Corey Hoffstein:
00:01:09
Hey everyone. Thank you for joining us. My name is Corey Hoffstein. I am CIO of Newfound Research and one of the co-founders of the Return Stacked Suite of funds. And I am delighted to be joined today by Rodrigo Gordillo, president of ReSolve Asset Management, as well as co-founder of the Return Stacked suite of funds. If you haven't heard of the Return Stacked lineup before, ultimately what this suite aims to do is unlock the benefits of diversification by allowing you to introduce alternative investment strategies and exposures into your portfolio without having to sacrifice core, stock and bond exposure. Each fund in the suite follows the same simple formula every, for every dollar invested, we're gonna provide a dollar of either core, stock or bond exposure, plus a dollar of exposure to an alternative asset class or investment strategy. We launched our first funds in the US back in February, 2023, and the. Whole suite has just passed over $850 million in assets, rapidly on its way to a billion, hopefully. today I am really excited to have Rodrigo talk specifically about the return stacked, global balanced and macro, ETF, ticker RGBM, where he is gonna get a chance to walk through, the many ways that this ETF works and can be utilized to enhance portfolio diversification and allow for all sorts of different types of stacking opportunities in your strategic allocation. Really importantly, this webinar, in this webinar, you should feel free to ask questions along the way. there's a q and a chat box that you can, ask questions and I'll be responding to the questions live in real time or bringing them up to Rodrigo if he can bring some, some color to them as well. and that's it. So, Rodrigo, let's start with the question. What is return stacking? Right? So for those of you who are joining us for the first time, who haven't heard this word before, this idea is, is central and core to what we do with our lineup, and it really begins with the idea of diversification. This jumps to the next slide. Historically, when we talk about diversification, it's been a, process of what I like to say is addition through subtraction. In this industry, we agree on very few things. One of the things we agree on is that all else held equal, more diversification is better than less, but to add diversifying assets and strategies into an existing portfolio, it has historically required making room by selling things we already own, typically stocks and bonds. And so a lot of proponents of diversifiers will say, we should use this idea of a 60% stock, 40% bond portfolio, sell some stocks and bonds, and move to the, what they're calling the modern 60 40 being a 50% stock, 30% bond, 20% alternative portfolio. This may look really good on paper, particularly when you look at the returns over the long run. But this type of addition through subtraction, making room for diversifiers in your portfolio can lead to a lot of behavioral frictions along the way. So let's, let's go to the next slide. What this slide shows is the relative performance of that 50, 30, 20 portfolio versus a 60 40. When the line is going up, the diversifiers are adding value relative to stocks and bonds, and when the line is going down, they're underperforming the stocks and bonds you sold to make room. And what we see is that during the early two thousands, people loved alternatives. This was a period where diversifiers were working, really working really well. For those of you who were in the industry at the time, I'm sure you remember everyone was adding commodities and gold and emerging markets, and long short equity and global macro managers, these types of strategies worked really well. And clients really embrace diversification. After the great financial crisis, we saw a very different picture, which was that diversification underperformed concentration in stocks and bonds. And as much as we wanted to preach that hypothetically on paper, more diversification was better. The realized experience for most investors was that they continued to underperform the stocks and bonds that they tend to know and love. And so they kept putting pressure on their wealth managers to move them into simpler, low cost, more transparent, more tax efficient portfolios, closer and closer and closer to that 60 40, making it very hard to maintain that diversification for when it became beneficial again, particularly in a year like 2022. Let's jump forward to the next slide. So this is where return stacking comes in. What is return stacking? How does the return stack suite of funds try to solve this problem? Well, for every dollar you invest in a return stacked fund, we are going to provide a dollar of either core stocks or bonds plus a dollar of exposure to some sort of diversifying alternative. What this means is that when you buy the fund, you don't have to give up exposure to the core stocks and bonds that the client knows and loves and appreciates to get that exposure to that beneficial diversifier. Let's jump to the next slide. So on the far left here, to illustrate how this works, we have your traditional strategic asset allocation, your your traditional benchmark portfolio here, 60% stocks, 40% bonds. In the middle, we show the traditional old world approach to making room for alternatives. Here we sold 10% of the stocks, sold 10% of the bonds. Took that 20% allocation and put it in alternatives. This is that 50, 30, 20 chart that we showed before when you use a Return Stack solution, because every dollar you put into a return stacked fund gets you a dollar of those core stocks and bonds back. What you can actually end up with by selling stocks and bonds and buying a return stack solution is getting your core stocks and bonds back, and adding that alternative as an overlay to the portfolio or stacking it on top of the portfolio, right? So now instead of a 50, 30, 20, you retain your core 60 40, and that 20% exposure is now stacked on top of your strategic asset allocation. And what this does importantly is it hopefully helps mitigate some of the behavioral issues that can come along with trying to access diversifiers. So we've taken the same graph we saw before, but now instead of comparing a 50, 30, 20 to a 60 40, we're comparing a 60 40 20 to a 60 40. Maintaining the strategic core, stacking the 20% alternatives on top, and you can see that during a period that alternatives did well, we still get those benefits in the early two thousands, but then in a period where alternatives, underperform stocks and bonds in the 2010s, we no longer have the opportunity cost, right? No longer is diversification a process of addition through subtraction. We can simply add the diversifying alternatives on top of the 60 40 or whatever strategic allocation you choose. that, that, and, and therefore, as long as those alternatives are outperforming the hurdle rate, which is cash, we can actually still see some benefit in the portfolio, even when they're underperforming stocks and bonds. Hopefully making it easier for clients to stick with them, maintain them so that they are there when the beneficial diversification properties emerge in a year, like 2022. Let's jump to the next slide. So there are really two key benefits to this idea of stacking. The first is by taking alternatives and stacking them on top of your core stocks and bonds you can actually try to pursue different means of outperformance. You're adding a another unique, hopefully diversifying, return stream on top of your stocks and bonds. And by just adding something more on top, you can try to beat that core stock and bond exposure. And hopefully what you're adding on top is something you have high conviction in. Not only being an uncorrelated from stocks and bonds but something you think is gen gonna generate positive returns with high conviction over the long run. The second thing that's important here is you can stack for diversification, and that's really what we've spoken about before. Stocks and bonds should be the core elements of every portfolio but as 2022 laid bare, inflationary shocks make our tend to make stocks and bonds go down at the same time. And so when we look for a third leg of the stool, what return stacking can enable us to do is add diversifiers to the portfolio without disrupting that stock and bond core, hopefully making it easier for allocators to hold onto those diversifiers for those periods in which they are going to be most needed. Alright, so Rodrigo, with that introduction of what is Return Stacking outta the Way, I'm really excited to turn it over to you here so you can dive into a practical implementation of the return stacking idea with our new Return Stack global balance and macro ETF.
Rodrigo Gordillo:
00:10:34
Thank you Corey. That was a great introduction to the Return Stack concept and uh, what I'm gonna try to do now for our Canadian international investors is really try to get deep into the latest exchange traded fund listed in the Toronto Stock Exchange. This is the Return Stack Global Balanced, and Macro ETF, ticker RGBM. So just starting with kind of the, the base investment case here, as Corey alluded to the, the key component of all of our return stack lineups is the concept of capital efficiency. That you can do a lot more for your client's portfolios with a lot less money. So in this particular product, for every dollar that you buy in RGBM, it aims to provide a full dollar exposure to a global balanced allocation strategy. So that's a 50 50 stock bond portfolio, and then another full dollar exposure to a systematic macro strategy strategy, which I'll get into what that actually means later in this presentation. Now the key thing here from a diversification standpoint is that you really are getting three very key diversified components. Equities and bonds act differently most of the time, not always as we saw in 2022. And then systematic macro has long-term, if you look at any systematic macro index, very low correlation to equities and bonds. Close to zero, right? So three key non diversified components where the systematic macro strategy tends to do well in periods of pain. it tends to do well in periods of inflation given the components that we are able to invest in in commodities and being able to short bonds in periods like 2022, there's an opportunity here for profiting during periods of inflationary shocks like we saw in 2022, and we may see in the future, or even bear markets. And then the another key structural component that is only unique to this Canadian ETF is the tax efficiency aspect. Shareholders here are not expected to receive any taxable distributions, which would be a tax saving for non-registered holders and absolutely instrumental in the overall return from an investment like this, because in Canada, while there are a number of managed futures managers out there. Managed futures are marked to market. Whatever gains you have are marked to market every year, whether you sold your ins, your investments or not. And then that is taxed as income. And so while even in taxable accounts, managed futures as a diversifier is great. You don't get to keep a lot of the returns as time goes by. This changes everything, right? The tax efficiency of the ETF means that when you invest, we don't expect any distributions, and therefore you can compound the wealth for your clients inside the ETF long term. Now let's get to the nitty gritty of what betas and what alphas we're stacking here. As mentioned before, we're trying to do a dollar of a balanced allocation and dollar systematic macro. Now the balanced allocation is a 50% exposure to global equities, and this is an unhedged, exposure to the global, equity markets, that includes US and global. So you're gonna get the currency exposure for a glo for any global markets, and you're gonna get the currency exposure in the US and then the 50% Canadian bonds is going to be a exposure to Canadian, futures contracts. and then on top of that we're gonna stack the systematic macro strategy that ReSolve Asset Management has been running for years. And again, this is designed to be lowly correlated and provide a lot of diversity. Now let's talk about the big alpha component. What is systematic Macro and, I think a lot of investors have heard of macro investing. and I wanna differentiate what fundamental macro is, which I think is the most common, to systematic macro. Fundamental macro is often it tends to be personality based, where there's a big decision maker or a small group of decision makers that are looking at, currency and, and, you know, global markets, bonds and, and commodities and making large bets, based on something that they're seeing in the market structures. I. It is very different than a systematic macro strategy where while we are in the same arena, we're looking at investing long and short equity indices globally, long and short bond, global indices, long and short, commodities and currencies. The approach is much more systematic. The, the goal here is to maximize diversity, minimize, you know, the reliance on any single bet that we hope actually comes to fruition. And it's more about finding small edges across things like trend com trend, uh, seasonality, mean reversion carry, which we'll get to in a second, right? So we want to just spread out our bets and make sure that the work that is done on trying to extract long-term premiums on, on an anomalies that we find all the work is done upfront, years in user research. Make sure that we codify it. And then the next best, the next step in the, this word systematic, has to do with the fact that we're gonna be executing those models religiously. It is a hundred percent rules driven, right? So we are governed by our algorithms, and then we want to execute those trades. Without any emotional bias and we wanna make sure that whether there's, it's sunny or dark outside and, and the weather, which we know has affected, has effects on decision making. We wanna make sure that we are executing religiously. Did did we feel a lot of emotions over the last few days? Absolutely. Did it affect the way that we are gonna execute? Absolutely not. That's why we we're systematic. As I alluded to as well, it's multi-asset and global focus, right? Commodities, bonds, currencies and equities. And then it's the directional flexibility that also sets it apart from most categories in the hedge fund, space. So when a lot of people, when we look at the hedge fund space, we see a lot of long, short equity that tends to be long bias. Systematically market neutral tends to be neutral most of the time. systematic macro and things like managed futures trend take a different view. Long-term correlations are around zero to stocks and bonds, but they do take directional directional bets when things are moving up. When equities and bonds are moving up and there is enough patterns to say, Hey, this is a good idea to invest in bonds. We will be net long along with equities and bonds plenty of times. But if those, markets shift and start showing different patterns, we have the ability to be net negative correlation to those markets. So the directional flexibility allows us not just to provide interesting long-term returns, but also to provide really strong offsets in periods of abrupt market change. And we'll get to that later in the presentation. And the final thing that's super, key behind systematic is the risk management. So we manage this, systematic macro to a target volatility of around 10%. And what that means is that we are constantly measuring the overall portfolio risk. We're also measuring the sector risk. We're measuring the security risk. We're creating certain, limits as to how much we can own of each. And then as, if it, if appeared like the last month, if we find that volatility has expanded across all assets, the the first thing that's going to happen is there's gonna be a reduction in gross exposure to meet that volatility target that we're aiming for, right? So while a 60 40 will go from ha averaging around 12% a year, and then all of a sudden having a 45% standard deviation spike, what we're gonna do here is we're gonna make sure we manage that risk so it doesn't get as high ever, and we're gonna try to keep it within a reasonable band. And that's the key difference and that's the value added. We think of systematic macro. And so what I'm showing you here is just kind of disaggregating the three components that we are looking to invest here in, um, in RGBM. The black line represents global equities. The blue line represents Canadian bonds and the Green line depicts the Pivotal Path Global Macro Quantitative Index, which is just an index of managers that are trying to do multi-strategy in the managed future space long and short. And what we can see clearly here is the benefits of diversification of systematic macro to both Canadian bonds and global equities. Okay. What is also interesting is in periods like the tech crisis, in periods like 2008, less so in 2020, and definitely in 2022, it has exhibited positive returns and offsetting characteristics that I think everybody here would agree, would be crucial to have at the right time. And when we look at just those periods, the tech crisis, and I see how, how well they did, you can see that, you know, the, the bar, in black is equities in green, its bonds, and then you have your, systematic macro clear diversifiers and offsetting losses for, from the equity markets. Similar in 2008 in 2020 both bonds and systematic macro had a bad period, and this is, this tends to do with how abrupt the shift in regimes happened, and that systematic macro tends to take a little bit of time in, in any managed futures, any act of strategy tends to take a little bit of time to shift into the new regime. So it is expected to take a, a first hit if the shift is abrupt enough and before it adapts to the new regime. But we can see here in 2022 where it was a bit slower of a regime shift, you can see the benefits of the offset. And what are we trying to do ultimately with this ETF? Well, first, we're trying to solve an old problem and it, and it, it's an old behavioral problem. I think if anybody's in this presentation, I'm guessing that in their past, they have allocated to diversifiers. In the past, it may have allocated to something like Managed Futures. I know that MANAHL was very popular in 2008. I owned them through 2006, 7 8, and they were very, very useful to me then, but they then, then we struggled in the next, you know, four to five years. And it's really, really difficult. And the, the pitch for these managers had always been, Hey, look, you, you are this black line, in this case, the black line here, it's a 50 50 bond equity portfolio. And the pitch was, look, you're here. This is your portfolio, this is the diversifier. And guess what? If you add this green line and this black line, you get a magical, beautiful line. That's much more, much less volatile, much more, consistent and your clients are gonna benefit from that. And this is the mountain chart and gray in the back, right? That was a promise. But the reality was that clients didn't see the portfolio level beauty of this. What they saw is a period post 2014 maybe, where systematic macro did positive, but single digit returns. Right? This is tough to, to try to go back to clients when the rest of the portfolio's line items are going up 10, 15, sometimes 20%, and then you got the green line item doing one or two or 3%. So the big unlock from a diversification standpoint is the fact that our, that, that the return stacked ETFs allow you to provide a single line item that actually aims to provide this gray mountain chart in the back. And the goal here is to really allow the client to participate in the markets that they really know and understand while benefiting from the diversification that you know they need. And I think this is one of the major reasons why we've grown so quickly in the United States. You know, this is now starting to come into Canada and it, it's something that we all, in, in the Canadian space are gonna have to think about more deeply. So again, our, this gray line here is a hundred percent balanced allocation, a hundred percent systematic macro, all right. Now let's talk about how we get exposure to the balanced allocation. So the goal here, the target exposure is to have 50% in global equities and 50% in Canadian bonds. And this is a decision based on speaking to advisors where most advisors do have some global equity exposure. And also have some Canadian bond exposure. And if they were gonna be swapping out something from their portfolios, it would make sense to swap out some of the Canadian, sell some of the Canadian bonds, sell some global equities, swap this in, get those allocations right back, and then get the stack on top. Okay. So how do we get this, in a capital efficient way? Well, a way of doing it here is we could buy an ETF of global equities. And then with the other 50% of the allocation, we could, we kind of leave it in cash, have a, you know, liquidity buffer there. We'll buy t-bills here in order to get some yield on the margin in, in the broker dealer allows us to then buy a Canadian bond futures contract at the full exposure, notional exposure that we need, right? So this is a simple way of getting exposure to Canadian bonds while maintaining, a lot of cash liquidity for the systematic macro, which I'll, I'll walk you guys through a little later on. All right, so what, what are the, some of the key underlying strategies that govern the systematic macro component of RGBM? Well, a lot of you, when I, when I say managed futures, it's almost synonymous to trend following and, um, while that has evolved obviously into systematic macro, most people will understand and have been exposed to managed future trend following because they've been around, like the turtle traders back in the eighties were, were basically using futures contracts and trading long and short, based on breakout systems and trend lines and, uh, moving average crossovers. so this is obviously the, the one that's been mostly talked about, but the reality is that selecting when to go long and short any market can have, you know, you can have more than one style that tends to do well. Similar to how value investing over the long term can make money and momentum investing, also can make money over time, but they're non-correlated to each other. Or growth investing for that matter. There are, there are key, risk premiums that we have identified that, that have fundamental reasons to exist, but are not necessarily highly correlated to each other. Right? So in this case, we have a component of trend following. You know, the trend following is a tendency for an asset, recent performance, to continue in the future, right? So that, that, that's, let's say we have gold and gold has had a big run up, trend following might say, I wanna have five units long gold. then we go to mean reversion. I think a lot of people would know what that probably means. And, and we ask mean reversion systems. Hey, how, how's, how should we position for gold? Maybe gold's got a six standard deviation move recently and it's saying, listen, this is a crazy move upwards. We're probably gonna mean revert. I want to sell short three units. So now we're, you know, plus five minus three, we're long two. And then we go to the seasonal, systems and say, Hey, are we entering a good or poor seasonal period for gold? Maybe it's a poor seasonal period. We should be shorting two units. Now we're flat gold, right? So, and, and on it goes. Right? So seasonality, you know, if you wanna see the success there, I think a lot of Canadians have been exposed to HAC, ETF, which has done a, a great job of using seasonal patterns to make, uh, to create alpha, And then, you know, other ones that you guys may have heard of or not is carry, and this is multi-asset directional carry. It's not the carry that oftentimes gets confused with currency carry or, you know, the, the carry trade between the Japanese yen, and the US dollar. This is carry across all markets and it's really just looking at the tendency for higher yielding assets to provide higher returns and lower yielding assets to provide lower returns, and we'll go long one and short the other based on those metrics. And when you look at multi-asset carry long term it tends to have protective, qualities. It doesn't necessarily lose money when there's a bear market. Actually, sometimes it mostly offsets it over enough, period. if you give it enough period time to breathe. Skewness is a tendency for assets with asymmetrical distributed returns to exhibit high returns as compensation for tail risk. Right? So if we see that there's a big, uh, distribution of an asset class that has a big fat right tail, we are going to take that and take the opposite bet to get compensated for that risk, whether it's the left tail or the right tail. And then relative value is the tendency for assets priced relatively lower compared to their peers or fundamentals to outperform higher price counterparts. So this is kind of fairly straightforward, right? So you put all these together and the goal here is, you know, all of these tend to make money over time, they don't make money at the same time. They're all kind of systems that are 50, you know, just over 50% accuracy over time. And when they all, when a handful of them, or most of them agree on directionality of the asset, you end up getting some positive returns in that asset and, and just smooths out the return stream. Right? More diversification. They all make money. They make it in different times.
Corey Hoffstein:
00:27:50
Rod, I think you're touching on it well on this slide, but just to ask a question explicitly that we got asked here, how much trend in carry is in the macro sleeve and and how much overlap would you expect from a, say a correlation perspective of a systematic macro program? With a, you know, a standalone trend program or with a standalone carry program.
Rodrigo Gordillo:
00:28:11
Yeah, great question. And look, if you look at the long term correlation of systematic macro strategies to trend, you know, long term you tend to see actually a positive like 0.4 to 0.5% correlation to trend. But this is again, looking at the average, right? In any given time. If you look at the at any systematic macro strategy at any given time, if seasonality meaning reversion carry are making money and trend is losing money, then the systematic macro strategy will be negatively correlated to trend following. And so there are many periods where trend following does really poorly. And the con, the conglomerate of all of these signals actually offset and more than offset the losses in trend falling. We actually have seen that, like we saw it last year in our strategies where trend falling had a, you know, mo kind of flat to down year, whereas the systematic strategies as a whole were positive, right? So again, similar to how systematic macro is conditionally correlated to equities, sometimes positive, sometimes negative, and conditionally correlated to bonds. So systematic macro is also conditionally correlated to trend following and everything else. And in terms of the weighting scheme over the long term, the weighting across all these is equal weight, but over the short term, we are looking at every single market and the strength of trend, the strength of immuno reversion for any one of them. And when you add up all of the, the existing weights as to, you know, how, the system is overweighting or underweighting these at any given time, you will have certain systems be overweight and underweight based on the market opportunities at the time. But long term, it's average, exposure. Okay. All right. so again, all of these systems here. Every one of them is making decisions and bets on what to go long, what to go short, across a wide variety of asset classes. And here, kind of summarize 15 markets in agriculture. Nine bond markets globally, six rate markets, eight energy markets, 11, equity markets, seven metals, eight, foreign exchange markets, and two volatility markets in Europe and the US. And again, we're making decisions, using these signals as an aggregate to decide how much and which markets to go long or short. All right, so when we put all this together in terms of what happens to the dollar that you give us and how it gets deployed. Once again, you give us a dollar, what's gonna happen is you're gonna, we're gonna invest it in a global equity, exposure. Then we're gonna keep a bunch in cash. We're gonna use some margin to both get exposure, simultaneous exposure to the Canadian bond futures, as well as the full, you know, 50 plus, long, short managed future strategy or the systematic macro strategy. All right, so that's when you stack it all up. That's how you get your 50, 50 and a hundred. So how does this work? Just going back to Corey's original slides. Well, the way that there's been a, there's a few ways to, to kind of use this, but the most common way that we've seen this being used is basically saying, okay, look. how do I make it so that I keep up with my competitors. I need to provide a return that's reasonable to what everybody else is doing. And if I have a 60 40 portfolio and I end up perform drastically, that's a problem. So what can you do? You can maybe sell 10% of your equities, sell 10% of your bonds. Now you have 20% cash. What you'll do is you could buy RGBM here, and what your clients will see then is a 50% allocation equities, a 30% allocation of bonds, and a 20% allocation to RGBM. That's what they'll see. But if you put your X-ray goggles on, what you're actually doing is you're sneaking in that diversification. You're giving your clients exactly what they want, which is that 60 40 again, but we're sneaking in that non-correlated return stream on top. Okay. So this has been the most common implementation for people that have no alternatives, know that they need it for their clients, and just haven't been able to behaviorally find a way to do so. this is a nice little way to keep what you want and have what they need. There's another use case that is a managers that already own managed futures products, maybe their portfolio is something to the effect of, you know, 50% equities, 30% bonds, and 20% managed futures. and they don't want to stack, they like that ah 50, 30, 20 traditional allocation. The interesting thing is that you can actually use this ETF to get the exact same exposure, but what you're doing that is unique is that you're eliminating the line item. You're not eliminating that, you're reducing the line item behavioral risk, because what you would then do if you are 50, 30, 20 is you could maybe sell another 10% of your equities, another 10% percent of your bonds, and sell the managed futures that's giving you trouble. Buy with half of the cash raised RGBM and your clients will see 20% cash, 20% RGBM, 40% equities, 20% bonds. That's what they'll see and they'll feel maybe that there's some comfort in having some cash and that the allocation has changed. The RGBM becomes that mixed beta alpha bag that is easier to hold. But when you x-ray, you're actually right back at the allocation you wanted initially, which is a 50, 30, 20. Okay? So if you have any managed futures or any alternative managers that you're really struggling with and you don't know what to do with them, this may be an interesting approach where you're using return stack ETFs to not necessarily stack, but to hide some of that weird, movement of the alternative sleeve.
Corey Hoffstein:
00:34:06
Rod, can I, yeah. Can I interrupt in that last slide? Sure. So, right, we've been using this 60 40 canonical example throughout the whole presentation. One of the questions we got asked is around younger clients who are putting a lot of money in just global equities and that's it. And the question was around how can RGBM be positioned potentially as an alpha ad for young clients who are very equity centric?
Rodrigo Gordillo:
00:34:34
Right. Well, let's, let's think about some of the long-term realities of each one of these asset classes. So you have the equity risk premia being something to the effect of four, 4.5% long term, the term premium, you know, the, as in like the, what bonds give you, is around, you know, two real, maybe two to two and a half real. And what we expect from the systematic macro is, you know, maybe three to 400 basis points long term, right? So when you look at the, the opportunity cost long term here is, equity, equity risk premium, and the, what we expect to see from the systematic macro, I think they're roughly equal in terms of returns and absolute returns. Okay. The bond premium tends to be slightly lower. Okay? But the way you could rearrange these blocks for your younger clients could be, you know, you're getting 50% of the equity risk premium, you're getting 50%, you're getting a hundred percent of the systematic macro. Okay. And that should over the long term, if my assumptions are correct, do the same or better than equities. And then you also have that bond component. Now think about like rearranging, you're, you're stacking the bonds on top, you're stacking that term premium that acts in we, in interesting ways, right? If there's a non-inflationary bear market, that'll act to buffer some of the losses on the downside along with hopefully systematic macro. and then there's a final value of diversifying three unique return streams. I know that nobody likes bonds, but especially young people seem to not like bonds, but they, they're missing out on what Corey and I have written about extensively, which is this diversification premium or rebalancing premium. Right. If you just add up the returns of these three asset classes long term and you just add 'em up, you know this plus this, plus this, you are not actually going to equate to the reality of a rebalanced portfolio. What we're rebalancing daily here, because the rebalancing premium is really capturing the mean reversion, elements of all these. So when you combine three unique return streams. And you are constantly rebalancing the, there's a loser that just went down. You are grabbing from the winner, giving it more to the loser, and there's a bit of a rebound. What we've found in our research is that you are we, we've seen an extra one and sometimes depending on how the markets went, an extra one to four percentage points, extra return purely on the rebalancing. Right. So again, just to recap and answer your question, you got a young client that wants equity, returns? Well, I think just purely by equity risk premium plus term premium plus systematic macro premium, I think it's competitive. I'm highly confident it will be and probably be better. but, you know, we don't know. So I, you know, it's, it's, it, I think it's, it's gonna be competitive to equities and then you have the rebalancing premium on top of that. Okay. So that, to me, this is a no-brainer for young, for young investors and old investors.
Corey Hoffstein:
00:37:45
And obviously that's a lot for any investor to digest. The tact I've taken in the past is, you know, you look at your equities and they are great long-term growth engine. This is gonna look a lot more like a higher volatility hedge fund, right? You're getting some of that equity and bond beta underneath it, which they want to keep, but then you're getting a totally differentiated return. Macro return profile on top, and so, right, clients that want something a little bit more than just equities, but don't want to give up the return potential, but want that access to a hedge fund like strategy. The return profile of this should be much more hedge fund, like higher vol hedge fund, like over the long run, which is both beneficial from a return and a diversification potential.
Rodrigo Gordillo:
00:38:29
Yeah, and to your point, Corey, when you look at a hedge fund index, the volatility of that hedge fund index is four or 5%, by stacking the systematic macro on top, what's interesting here is that the 60 40 portfolio last I looked like a, like a traditional 60 40. You're looking at a client having experienced a tr, a standard deviation of, you know, between 10 and 12% a year, long term. Of course, there's lar large variations around that by stacking systematic macro on top and the fact that it's non-correlated, on average, we're looking at long-term volatilities, around 13 to 14%, right? So even though we're stacking a full stack because of the diversification benefits, the volatility only goes up a couple of percentage points. Right. So you're, you're stacking a, you know, what we consider to be a, a, a decent amount of returns long term without necessarily stacking an equal amount of risks, right? So that's something that is, and, and at 13% now, now it's something that clients are used to, that they are getting what they want from the risk side of things, and a more diversified version of that higher risk, right? More efficient, higher sharpe ratio just simply by the, by the fact that there's three non-correlated return streams. So again, just to recap, I know we, we've, uh, gone through this numerous times in this presentation, but here the objective is long-term capital appreciation. For every dollar that you give RGBM, we seek to provide exposure to a global balanced portfolio and a one and, and a full extra dollar of a systematic macro strategy. And that is the global balance side is 50% global equities, 50% Canadian bonds, and the systematic macro strategy is across equities, bonds, currencies, commodities, both long and short and directional. we rebalance all of this on a daily basis, and the distribution is, if any, which we don't, we don't expect, but if any will be in annual distribution. any questions Corey?
Corey Hoffstein:
00:40:26
Can you talk a little bit about the underlying markets specifically? You mentioned sort of high level categories, but can you just share?
Rodrigo Gordillo:
00:40:33
Sure. So I. The key here is diversity, right? your sharpe ratio is directly related to your edge, as well as your breadth of market opportunities. And so you can see here that we have all the major categories across agriculture, bonds, energies, equities, rates, metals and Forex, and a wide variety of markets that we can take advantage of. And, you know, one of the, it's, it's sometimes interesting to see, especially in the, on the commodity side, how important one or two of these asset classes can be for profits and losses. depending on the year. I mean, last year cocoa had a huge run in systematic strategies like ours because of the fact that there was a, I believe that there was a supply shock due to some sort of infestation in the cocoa production that led to a massive upswing in cocoa and a lot of the strategies were able to make money. So you're just getting, I always say to people, when you invest in things like managed futures and systematic macro, you, you're probably, that position is probably the most diversified thing in your portfolio. As in a world where hedge funds and active equity managers and active bond managers just stick to their lane of like picking stocks. If you're a mar market neutral or long short manager, you're in the Canadian or US stock space, maybe some global, this is, the systematic macro and on in the future space, it's just simply where the broadest opportunities exist and, um, why I've, spent my whole career doing this. it's the most exciting area for me.
Corey Hoffstein:
00:42:10
One of the questions here that came in is, um, someone who's obviously familiar with your hedge fund programs asking how different is macro here from the Evolution hedge fund that ReSolve runs.
Rodrigo Gordillo:
00:42:24
So this ETF is built for large assets, right? So to to grow into the billions and billions and not be affected, in terms of our ability to create alpha. The hedge fund that we run trades a num, uh, significantly more markets than what we are able to trade in the ETF. And so what tends to happen in the hedge fund is that most of the really strong alpha, a lot of the really strong alpha comes from these smaller markets that can only be traded in small size. And the hedge fund that we run is still relatively small and we expect to cap it at some point to keep that alpha going, especially using those smaller markets. So. That's the major differentiator here. The other thing is that we run the hedge fund, like our target audience is fund of funds or advisors that really understand the value of capital efficiency. We run that on a 20% volatility whereas this one is run at 10, right? So it's a, just the, the 20% volatility tends to be, gobbled up by fund of fund managers that have a bunch of non-correlated ALT managers. When they put 'em together, they get a alt fund that is a five vol and a sharpe of one. It's not very exciting. They want to, you know, that that market wants a bunch of 20 vol managers so that when they put 'em together, they get a, the vol of 10. so it's, the hedge fund is not for the faint hearted. and yes, over time we should do better. but I. Regardless, this 10 vol with the very, very well diversified markets here, it's been, it's, we, we've run it in our previous ETF. It's very creative and it's, you know, it's gonna be, highly correlated, lower volatility and exciting,
Corey Hoffstein:
00:44:07
right? People are trying to get an understanding of how ReSolve has performed running these types of systematic macro programs historically. obviously, at least in the US you can't show a back test for any sort of registered investment company. is there anything folks can look at from the other products that you manage?
Rodrigo Gordillo:
00:44:28
Yeah, if they go to invest resolve.com, and they go to the strategy section, you know, the two popular strategies to look at how, how we've done the first one is the carry strategy, which we run for a number of, funds. the second one is the evolution program that is right below it. And, and you gotta think about these as we always have. You, they are excess returns and so the way to look at the returns here is what would be on top of my equities and bonds. so a lot of the work that we do is for single family offices that give us their, give us a portion of their portfolio that we use as collateral. And what we do for the Evolution program and the carry program is we stack those returns on top. and so, seen through that light, we're not trying to beat the index, you know, one-to-one or the s and p or anything like that. We are actually legitimately trying to stack those excess returns on top. So when you go to the site and take a look, I want you to see it through that lens. What would this, these strategies have done for me had I added them on top of my equities and bonds? And you'll see everything that we discussed today. You've, you'll see offsetting returns in periods like 2022. You will see, you know, non-correlated on a month to month basis. And you'll see positive stacks over the long term in, in that range that we talked about, the three to 400 basis points.
Corey Hoffstein:
00:45:55
Someone here is curious about other plans we have in Canada. Any, anything we can share, Rod on further launches?
Rodrigo Gordillo:
00:46:02
honestly, the, this will depend on appetite, right? So we're gonna, we're gonna launch this for now. the other interesting thing is that we're launching a US dollar class very soon for RGBM that's gonna be currency hedged 'cause I think this is, you know, there's, there's a lot of money in US dollars, both, uh, domestically and globally. so that's kind of the, the, thing that we're trying to push out now. In terms of future launches, it is going to depend on, on how the Canadian marketplace picks up on this portable alpha return stack concept. I mean, it's, it is in full gear right now in the United States, it is a super exciting space. Canada tends to lag a little bit, and so we gotta decide where we wanna spend our budgeting dollars and our marketing dollars. But I don't know, I, you know, depend, we're gonna start doing some more marketing, talking more about return stack and portable alpha. If we see an uptick. You know, there's a lot that we can replicate from the US. we also have a bunch of very large Canadian allocators that are interested in what we're doing, and if any one of those comes in with seed, we will be launching more product in Canada. If, you want to explore anything else outside of, RGBM, just to go to returnstack.com, we have a ton of content, like we have written prolifically on the topic. Any questions, any concerns you may have in terms of how we stack, you know, what the cost of leverage is, how things react in different environments we have written about it. Go to the go to returnstackedetfs.ca, click on the insight section, go to the articles, read up on 'em, and, explore the other, ETFs that we've launched in the us if, if you're so inclined.
Corey Hoffstein:
00:47:40
All right, Rod, we've hit the, uh, end of the questions here, so just wanna thank everyone for joining us, taking the time. Rod, thank you for walking us through this product with such depth. We're really excited. It's one of the first of its kind in Canada. I. we really believe it's a, what we would consider a better balanced fund this combination of stocks, bonds, and systematic macro. We understand it's a lot for people to get their arms around, but it's an incredibly powerful structure. We think very unique, differentiated in, uh. The Canadian market, particularly from a tax perspective. So we're really excited about the early adoption and, and look forward to continuing the conversations with everyone. If you do want to learn more, you can go to return stack etfs.ca, or you can go to return stack.com and contact us there. Thank you again for the time.
Rodrigo Gordillo:
00:48:28
Just quickly, Corey, right before we sign off, in that site, there's a couple of pieces here that I think everybody should review. So, in the website here, if you scroll down all of the informational sheets are here. Prospectus, fund fact sheets. we are considered medium risk, that's important in the ETF space. And the presentation we just went through, you can click on here to get access to it. Fact sheet. Currently, we can't show any performance for the first year, but there's information there. Quick, overview for clients if needed, needed. And then this product brief has been super useful for advisors in the US to really try to explain what we're trying to do here. You know, it has a nice little imagery as we, uh, showed in the presentation why it's important during bear markets, and then kind of the full connection between the individual sleeves and the stack and what you can do with it. So, uh. Please do explore the website, take, make use of that marketing material, and again, go to the insights, lots of webinars and podcasts for you guys to listen to. If you're into podcasts, look, look up the Get Stacked Investment podcasts where we try to dive deeper into these concepts. So. Sorry, Corey, I,
Corey Hoffstein:
00:49:36
no. Great. Final,
Rodrigo Gordillo:
00:49:37
I interrupted your goodbye.
Corey Hoffstein:
00:49:38
Great. Final points. Yep. And again, all that information's on the website and if there's any, any questions that you have, please feel free to, reach out and contact us and we'll be in touch. I wanna thank everyone for taking the time today to tune in. We know your time is valuable and hope that you got something new from this presentation. and have yourselves a wonderful rest of your day. Thank you.
Rodrigo Gordillo:
00:49:58
Thank you everyone.
00:01:09
Hey everyone. Thank you for joining us. My name is Corey Hoffstein. I am CIO of Newfound Research and one of the co-founders of the Return Stacked Suite of funds. And I am delighted to be joined today by Rodrigo Gordillo, president of ReSolve Asset Management, as well as co-founder of the Return Stacked suite of funds. If you haven't heard of the Return Stacked lineup before, ultimately what this suite aims to do is unlock the benefits of diversification by allowing you to introduce alternative investment strategies and exposures into your portfolio without having to sacrifice core, stock and bond exposure. Each fund in the suite follows the same simple formula every, for every dollar invested, we're gonna provide a dollar of either core, stock or bond exposure, plus a dollar of exposure to an alternative asset class or investment strategy. We launched our first funds in the US back in February, 2023, and the. Whole suite has just passed over $850 million in assets, rapidly on its way to a billion, hopefully. today I am really excited to have Rodrigo talk specifically about the return stacked, global balanced and macro, ETF, ticker RGBM, where he is gonna get a chance to walk through, the many ways that this ETF works and can be utilized to enhance portfolio diversification and allow for all sorts of different types of stacking opportunities in your strategic allocation. Really importantly, this webinar, in this webinar, you should feel free to ask questions along the way. there's a q and a chat box that you can, ask questions and I'll be responding to the questions live in real time or bringing them up to Rodrigo if he can bring some, some color to them as well. and that's it. So, Rodrigo, let's start with the question. What is return stacking? Right? So for those of you who are joining us for the first time, who haven't heard this word before, this idea is, is central and core to what we do with our lineup, and it really begins with the idea of diversification. This jumps to the next slide. Historically, when we talk about diversification, it's been a, process of what I like to say is addition through subtraction. In this industry, we agree on very few things. One of the things we agree on is that all else held equal, more diversification is better than less, but to add diversifying assets and strategies into an existing portfolio, it has historically required making room by selling things we already own, typically stocks and bonds. And so a lot of proponents of diversifiers will say, we should use this idea of a 60% stock, 40% bond portfolio, sell some stocks and bonds, and move to the, what they're calling the modern 60 40 being a 50% stock, 30% bond, 20% alternative portfolio. This may look really good on paper, particularly when you look at the returns over the long run. But this type of addition through subtraction, making room for diversifiers in your portfolio can lead to a lot of behavioral frictions along the way. So let's, let's go to the next slide. What this slide shows is the relative performance of that 50, 30, 20 portfolio versus a 60 40. When the line is going up, the diversifiers are adding value relative to stocks and bonds, and when the line is going down, they're underperforming the stocks and bonds you sold to make room. And what we see is that during the early two thousands, people loved alternatives. This was a period where diversifiers were working, really working really well. For those of you who were in the industry at the time, I'm sure you remember everyone was adding commodities and gold and emerging markets, and long short equity and global macro managers, these types of strategies worked really well. And clients really embrace diversification. After the great financial crisis, we saw a very different picture, which was that diversification underperformed concentration in stocks and bonds. And as much as we wanted to preach that hypothetically on paper, more diversification was better. The realized experience for most investors was that they continued to underperform the stocks and bonds that they tend to know and love. And so they kept putting pressure on their wealth managers to move them into simpler, low cost, more transparent, more tax efficient portfolios, closer and closer and closer to that 60 40, making it very hard to maintain that diversification for when it became beneficial again, particularly in a year like 2022. Let's jump forward to the next slide. So this is where return stacking comes in. What is return stacking? How does the return stack suite of funds try to solve this problem? Well, for every dollar you invest in a return stacked fund, we are going to provide a dollar of either core stocks or bonds plus a dollar of exposure to some sort of diversifying alternative. What this means is that when you buy the fund, you don't have to give up exposure to the core stocks and bonds that the client knows and loves and appreciates to get that exposure to that beneficial diversifier. Let's jump to the next slide. So on the far left here, to illustrate how this works, we have your traditional strategic asset allocation, your your traditional benchmark portfolio here, 60% stocks, 40% bonds. In the middle, we show the traditional old world approach to making room for alternatives. Here we sold 10% of the stocks, sold 10% of the bonds. Took that 20% allocation and put it in alternatives. This is that 50, 30, 20 chart that we showed before when you use a Return Stack solution, because every dollar you put into a return stacked fund gets you a dollar of those core stocks and bonds back. What you can actually end up with by selling stocks and bonds and buying a return stack solution is getting your core stocks and bonds back, and adding that alternative as an overlay to the portfolio or stacking it on top of the portfolio, right? So now instead of a 50, 30, 20, you retain your core 60 40, and that 20% exposure is now stacked on top of your strategic asset allocation. And what this does importantly is it hopefully helps mitigate some of the behavioral issues that can come along with trying to access diversifiers. So we've taken the same graph we saw before, but now instead of comparing a 50, 30, 20 to a 60 40, we're comparing a 60 40 20 to a 60 40. Maintaining the strategic core, stacking the 20% alternatives on top, and you can see that during a period that alternatives did well, we still get those benefits in the early two thousands, but then in a period where alternatives, underperform stocks and bonds in the 2010s, we no longer have the opportunity cost, right? No longer is diversification a process of addition through subtraction. We can simply add the diversifying alternatives on top of the 60 40 or whatever strategic allocation you choose. that, that, and, and therefore, as long as those alternatives are outperforming the hurdle rate, which is cash, we can actually still see some benefit in the portfolio, even when they're underperforming stocks and bonds. Hopefully making it easier for clients to stick with them, maintain them so that they are there when the beneficial diversification properties emerge in a year, like 2022. Let's jump to the next slide. So there are really two key benefits to this idea of stacking. The first is by taking alternatives and stacking them on top of your core stocks and bonds you can actually try to pursue different means of outperformance. You're adding a another unique, hopefully diversifying, return stream on top of your stocks and bonds. And by just adding something more on top, you can try to beat that core stock and bond exposure. And hopefully what you're adding on top is something you have high conviction in. Not only being an uncorrelated from stocks and bonds but something you think is gen gonna generate positive returns with high conviction over the long run. The second thing that's important here is you can stack for diversification, and that's really what we've spoken about before. Stocks and bonds should be the core elements of every portfolio but as 2022 laid bare, inflationary shocks make our tend to make stocks and bonds go down at the same time. And so when we look for a third leg of the stool, what return stacking can enable us to do is add diversifiers to the portfolio without disrupting that stock and bond core, hopefully making it easier for allocators to hold onto those diversifiers for those periods in which they are going to be most needed. Alright, so Rodrigo, with that introduction of what is Return Stacking outta the Way, I'm really excited to turn it over to you here so you can dive into a practical implementation of the return stacking idea with our new Return Stack global balance and macro ETF.
Rodrigo Gordillo:
00:10:34
Thank you Corey. That was a great introduction to the Return Stack concept and uh, what I'm gonna try to do now for our Canadian international investors is really try to get deep into the latest exchange traded fund listed in the Toronto Stock Exchange. This is the Return Stack Global Balanced, and Macro ETF, ticker RGBM. So just starting with kind of the, the base investment case here, as Corey alluded to the, the key component of all of our return stack lineups is the concept of capital efficiency. That you can do a lot more for your client's portfolios with a lot less money. So in this particular product, for every dollar that you buy in RGBM, it aims to provide a full dollar exposure to a global balanced allocation strategy. So that's a 50 50 stock bond portfolio, and then another full dollar exposure to a systematic macro strategy strategy, which I'll get into what that actually means later in this presentation. Now the key thing here from a diversification standpoint is that you really are getting three very key diversified components. Equities and bonds act differently most of the time, not always as we saw in 2022. And then systematic macro has long-term, if you look at any systematic macro index, very low correlation to equities and bonds. Close to zero, right? So three key non diversified components where the systematic macro strategy tends to do well in periods of pain. it tends to do well in periods of inflation given the components that we are able to invest in in commodities and being able to short bonds in periods like 2022, there's an opportunity here for profiting during periods of inflationary shocks like we saw in 2022, and we may see in the future, or even bear markets. And then the another key structural component that is only unique to this Canadian ETF is the tax efficiency aspect. Shareholders here are not expected to receive any taxable distributions, which would be a tax saving for non-registered holders and absolutely instrumental in the overall return from an investment like this, because in Canada, while there are a number of managed futures managers out there. Managed futures are marked to market. Whatever gains you have are marked to market every year, whether you sold your ins, your investments or not. And then that is taxed as income. And so while even in taxable accounts, managed futures as a diversifier is great. You don't get to keep a lot of the returns as time goes by. This changes everything, right? The tax efficiency of the ETF means that when you invest, we don't expect any distributions, and therefore you can compound the wealth for your clients inside the ETF long term. Now let's get to the nitty gritty of what betas and what alphas we're stacking here. As mentioned before, we're trying to do a dollar of a balanced allocation and dollar systematic macro. Now the balanced allocation is a 50% exposure to global equities, and this is an unhedged, exposure to the global, equity markets, that includes US and global. So you're gonna get the currency exposure for a glo for any global markets, and you're gonna get the currency exposure in the US and then the 50% Canadian bonds is going to be a exposure to Canadian, futures contracts. and then on top of that we're gonna stack the systematic macro strategy that ReSolve Asset Management has been running for years. And again, this is designed to be lowly correlated and provide a lot of diversity. Now let's talk about the big alpha component. What is systematic Macro and, I think a lot of investors have heard of macro investing. and I wanna differentiate what fundamental macro is, which I think is the most common, to systematic macro. Fundamental macro is often it tends to be personality based, where there's a big decision maker or a small group of decision makers that are looking at, currency and, and, you know, global markets, bonds and, and commodities and making large bets, based on something that they're seeing in the market structures. I. It is very different than a systematic macro strategy where while we are in the same arena, we're looking at investing long and short equity indices globally, long and short bond, global indices, long and short, commodities and currencies. The approach is much more systematic. The, the goal here is to maximize diversity, minimize, you know, the reliance on any single bet that we hope actually comes to fruition. And it's more about finding small edges across things like trend com trend, uh, seasonality, mean reversion carry, which we'll get to in a second, right? So we want to just spread out our bets and make sure that the work that is done on trying to extract long-term premiums on, on an anomalies that we find all the work is done upfront, years in user research. Make sure that we codify it. And then the next best, the next step in the, this word systematic, has to do with the fact that we're gonna be executing those models religiously. It is a hundred percent rules driven, right? So we are governed by our algorithms, and then we want to execute those trades. Without any emotional bias and we wanna make sure that whether there's, it's sunny or dark outside and, and the weather, which we know has affected, has effects on decision making. We wanna make sure that we are executing religiously. Did did we feel a lot of emotions over the last few days? Absolutely. Did it affect the way that we are gonna execute? Absolutely not. That's why we we're systematic. As I alluded to as well, it's multi-asset and global focus, right? Commodities, bonds, currencies and equities. And then it's the directional flexibility that also sets it apart from most categories in the hedge fund, space. So when a lot of people, when we look at the hedge fund space, we see a lot of long, short equity that tends to be long bias. Systematically market neutral tends to be neutral most of the time. systematic macro and things like managed futures trend take a different view. Long-term correlations are around zero to stocks and bonds, but they do take directional directional bets when things are moving up. When equities and bonds are moving up and there is enough patterns to say, Hey, this is a good idea to invest in bonds. We will be net long along with equities and bonds plenty of times. But if those, markets shift and start showing different patterns, we have the ability to be net negative correlation to those markets. So the directional flexibility allows us not just to provide interesting long-term returns, but also to provide really strong offsets in periods of abrupt market change. And we'll get to that later in the presentation. And the final thing that's super, key behind systematic is the risk management. So we manage this, systematic macro to a target volatility of around 10%. And what that means is that we are constantly measuring the overall portfolio risk. We're also measuring the sector risk. We're measuring the security risk. We're creating certain, limits as to how much we can own of each. And then as, if it, if appeared like the last month, if we find that volatility has expanded across all assets, the the first thing that's going to happen is there's gonna be a reduction in gross exposure to meet that volatility target that we're aiming for, right? So while a 60 40 will go from ha averaging around 12% a year, and then all of a sudden having a 45% standard deviation spike, what we're gonna do here is we're gonna make sure we manage that risk so it doesn't get as high ever, and we're gonna try to keep it within a reasonable band. And that's the key difference and that's the value added. We think of systematic macro. And so what I'm showing you here is just kind of disaggregating the three components that we are looking to invest here in, um, in RGBM. The black line represents global equities. The blue line represents Canadian bonds and the Green line depicts the Pivotal Path Global Macro Quantitative Index, which is just an index of managers that are trying to do multi-strategy in the managed future space long and short. And what we can see clearly here is the benefits of diversification of systematic macro to both Canadian bonds and global equities. Okay. What is also interesting is in periods like the tech crisis, in periods like 2008, less so in 2020, and definitely in 2022, it has exhibited positive returns and offsetting characteristics that I think everybody here would agree, would be crucial to have at the right time. And when we look at just those periods, the tech crisis, and I see how, how well they did, you can see that, you know, the, the bar, in black is equities in green, its bonds, and then you have your, systematic macro clear diversifiers and offsetting losses for, from the equity markets. Similar in 2008 in 2020 both bonds and systematic macro had a bad period, and this is, this tends to do with how abrupt the shift in regimes happened, and that systematic macro tends to take a little bit of time in, in any managed futures, any act of strategy tends to take a little bit of time to shift into the new regime. So it is expected to take a, a first hit if the shift is abrupt enough and before it adapts to the new regime. But we can see here in 2022 where it was a bit slower of a regime shift, you can see the benefits of the offset. And what are we trying to do ultimately with this ETF? Well, first, we're trying to solve an old problem and it, and it, it's an old behavioral problem. I think if anybody's in this presentation, I'm guessing that in their past, they have allocated to diversifiers. In the past, it may have allocated to something like Managed Futures. I know that MANAHL was very popular in 2008. I owned them through 2006, 7 8, and they were very, very useful to me then, but they then, then we struggled in the next, you know, four to five years. And it's really, really difficult. And the, the pitch for these managers had always been, Hey, look, you, you are this black line, in this case, the black line here, it's a 50 50 bond equity portfolio. And the pitch was, look, you're here. This is your portfolio, this is the diversifier. And guess what? If you add this green line and this black line, you get a magical, beautiful line. That's much more, much less volatile, much more, consistent and your clients are gonna benefit from that. And this is the mountain chart and gray in the back, right? That was a promise. But the reality was that clients didn't see the portfolio level beauty of this. What they saw is a period post 2014 maybe, where systematic macro did positive, but single digit returns. Right? This is tough to, to try to go back to clients when the rest of the portfolio's line items are going up 10, 15, sometimes 20%, and then you got the green line item doing one or two or 3%. So the big unlock from a diversification standpoint is the fact that our, that, that the return stacked ETFs allow you to provide a single line item that actually aims to provide this gray mountain chart in the back. And the goal here is to really allow the client to participate in the markets that they really know and understand while benefiting from the diversification that you know they need. And I think this is one of the major reasons why we've grown so quickly in the United States. You know, this is now starting to come into Canada and it, it's something that we all, in, in the Canadian space are gonna have to think about more deeply. So again, our, this gray line here is a hundred percent balanced allocation, a hundred percent systematic macro, all right. Now let's talk about how we get exposure to the balanced allocation. So the goal here, the target exposure is to have 50% in global equities and 50% in Canadian bonds. And this is a decision based on speaking to advisors where most advisors do have some global equity exposure. And also have some Canadian bond exposure. And if they were gonna be swapping out something from their portfolios, it would make sense to swap out some of the Canadian, sell some of the Canadian bonds, sell some global equities, swap this in, get those allocations right back, and then get the stack on top. Okay. So how do we get this, in a capital efficient way? Well, a way of doing it here is we could buy an ETF of global equities. And then with the other 50% of the allocation, we could, we kind of leave it in cash, have a, you know, liquidity buffer there. We'll buy t-bills here in order to get some yield on the margin in, in the broker dealer allows us to then buy a Canadian bond futures contract at the full exposure, notional exposure that we need, right? So this is a simple way of getting exposure to Canadian bonds while maintaining, a lot of cash liquidity for the systematic macro, which I'll, I'll walk you guys through a little later on. All right, so what, what are the, some of the key underlying strategies that govern the systematic macro component of RGBM? Well, a lot of you, when I, when I say managed futures, it's almost synonymous to trend following and, um, while that has evolved obviously into systematic macro, most people will understand and have been exposed to managed future trend following because they've been around, like the turtle traders back in the eighties were, were basically using futures contracts and trading long and short, based on breakout systems and trend lines and, uh, moving average crossovers. so this is obviously the, the one that's been mostly talked about, but the reality is that selecting when to go long and short any market can have, you know, you can have more than one style that tends to do well. Similar to how value investing over the long term can make money and momentum investing, also can make money over time, but they're non-correlated to each other. Or growth investing for that matter. There are, there are key, risk premiums that we have identified that, that have fundamental reasons to exist, but are not necessarily highly correlated to each other. Right? So in this case, we have a component of trend following. You know, the trend following is a tendency for an asset, recent performance, to continue in the future, right? So that, that, that's, let's say we have gold and gold has had a big run up, trend following might say, I wanna have five units long gold. then we go to mean reversion. I think a lot of people would know what that probably means. And, and we ask mean reversion systems. Hey, how, how's, how should we position for gold? Maybe gold's got a six standard deviation move recently and it's saying, listen, this is a crazy move upwards. We're probably gonna mean revert. I want to sell short three units. So now we're, you know, plus five minus three, we're long two. And then we go to the seasonal, systems and say, Hey, are we entering a good or poor seasonal period for gold? Maybe it's a poor seasonal period. We should be shorting two units. Now we're flat gold, right? So, and, and on it goes. Right? So seasonality, you know, if you wanna see the success there, I think a lot of Canadians have been exposed to HAC, ETF, which has done a, a great job of using seasonal patterns to make, uh, to create alpha, And then, you know, other ones that you guys may have heard of or not is carry, and this is multi-asset directional carry. It's not the carry that oftentimes gets confused with currency carry or, you know, the, the carry trade between the Japanese yen, and the US dollar. This is carry across all markets and it's really just looking at the tendency for higher yielding assets to provide higher returns and lower yielding assets to provide lower returns, and we'll go long one and short the other based on those metrics. And when you look at multi-asset carry long term it tends to have protective, qualities. It doesn't necessarily lose money when there's a bear market. Actually, sometimes it mostly offsets it over enough, period. if you give it enough period time to breathe. Skewness is a tendency for assets with asymmetrical distributed returns to exhibit high returns as compensation for tail risk. Right? So if we see that there's a big, uh, distribution of an asset class that has a big fat right tail, we are going to take that and take the opposite bet to get compensated for that risk, whether it's the left tail or the right tail. And then relative value is the tendency for assets priced relatively lower compared to their peers or fundamentals to outperform higher price counterparts. So this is kind of fairly straightforward, right? So you put all these together and the goal here is, you know, all of these tend to make money over time, they don't make money at the same time. They're all kind of systems that are 50, you know, just over 50% accuracy over time. And when they all, when a handful of them, or most of them agree on directionality of the asset, you end up getting some positive returns in that asset and, and just smooths out the return stream. Right? More diversification. They all make money. They make it in different times.
Corey Hoffstein:
00:27:50
Rod, I think you're touching on it well on this slide, but just to ask a question explicitly that we got asked here, how much trend in carry is in the macro sleeve and and how much overlap would you expect from a, say a correlation perspective of a systematic macro program? With a, you know, a standalone trend program or with a standalone carry program.
Rodrigo Gordillo:
00:28:11
Yeah, great question. And look, if you look at the long term correlation of systematic macro strategies to trend, you know, long term you tend to see actually a positive like 0.4 to 0.5% correlation to trend. But this is again, looking at the average, right? In any given time. If you look at the at any systematic macro strategy at any given time, if seasonality meaning reversion carry are making money and trend is losing money, then the systematic macro strategy will be negatively correlated to trend following. And so there are many periods where trend following does really poorly. And the con, the conglomerate of all of these signals actually offset and more than offset the losses in trend falling. We actually have seen that, like we saw it last year in our strategies where trend falling had a, you know, mo kind of flat to down year, whereas the systematic strategies as a whole were positive, right? So again, similar to how systematic macro is conditionally correlated to equities, sometimes positive, sometimes negative, and conditionally correlated to bonds. So systematic macro is also conditionally correlated to trend following and everything else. And in terms of the weighting scheme over the long term, the weighting across all these is equal weight, but over the short term, we are looking at every single market and the strength of trend, the strength of immuno reversion for any one of them. And when you add up all of the, the existing weights as to, you know, how, the system is overweighting or underweighting these at any given time, you will have certain systems be overweight and underweight based on the market opportunities at the time. But long term, it's average, exposure. Okay. All right. so again, all of these systems here. Every one of them is making decisions and bets on what to go long, what to go short, across a wide variety of asset classes. And here, kind of summarize 15 markets in agriculture. Nine bond markets globally, six rate markets, eight energy markets, 11, equity markets, seven metals, eight, foreign exchange markets, and two volatility markets in Europe and the US. And again, we're making decisions, using these signals as an aggregate to decide how much and which markets to go long or short. All right, so when we put all this together in terms of what happens to the dollar that you give us and how it gets deployed. Once again, you give us a dollar, what's gonna happen is you're gonna, we're gonna invest it in a global equity, exposure. Then we're gonna keep a bunch in cash. We're gonna use some margin to both get exposure, simultaneous exposure to the Canadian bond futures, as well as the full, you know, 50 plus, long, short managed future strategy or the systematic macro strategy. All right, so that's when you stack it all up. That's how you get your 50, 50 and a hundred. So how does this work? Just going back to Corey's original slides. Well, the way that there's been a, there's a few ways to, to kind of use this, but the most common way that we've seen this being used is basically saying, okay, look. how do I make it so that I keep up with my competitors. I need to provide a return that's reasonable to what everybody else is doing. And if I have a 60 40 portfolio and I end up perform drastically, that's a problem. So what can you do? You can maybe sell 10% of your equities, sell 10% of your bonds. Now you have 20% cash. What you'll do is you could buy RGBM here, and what your clients will see then is a 50% allocation equities, a 30% allocation of bonds, and a 20% allocation to RGBM. That's what they'll see. But if you put your X-ray goggles on, what you're actually doing is you're sneaking in that diversification. You're giving your clients exactly what they want, which is that 60 40 again, but we're sneaking in that non-correlated return stream on top. Okay. So this has been the most common implementation for people that have no alternatives, know that they need it for their clients, and just haven't been able to behaviorally find a way to do so. this is a nice little way to keep what you want and have what they need. There's another use case that is a managers that already own managed futures products, maybe their portfolio is something to the effect of, you know, 50% equities, 30% bonds, and 20% managed futures. and they don't want to stack, they like that ah 50, 30, 20 traditional allocation. The interesting thing is that you can actually use this ETF to get the exact same exposure, but what you're doing that is unique is that you're eliminating the line item. You're not eliminating that, you're reducing the line item behavioral risk, because what you would then do if you are 50, 30, 20 is you could maybe sell another 10% of your equities, another 10% percent of your bonds, and sell the managed futures that's giving you trouble. Buy with half of the cash raised RGBM and your clients will see 20% cash, 20% RGBM, 40% equities, 20% bonds. That's what they'll see and they'll feel maybe that there's some comfort in having some cash and that the allocation has changed. The RGBM becomes that mixed beta alpha bag that is easier to hold. But when you x-ray, you're actually right back at the allocation you wanted initially, which is a 50, 30, 20. Okay? So if you have any managed futures or any alternative managers that you're really struggling with and you don't know what to do with them, this may be an interesting approach where you're using return stack ETFs to not necessarily stack, but to hide some of that weird, movement of the alternative sleeve.
Corey Hoffstein:
00:34:06
Rod, can I, yeah. Can I interrupt in that last slide? Sure. So, right, we've been using this 60 40 canonical example throughout the whole presentation. One of the questions we got asked is around younger clients who are putting a lot of money in just global equities and that's it. And the question was around how can RGBM be positioned potentially as an alpha ad for young clients who are very equity centric?
Rodrigo Gordillo:
00:34:34
Right. Well, let's, let's think about some of the long-term realities of each one of these asset classes. So you have the equity risk premia being something to the effect of four, 4.5% long term, the term premium, you know, the, as in like the, what bonds give you, is around, you know, two real, maybe two to two and a half real. And what we expect from the systematic macro is, you know, maybe three to 400 basis points long term, right? So when you look at the, the opportunity cost long term here is, equity, equity risk premium, and the, what we expect to see from the systematic macro, I think they're roughly equal in terms of returns and absolute returns. Okay. The bond premium tends to be slightly lower. Okay? But the way you could rearrange these blocks for your younger clients could be, you know, you're getting 50% of the equity risk premium, you're getting 50%, you're getting a hundred percent of the systematic macro. Okay. And that should over the long term, if my assumptions are correct, do the same or better than equities. And then you also have that bond component. Now think about like rearranging, you're, you're stacking the bonds on top, you're stacking that term premium that acts in we, in interesting ways, right? If there's a non-inflationary bear market, that'll act to buffer some of the losses on the downside along with hopefully systematic macro. and then there's a final value of diversifying three unique return streams. I know that nobody likes bonds, but especially young people seem to not like bonds, but they, they're missing out on what Corey and I have written about extensively, which is this diversification premium or rebalancing premium. Right. If you just add up the returns of these three asset classes long term and you just add 'em up, you know this plus this, plus this, you are not actually going to equate to the reality of a rebalanced portfolio. What we're rebalancing daily here, because the rebalancing premium is really capturing the mean reversion, elements of all these. So when you combine three unique return streams. And you are constantly rebalancing the, there's a loser that just went down. You are grabbing from the winner, giving it more to the loser, and there's a bit of a rebound. What we've found in our research is that you are we, we've seen an extra one and sometimes depending on how the markets went, an extra one to four percentage points, extra return purely on the rebalancing. Right. So again, just to recap and answer your question, you got a young client that wants equity, returns? Well, I think just purely by equity risk premium plus term premium plus systematic macro premium, I think it's competitive. I'm highly confident it will be and probably be better. but, you know, we don't know. So I, you know, it's, it's, it, I think it's, it's gonna be competitive to equities and then you have the rebalancing premium on top of that. Okay. So that, to me, this is a no-brainer for young, for young investors and old investors.
Corey Hoffstein:
00:37:45
And obviously that's a lot for any investor to digest. The tact I've taken in the past is, you know, you look at your equities and they are great long-term growth engine. This is gonna look a lot more like a higher volatility hedge fund, right? You're getting some of that equity and bond beta underneath it, which they want to keep, but then you're getting a totally differentiated return. Macro return profile on top, and so, right, clients that want something a little bit more than just equities, but don't want to give up the return potential, but want that access to a hedge fund like strategy. The return profile of this should be much more hedge fund, like higher vol hedge fund, like over the long run, which is both beneficial from a return and a diversification potential.
Rodrigo Gordillo:
00:38:29
Yeah, and to your point, Corey, when you look at a hedge fund index, the volatility of that hedge fund index is four or 5%, by stacking the systematic macro on top, what's interesting here is that the 60 40 portfolio last I looked like a, like a traditional 60 40. You're looking at a client having experienced a tr, a standard deviation of, you know, between 10 and 12% a year, long term. Of course, there's lar large variations around that by stacking systematic macro on top and the fact that it's non-correlated, on average, we're looking at long-term volatilities, around 13 to 14%, right? So even though we're stacking a full stack because of the diversification benefits, the volatility only goes up a couple of percentage points. Right. So you're, you're stacking a, you know, what we consider to be a, a, a decent amount of returns long term without necessarily stacking an equal amount of risks, right? So that's something that is, and, and at 13% now, now it's something that clients are used to, that they are getting what they want from the risk side of things, and a more diversified version of that higher risk, right? More efficient, higher sharpe ratio just simply by the, by the fact that there's three non-correlated return streams. So again, just to recap, I know we, we've, uh, gone through this numerous times in this presentation, but here the objective is long-term capital appreciation. For every dollar that you give RGBM, we seek to provide exposure to a global balanced portfolio and a one and, and a full extra dollar of a systematic macro strategy. And that is the global balance side is 50% global equities, 50% Canadian bonds, and the systematic macro strategy is across equities, bonds, currencies, commodities, both long and short and directional. we rebalance all of this on a daily basis, and the distribution is, if any, which we don't, we don't expect, but if any will be in annual distribution. any questions Corey?
Corey Hoffstein:
00:40:26
Can you talk a little bit about the underlying markets specifically? You mentioned sort of high level categories, but can you just share?
Rodrigo Gordillo:
00:40:33
Sure. So I. The key here is diversity, right? your sharpe ratio is directly related to your edge, as well as your breadth of market opportunities. And so you can see here that we have all the major categories across agriculture, bonds, energies, equities, rates, metals and Forex, and a wide variety of markets that we can take advantage of. And, you know, one of the, it's, it's sometimes interesting to see, especially in the, on the commodity side, how important one or two of these asset classes can be for profits and losses. depending on the year. I mean, last year cocoa had a huge run in systematic strategies like ours because of the fact that there was a, I believe that there was a supply shock due to some sort of infestation in the cocoa production that led to a massive upswing in cocoa and a lot of the strategies were able to make money. So you're just getting, I always say to people, when you invest in things like managed futures and systematic macro, you, you're probably, that position is probably the most diversified thing in your portfolio. As in a world where hedge funds and active equity managers and active bond managers just stick to their lane of like picking stocks. If you're a mar market neutral or long short manager, you're in the Canadian or US stock space, maybe some global, this is, the systematic macro and on in the future space, it's just simply where the broadest opportunities exist and, um, why I've, spent my whole career doing this. it's the most exciting area for me.
Corey Hoffstein:
00:42:10
One of the questions here that came in is, um, someone who's obviously familiar with your hedge fund programs asking how different is macro here from the Evolution hedge fund that ReSolve runs.
Rodrigo Gordillo:
00:42:24
So this ETF is built for large assets, right? So to to grow into the billions and billions and not be affected, in terms of our ability to create alpha. The hedge fund that we run trades a num, uh, significantly more markets than what we are able to trade in the ETF. And so what tends to happen in the hedge fund is that most of the really strong alpha, a lot of the really strong alpha comes from these smaller markets that can only be traded in small size. And the hedge fund that we run is still relatively small and we expect to cap it at some point to keep that alpha going, especially using those smaller markets. So. That's the major differentiator here. The other thing is that we run the hedge fund, like our target audience is fund of funds or advisors that really understand the value of capital efficiency. We run that on a 20% volatility whereas this one is run at 10, right? So it's a, just the, the 20% volatility tends to be, gobbled up by fund of fund managers that have a bunch of non-correlated ALT managers. When they put 'em together, they get a alt fund that is a five vol and a sharpe of one. It's not very exciting. They want to, you know, that that market wants a bunch of 20 vol managers so that when they put 'em together, they get a, the vol of 10. so it's, the hedge fund is not for the faint hearted. and yes, over time we should do better. but I. Regardless, this 10 vol with the very, very well diversified markets here, it's been, it's, we, we've run it in our previous ETF. It's very creative and it's, you know, it's gonna be, highly correlated, lower volatility and exciting,
Corey Hoffstein:
00:44:07
right? People are trying to get an understanding of how ReSolve has performed running these types of systematic macro programs historically. obviously, at least in the US you can't show a back test for any sort of registered investment company. is there anything folks can look at from the other products that you manage?
Rodrigo Gordillo:
00:44:28
Yeah, if they go to invest resolve.com, and they go to the strategy section, you know, the two popular strategies to look at how, how we've done the first one is the carry strategy, which we run for a number of, funds. the second one is the evolution program that is right below it. And, and you gotta think about these as we always have. You, they are excess returns and so the way to look at the returns here is what would be on top of my equities and bonds. so a lot of the work that we do is for single family offices that give us their, give us a portion of their portfolio that we use as collateral. And what we do for the Evolution program and the carry program is we stack those returns on top. and so, seen through that light, we're not trying to beat the index, you know, one-to-one or the s and p or anything like that. We are actually legitimately trying to stack those excess returns on top. So when you go to the site and take a look, I want you to see it through that lens. What would this, these strategies have done for me had I added them on top of my equities and bonds? And you'll see everything that we discussed today. You've, you'll see offsetting returns in periods like 2022. You will see, you know, non-correlated on a month to month basis. And you'll see positive stacks over the long term in, in that range that we talked about, the three to 400 basis points.
Corey Hoffstein:
00:45:55
Someone here is curious about other plans we have in Canada. Any, anything we can share, Rod on further launches?
Rodrigo Gordillo:
00:46:02
honestly, the, this will depend on appetite, right? So we're gonna, we're gonna launch this for now. the other interesting thing is that we're launching a US dollar class very soon for RGBM that's gonna be currency hedged 'cause I think this is, you know, there's, there's a lot of money in US dollars, both, uh, domestically and globally. so that's kind of the, the, thing that we're trying to push out now. In terms of future launches, it is going to depend on, on how the Canadian marketplace picks up on this portable alpha return stack concept. I mean, it's, it is in full gear right now in the United States, it is a super exciting space. Canada tends to lag a little bit, and so we gotta decide where we wanna spend our budgeting dollars and our marketing dollars. But I don't know, I, you know, depend, we're gonna start doing some more marketing, talking more about return stack and portable alpha. If we see an uptick. You know, there's a lot that we can replicate from the US. we also have a bunch of very large Canadian allocators that are interested in what we're doing, and if any one of those comes in with seed, we will be launching more product in Canada. If, you want to explore anything else outside of, RGBM, just to go to returnstack.com, we have a ton of content, like we have written prolifically on the topic. Any questions, any concerns you may have in terms of how we stack, you know, what the cost of leverage is, how things react in different environments we have written about it. Go to the go to returnstackedetfs.ca, click on the insight section, go to the articles, read up on 'em, and, explore the other, ETFs that we've launched in the us if, if you're so inclined.
Corey Hoffstein:
00:47:40
All right, Rod, we've hit the, uh, end of the questions here, so just wanna thank everyone for joining us, taking the time. Rod, thank you for walking us through this product with such depth. We're really excited. It's one of the first of its kind in Canada. I. we really believe it's a, what we would consider a better balanced fund this combination of stocks, bonds, and systematic macro. We understand it's a lot for people to get their arms around, but it's an incredibly powerful structure. We think very unique, differentiated in, uh. The Canadian market, particularly from a tax perspective. So we're really excited about the early adoption and, and look forward to continuing the conversations with everyone. If you do want to learn more, you can go to return stack etfs.ca, or you can go to return stack.com and contact us there. Thank you again for the time.
Rodrigo Gordillo:
00:48:28
Just quickly, Corey, right before we sign off, in that site, there's a couple of pieces here that I think everybody should review. So, in the website here, if you scroll down all of the informational sheets are here. Prospectus, fund fact sheets. we are considered medium risk, that's important in the ETF space. And the presentation we just went through, you can click on here to get access to it. Fact sheet. Currently, we can't show any performance for the first year, but there's information there. Quick, overview for clients if needed, needed. And then this product brief has been super useful for advisors in the US to really try to explain what we're trying to do here. You know, it has a nice little imagery as we, uh, showed in the presentation why it's important during bear markets, and then kind of the full connection between the individual sleeves and the stack and what you can do with it. So, uh. Please do explore the website, take, make use of that marketing material, and again, go to the insights, lots of webinars and podcasts for you guys to listen to. If you're into podcasts, look, look up the Get Stacked Investment podcasts where we try to dive deeper into these concepts. So. Sorry, Corey, I,
Corey Hoffstein:
00:49:36
no. Great. Final,
Rodrigo Gordillo:
00:49:37
I interrupted your goodbye.
Corey Hoffstein:
00:49:38
Great. Final points. Yep. And again, all that information's on the website and if there's any, any questions that you have, please feel free to, reach out and contact us and we'll be in touch. I wanna thank everyone for taking the time today to tune in. We know your time is valuable and hope that you got something new from this presentation. and have yourselves a wonderful rest of your day. Thank you.
Rodrigo Gordillo:
00:49:58
Thank you everyone.
