretty unique
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opportunities to invest or go in and
out of these funds, you know,
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any more tactical fashion as well,
and we we've seen some really interesting ways
290
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that this can be applied. Or
for perhaps some of the more sophisticated investors
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that have time on their hands to
evaluate and and jump in and out that
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opportunity of times. Yeah, I
mean I think ultimately you made it easier
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for the investor to kind of have
their mind at ease for an individual that's,
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you know, willing to give up
a slight haircut of their longer term
295
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gains, but their ultimate goal and
objective is to conserve wealth at the given
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moment, you know, of their
investment. So I think that you guys
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have definitely done an excellent job in
that front and I'm sure it will continue
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to grow out that way. I
kind of a question that I had for
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you was around, I guess.
I know we kind of went over how
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an individual would play this per se
and you know that that three front approach
301
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that we went over just a few
minutes ago. But in terms of hold
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times and kind of that aspect,
is it a I don't want to say
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a short term hold because it's not
an interday thing for any for anything of
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that nature. But you know,
when it's a clear wide open bull market,
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I would assume there's going to be
less involvement in an ETF like this,
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and I noticed both on the ten
percent and twenty percent buffer you guys
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have a January, April, July, October series. I was kind of
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curious see if you could kind of
elaborate on that how that's broken down and
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and again, what that kind of
holding structure is for an individual. And
310
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I guess it will be different for
individuals having different objectives. But you know,
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if you could shed some light around
that sort of phase. Yeah,
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sure, and you're exactly right.
That depends on the investment objective at the
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end of the day, right.
So if you have a and it ranges
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right, so you have investors stuff
will view this as the new strategic acid,
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a location in their portfolio, and
I think it's it might be just
316
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a matter of time before you start
seeing some mentioning of defined out COMMITTFC in
317
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the see if a literature, you
know, and more broadly, I I
318
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see pop up in a few different
places. Obviously it's not its own ascid
319
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class. It's still equity exposure,
but it's structured that could exposure in a
320
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liquid wrapper and that never really existed
before, you know, call it until
321
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three years ago. So that being
said, you know, we see some
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investors, if you if you think
about it as a strategic as a location
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then there's no reason why I can't
hold it for, you know, called
324
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an indefinite amount of time. It's
how I full disclosure. It's how I'm
325
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invest in these buffer etfs has in
my own personal account. And if you
326
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if you have a medium term view, you know, and you want to
327
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play something on the on the right
side, or if you're looking at you
328
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know, you're replacing the fixed incomes
leave versus the acquitous leave. You have
329
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different holding periods and that that's the
primary application. To think about this as
330
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the strategic holding. But we also
have a shorter term version of this,
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is sixmonth outcome period. It's also
a has a ten percent buffer, you
332
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know. So it's you have the
sixmonth outcom period instead of a twelvemonth outcome
333
00:26:18.809 --> 00:26:22.970
period. And what I haven't mentioned, I guess, is that at the
334
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end of the outcome period the funds
reset when and all that means is that
335
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to get a fresh buffer and a
fresh cap at the anniversary date, so
336
00:26:30.809 --> 00:26:36.279
to speak. So on the twelvemonthcom
periods, it's every twelve months it's going
337
00:26:36.279 --> 00:26:41.200
to reset, and the fund funds
that have a sixmonth outcomperiod, it's going
338
00:26:41.240 --> 00:26:44.960
to reset every six months. So
if you have a if you're an investor
339
00:26:45.039 --> 00:26:48.430
and you looking to put your money
away for a short amount of time or
340
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longer amount of time, or if
you have a certain view on the market,
341
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you can buy the six month or
the twelve month, depending on what
342
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your your thoughts are the on the
near term market environment, for example.
343
00:27:00.069 --> 00:27:04.339
So they're all kinds of ways you
can do it and also what tends to
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make sense if you're looking for that
risk mitigation is to buy, if you
345
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buy, for example, equal shares
of the buffer twenty. Now you have
346
00:27:14.579 --> 00:27:18.769
four different twelve month outcome periods.
So if you have a quarter of your
347
00:27:18.289 --> 00:27:22.369
of that part of your portfolio,
a quarter each and each one of the
348
00:27:22.450 --> 00:27:26.410
series also twenty five percent in the
January, twenty five percent in April,
349
00:27:26.970 --> 00:27:32.640
July and October. Now you have
for different outcome period spanning twelve months,
350
00:27:32.880 --> 00:27:37.960
and the also of the market being
down by twenty percent or more over for
351
00:27:37.240 --> 00:27:45.390
consecutive twelve month outcome periods. It's
pretty small. So obviously there's no guarantee
352
00:27:45.430 --> 00:27:49.190
to be had right, but it's
a pretty comfortable cushion and if you're okay
353
00:27:49.269 --> 00:27:56.589
with the cap on the upside being
where it's at for these funds. Then
354
00:27:56.710 --> 00:28:00.539
that's a tradeoff that that that you
can hold in your portfolio for for quite
355
00:28:00.619 --> 00:28:04.619
some time. And when you layer
in the fact that you have, well,
356
00:28:04.700 --> 00:28:08.819
you can probably take any asset manager, all of them, and combine
357
00:28:08.900 --> 00:28:14.130
the expected returns on the equitive markets
for the next nail five to ten years.
358
00:28:14.130 --> 00:28:21.329
It's pretty weak in terms of expectations, right, but let's say that
359
00:28:21.410 --> 00:28:26.319
it's five percent or if it's seven
percent, if you're comfortable having an ETF
360
00:28:26.480 --> 00:28:30.480
with the ten percent buffer that might
have a cap of ten percent, then
361
00:28:30.640 --> 00:28:34.119
you know, over time you'll the
that might be. That might be more
362
00:28:34.160 --> 00:28:40.359
comfortable position to hold for the longer
term. Yeah, and I think that's
363
00:28:40.400 --> 00:28:42.869
a great aspect. The flexibility that
you could have, that kind of six
364
00:28:42.990 --> 00:28:48.670
month or twelve month aspect to you
again, depending on where you view risk,
365
00:28:48.789 --> 00:28:52.789
if it's you know, in six
months we should be in greener pastures,
366
00:28:52.829 --> 00:28:55.859
or if it's a little bit longer
from a duration standpoint, and then
367
00:28:55.940 --> 00:28:59.619
at the end of that lifeline it
just recycles back to square one. So,
368
00:29:00.259 --> 00:29:03.420
worse comes to worst, you're just
always kind of in that mindset.
369
00:29:03.539 --> 00:29:08.380
So I think it offers investors a
phenomenal aspect to hedge their way into the
370
00:29:08.539 --> 00:29:15.650
future through what we mentioned earlier,
through the equities and liquidity space. You
371
00:29:15.730 --> 00:29:18.769
know, that's a little bit maybe
non traditional for an investor that might be
372
00:29:18.930 --> 00:29:22.369
out there. So I think that's
an excellent way to go about it and
373
00:29:22.450 --> 00:29:26.640
I appreciate that. A little bit
deeper dive that we just kind of went
374
00:29:26.720 --> 00:29:29.799
into, I guess, kind of
lastly, because I know we're kind of
375
00:29:29.799 --> 00:29:33.400
getting a little bit towards the tail
end of the podcast, I was curious,
376
00:29:33.480 --> 00:29:36.759
you know, in your mindset,
you know, viewing us in six
377
00:29:36.839 --> 00:29:40.589
months and a little bit maybe more
of a macro and opinionated question. You
378
00:29:40.670 --> 00:29:45.109
know, where do you see the
markets, or does where does I'll once
379
00:29:45.230 --> 00:29:51.750
see the markets? Obviously there's the
inflation aspects, there's a continued bullsh back
380
00:29:51.869 --> 00:29:55.460
bullish aspect to the market. There's
the covid variant. You know, there's
381
00:29:56.220 --> 00:30:00.940
so many layers that kind of are
hitting, hitting the cylinder all at one
382
00:30:00.980 --> 00:30:03.259
angle. Curious to see, you
know, what the bigger picture of you
383
00:30:03.500 --> 00:30:08.569
is in your standpoint. Yeah,
bigger picture. You know, there are
384
00:30:08.569 --> 00:30:12.329
a few few things that for sure
you know are going to linger for a
385
00:30:12.369 --> 00:30:17.130
while and the one that will hit
you in the face right now is as
386
00:30:17.170 --> 00:30:19.690
a head wind is in is clearly
inflation, and I know there's been a
387
00:30:19.769 --> 00:30:25.000
lot of debate and you know whether
you know it's transitory or not, and
388
00:30:25.119 --> 00:30:30.200
we've been on the opinion that the
word transitory was probably misplaced a long time
389
00:30:30.200 --> 00:30:33.920
ago and should have been retired.
I think now that's probably the path that
390
00:30:33.039 --> 00:30:37.990
the Fed is going down. If
you if you can, if you're reading
391
00:30:37.029 --> 00:30:41.710
the tea leaves a little bit.
It's interesting, though, like we think
392
00:30:41.829 --> 00:30:44.990
longer term, right, but even
today, when there's a more hawkish stance
393
00:30:45.069 --> 00:30:48.150
coming out from the Fed, it's
almost like it's taken the market by surprise,
394
00:30:48.269 --> 00:30:52.579
which is kind of surprising to us
because it seems like that was just
395
00:30:52.619 --> 00:30:59.339
a natural way to to bring it
forward in terms of pulling back on some
396
00:30:59.500 --> 00:31:03.609
of the stimulus, which, by
the way, has been incredibly tiny frankly.
397
00:31:03.769 --> 00:31:07.210
I mean I know that the last
one they talked about was, you
398
00:31:07.289 --> 00:31:11.289
know, or implicate, implemented in
November, was only fifteen billion. It's
399
00:31:11.329 --> 00:31:15.369
a drop in the bucket right.
There's it's all about the signaling and it's
400
00:31:15.369 --> 00:31:18.519
all about the rhetoric in terms of
what they think might they think might take
401
00:31:18.599 --> 00:31:25.359
place, you know, down the
road. And one thing that's noteworthy with
402
00:31:25.480 --> 00:31:27.880
the Fed in particular is that their
job is to focus on things that are
403
00:31:27.920 --> 00:31:33.750
much longer, longer trends, you
know. They they can't make decisions based
404
00:31:33.829 --> 00:31:37.309
on what what flavor of the day
is right. So they have to like
405
00:31:37.470 --> 00:31:41.910
stick to stick to the narrative and
change it very, very marginally over time,
406
00:31:42.109 --> 00:31:48.019
or they run the risk of losing
the credibility and that's the last thing
407
00:31:48.059 --> 00:31:52.660
that they want to do. So
it's it seems like poor timing were,
408
00:31:52.140 --> 00:31:56.740
with the new variant coming out and
then the Fed becoming more hawkish, you
409
00:31:56.779 --> 00:32:00.779
know, just a couple of days
later. But it's they don't really have
410
00:32:00.900 --> 00:32:05.490
a choice in the matter but to
come out the way they did, and
411
00:32:06.089 --> 00:32:07.410
my guess is that that's going to
be reflected in the market. So I
412
00:32:07.450 --> 00:32:12.089
can see that they're already recovering a
little bit today. So, all these
413
00:32:12.170 --> 00:32:16.119
things being said, though, it
does show you how jitdery things are and
414
00:32:16.240 --> 00:32:20.759
how unstable it is, and,
by the way, I'm by no means
415
00:32:20.839 --> 00:32:24.359
a doomsday say are. But what
we do see, though, is that
416
00:32:24.519 --> 00:32:30.430
the sensitivity right now, because we
were sitting here having this podcast and it's
417
00:32:30.470 --> 00:32:35.789
great to talk about high valuations,
and I've been talking about high valuations and
418
00:32:35.910 --> 00:32:40.109
low rates and the lack of correlation
between Fixed Income and equity is for for
419
00:32:40.430 --> 00:32:46.140
quite some time and it's becoming more
painful every time because it feels like it
420
00:32:46.460 --> 00:32:51.099
there is no end to it.
But also for every time we're just cussing
421
00:32:51.140 --> 00:32:54.299
this, we're getting closer and closer
to that critical tipping point and when you
422
00:32:54.460 --> 00:33:00.450
have a combination of these forces all
coming together, and we haven't really talked
423
00:33:00.490 --> 00:33:05.009
about the labor market and you can
maybe save that for another time, but
424
00:33:06.450 --> 00:33:10.170
it's all seems to be coming together
in a bit of a start constellation,
425
00:33:10.329 --> 00:33:15.559
and it's not the good kind.
And that that has that has US pretty
426
00:33:15.559 --> 00:33:19.519
concerned about you know what the next
you know even three, six, twelve
427
00:33:19.559 --> 00:33:23.440
months out here, and you layer
in the fact that you know have retail
428
00:33:23.480 --> 00:33:28.509
investors that have been emboldened by the
past, you know, several years easy
429
00:33:28.630 --> 00:33:31.390
money, so to speak. That's
great, but it worries me as well
430
00:33:31.509 --> 00:33:36.589
because you have so much money now
and we all have neighbors that know now
431
00:33:36.750 --> 00:33:40.460
know how to pick the best investment
and you know there's always a new meme,
432
00:33:40.539 --> 00:33:45.059
stock or something in the metaphors that
you can buy and, you know,
433
00:33:45.700 --> 00:33:50.380
triple your money. And we know
that people are buying more options contracts
434
00:33:50.420 --> 00:33:57.569
now than perhaps ever before to to
to leverage in put leverage in the portfolio.
435
00:33:57.650 --> 00:34:00.049
We know that people are borrowing more
money in the brokerage accounts. All
436
00:34:00.089 --> 00:34:04.450
these things are signs that are pointing
in one direction. It's and it's the
437
00:34:04.529 --> 00:34:09.079
direction of this word. I see
the biggest risk right when, when you
438
00:34:09.159 --> 00:34:17.280
see corrections, the proverbial idea of
buying the dip, that only works if
439
00:34:17.320 --> 00:34:22.760
you have cash. So know,
if you have leverage in a portfolio and
440
00:34:22.840 --> 00:34:27.190
you've borrowed money to invest because you
want to capture the upside and only the
441
00:34:27.269 --> 00:34:30.150
upside and you don't really worry about
the outside, what happens when the market
442
00:34:30.230 --> 00:34:34.429
corrects five? Well, you know, maybe you'll see some selling, maybe
443
00:34:34.469 --> 00:34:37.469
there's little bit of cash coming in, and then the markets down another five
444
00:34:37.550 --> 00:34:43.539
or ten from there, or fifteen. That's when you you're going to reach
445
00:34:43.659 --> 00:34:50.380
that breaking point where you have that
forced selling and a really dangerous territory for
446
00:34:50.780 --> 00:34:55.690
the equity markets per se. Right
and it might seem like a sound like
447
00:34:55.769 --> 00:35:00.570
a doom stay scenario, but it's
it's looking like it's coming a little bit
448
00:35:00.050 --> 00:35:05.090
too close for comfort right now.
Yeah, I mean I'm I kind of
449
00:35:05.130 --> 00:35:07.880
agree with you in a large portion
of what you said, and by no
450
00:35:07.039 --> 00:35:12.239
means I'm a dooms there as well. But you know, you're we're getting
451
00:35:12.239 --> 00:35:15.360
close to the red line. You
could balance that sort for so long,
452
00:35:15.639 --> 00:35:22.869
and I think you said it eloquently
with you know, for selling can potentially
453
00:35:22.869 --> 00:35:27.349
come into the play down the road
as things get too levered up. So
454
00:35:27.469 --> 00:35:29.989
we'll just have to kind of wait
and see how that all plays out.
455
00:35:30.670 --> 00:35:34.909
But again, I want to thank
you for joining us today and kind of
456
00:35:34.989 --> 00:35:37.699
before we go, I wanted to
kind of give you the last word,
457
00:35:37.860 --> 00:35:39.340
if there I know we covered a
lot of information today, but if there
458
00:35:39.420 --> 00:35:45.420
was anything that you would like to
kind of leave with our audience before more
459
00:35:45.619 --> 00:35:47.820
than welcome to do so. And
and also if you could just share with
460
00:35:49.059 --> 00:35:53.969
individuals where they can find yourself your
organization online, if they're interested in finding
461
00:35:53.969 --> 00:35:58.889
out more information about some of the
information we discussed today. Yeah, so
462
00:35:59.130 --> 00:36:02.210
maybe I'll start with that. You
know, allions, I amcom would be
463
00:36:02.289 --> 00:36:07.559
the website you can go to and
there is a product table on the website
464
00:36:07.599 --> 00:36:10.559
that will show you all of our
etfs. It will show you exactly where
465
00:36:10.599 --> 00:36:15.079
they're trading. So if you decide
to purchase it, you can buy them
466
00:36:15.119 --> 00:36:19.949
obviously entra period right. You can
buy them any any day, anytime during
467
00:36:19.989 --> 00:36:23.309
the day, since they're exchange trader
and so on. The website you will
468
00:36:23.349 --> 00:36:29.030
see exactly where they're trading relative to
the CAP and the buffer, how much
469
00:36:29.030 --> 00:36:30.269
you have left of the buffer,
how much you are left of the CAP,
470
00:36:30.750 --> 00:36:36.300
and so on and so forth.
And what we see here actually some
471
00:36:36.500 --> 00:36:39.019
investors go in and and buy these
ctfs, and there is one of the
472
00:36:39.820 --> 00:36:45.300
pretty cool ideas actually where you have
some of the more sophisticated investors and probably
473
00:36:45.340 --> 00:36:50.690
some of the investors that are listening
to your podcast as well. If you
474
00:36:50.809 --> 00:36:52.730
look at it and eat buffery TF. That is close to the end of
475
00:36:52.730 --> 00:36:58.610
the outcome period and the market has
rallied like it has now, you might
476
00:36:58.730 --> 00:37:04.480
have fifty basis points left before you
hit the cap with sixty days left in
477
00:37:04.519 --> 00:37:07.000
the outcome period. Of Forty five
days left in the outcome period and the
478
00:37:07.079 --> 00:37:10.840
market is way beyond the CAP.
Let's say it's fifteen percent about the CAP.
479
00:37:12.719 --> 00:37:15.829
The factively, the market would have
to drop a fifteen percent before it
480
00:37:15.909 --> 00:37:19.150
comes below the cap again. And
if you believe that it's going to stay
481
00:37:19.150 --> 00:37:22.150
about of that line and you can
pick up that fifty basis points over sixty
482
00:37:22.150 --> 00:37:25.869
days, which one an annual life, spaces, pretty good return. So
483
00:37:27.030 --> 00:37:29.230
we see. We see some of
those type of trays and you can,
484
00:37:29.630 --> 00:37:31.659
for those of you got that are
interested, you can pick up on all
485
00:37:31.699 --> 00:37:38.900
the nuances on our website. So
again, alliance, I AMCOM I would
486
00:37:38.900 --> 00:37:42.539
also say I'd be Missy, but
didn't bring this up. One one of
487
00:37:42.579 --> 00:37:45.969
our ETF specialists was that I was
talking about talking to the other day.
488
00:37:46.010 --> 00:37:52.570
I'm I'm from Sweden. I grew
up in Sweden, spend my first twenty
489
00:37:52.610 --> 00:37:55.889
years there before I moved to the
US, and my my friend and colleague,
490
00:37:55.929 --> 00:38:00.039
who has a big fan of the
Vikings and also have some skin of
491
00:38:00.119 --> 00:38:05.320
baby and background, he said going
into the market today without a buffery TF,
492
00:38:06.079 --> 00:38:08.280
it's like being a Viking go going
into battle with just a sort of
493
00:38:08.400 --> 00:38:12.949
leaving the shield at home. It
might, might work for a little bit
494
00:38:12.989 --> 00:38:15.869
of time, but not for a
very long time. So I can maybe
495
00:38:15.949 --> 00:38:20.230
end up that point because I think
that was a pretty if nothing else.
496
00:38:20.269 --> 00:38:23.550
That humors analogy absolutely and I think
that is a good way to wrap it
497
00:38:23.630 --> 00:38:28.619
up. And again, obviously want
to thank you for joining us today.
498
00:38:28.619 --> 00:38:30.099
I know I gained a lot of
insight, knowledge and I'm sure a lot
499
00:38:30.099 --> 00:38:35.380
of our listeners and audience out there
did as well. So again we're going
500
00:38:35.380 --> 00:38:38.179
to wrap up this episode of Let's
Talk Ets. Again want to thank our
501
00:38:38.219 --> 00:38:43.969
guest, Johan Grand, vice president
and head of etfs over at Allians.
502
00:38:44.690 --> 00:38:46.929
But until next time, I'm your
host, Jason Copool. Signing off
