Multifamily Investor Expo - Feb 15th
Managed futures may be a controversial asset class, but there’s no doubting their eye-popping performance over the past twelve months.
Andrew Beer, co-founder at Dynamic Beta investments (DBi), returns to the show to discuss why managed futures deserve a place in many investor portfolios, plus the best way to implement this, in the real world.
Watch On YouTube
- An introduction to managed futures as an asset class, and the case for including them in a diversified portfolio.
- Why many RIAs and wealth managers are hesitant to include managed futures in client portfolios (hint: it involves a short trip down memory lane).
- Insights on manager risk in the managed futures space, and how Andrew believes this risk can be mitigated.
- Details on Andrew’s research, and his upcoming whitepaper.
- An inside look at DBMF, the iMGP DBi Managed Futures Strategy ETF.
Featured On This Episode
- DBEH – iMGP DBi Hedge Strategy ETF (iMGP Funds)
- DBMF – iMGP DBi Managed Futures Strategy ETF (iMGP Funds)
- Opinion: Why More Advisors Should Consider Adding Managed Futures to Portfolios (Barron’s)
Today’s Guest: Andrew Beer, Dynamic Beta investments (DPi)
- DBi (Dynamic Beta investments) – Official Website
- DBi on LinkedIn
- Andrew Beer on LinkedIn
- Andrew Beer on Twitter
- Upcoming Webinar: On January 26, 2023, AltsDb is hosting an educational webinar on managed futures, presented by Andrew Beer. Click here to learn more.
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: Welcome to “The Alternative Investment Podcast.” I’m your host, Andy Hagans. We’re continuing our series on liquid alts and alternative ETFs. And now we’re gonna talk about managed futures and hedge fund replication strategies in the ETF world. So, returning to the show is Andrew Beer, who’s co-founder at Dynamic Beta Investments, AKA “DBi.” Andrew, welcome back.
Andrew: Thank you, Andy. Great to be here.
Andy: So, in part one, we talked about factor-based hedge fund replication. We talked about the long/short equity ETF. But your other ETF that we wanna talk about is a managed futures ETF. But just to step back a little bit, so, our audience at “The Alternative Investment Podcast,” we have a lot of RIAs, family offices, high net worth investors. I’m sure that some of our listenership and viewership is already invested in managed futures, but I think there’s still a lot of wealth managers out there who don’t even really know much about managed futures. So, could we kind of zoom out for a second, talk about just the utility of this asset class or this strategy, you know, what it is and how it works?
Andrew: Sure. So, with respect to your point about the lack of investment in the space, or lack of it, it’s actually quite incredible. I mean, in the mutual fund world, the managed futures mutual funds, and there are a lot of great managed futures mutual funds, represent 10 basis points of the mutual fund world. Where we are, in the ETF world, it’s around two basis points of the overall world. Like, these are strategies… I mean, again, I’ve become sort of this standard bearer for managed futures. But managed futures has more valuable diversification bang for the buck than any other alternative strategy, hands down.
Andy: Wow. Okay. That’s a big statement.
Andrew: Well, I mean, you can look at the data for the past 22 years, right, and there’s a distinction that needs to be made, and I’m writing a long white paper on this. There’s a distinction when people talk about managed futures. What do they mean? Right? The only good data that we have is index on lots of hedge funds who pursued this strategy, right? So, when you’re saying, “How would I have done if I’d invested in managed futures over the past 22 years?” and I started 2000 because that’s when the data gets good, what you’re really saying is, what was the average performance of, say, the 20 largest managed futures hedge funds, day in and day out over 22 years? And so, it’s a little bit like saying the S&P 500, but they’re huge differences between that.
Hedge funds are nettable fees and expenses. You can’t actually invest in them unless you go and give…or you’re huge, and you can give money to different guys. So, it’s almost like a theoretical index of the space. Whereas the S&P 500, you’ve got a million different index products. You can invest in it, in, you know, ETFs or mutual funds or however. But when you look at that data, and that’s the best way to basically say, “Is this an interesting strategy,” right? Because you can always find one guy who’s done incredibly well, but then you’re gonna miss all the other guys who were left on the battlefield.
Andy: Show me the median, or show me how the bulk of investors performed, right?
Andrew: Right. And so, over that period of time, you have something that has zero correlation to stocks and bonds, generates 300 to 400 basis points per annum relative to stocks and bonds, and has hit the trifecta of big gains in the dotcom crisis, the GFC, and last year.
Andy: So, I wanna put a pin in that for a second, and talk about your op-ed, because [inaudible 00:03:52] you just said brought that to mind. So, by the way, this was published in Barron’s, and I’m gonna link to that op-ed in the show notes. And I have to say, Barron’s is, like, the only print publication in the financial world that I subscribe to. I’ve subscribed to it for, like, 15 years. So, good choice of publication.
Andrew: Lemme tell you, it was hard to get in that one. I’ve been in some of the others. That was, they have very, very high standards, but the editors were absolutely terrific on it.
Andy: Well, when Alts DB, when I get in Barron’s, then I’ll know that I’ll have made it in financial media. So, congrats on getting this published. It was a really good op-ed. I’m gonna link to it in the show notes. But the quote that you just brought to mind was that managed futures, they’re like hurricane insurance that makes you money while you wait for the storm. And when I read that in Barron’s, I, like, highlighted that, and I’m like, that almost sounds too good to be true. How could that be true? How could hurricane insurance make me money while I wait for the storm? How could I have a zero correlation to equities, and 300 basis points of return per year?
Andrew: So, you know, in the earlier podcast, we talked about the constraints that investors face, right? So, think about, in… You know, the big inflection point on inflation, let’s use a concrete example, because academics and guys who do this and PhD, with guys with PhDs and stuff, will give you papers that say over the past 120 years, you know, this idea of following trends, or trend-following, and, you know, capturing trends through models would’ve worked. I don’t really care if something would’ve worked in the 1930s. It’s kind of why I didn’t go into academia.
Andy: Hey, I at least gotta defend, like, Ben Graham. I love the old Ben Graham investing book. So, there are a couple things…
Andrew: Oh, no, no. You know, when I was at Harvard Business School, I almost did a study on short interest in the 1930s. And they sent me into Baker Library to get the data. And I’m reading, like, dusty, handwritten notes, with, like, pencil scratches. And then they’re asking me to put this into a statistical model, and I’m like, why would you believe the output? It’s garbage in, garbage out.
But any case, but I think the reality of managed futures is, so, first of all, what do these guys do? Right? And there’s a lot of mystery around the space. And in part, it’s because the guys who are in this space are all quants, and they talk about it in quant terms. So, if I’m a typical managed futures guy and you’re interviewing me, I’m gonna tell you about, you know, all of my new statistical techniques that I’ve introduced, and how I modify my model, and my 37, 57, 87 different markets that I trade in, and long/short this, and different model links, and [inaudible 00:06:42] And you sound, you hear it, as a non-quant, and you think this guy must be doing 20% a year with no down years, right? And it sounds so great, but it’s really hard to know the questions to ask.
So, what we’re trying to do at DBi is create a language around the space that’s a lot more accessible. And one thing I’m working on right now, my Christmas, you know, project was to try to write a white paper for advisors, that talks about this from a much more practical perspective. So, let’s talk about what the strategy is.
Andy: Now, to be clear, and by the way, like, just, kudos for that white paper. I mean, that’s a big part of what we’re doing on this show, “The Alternative Investment Podcast,” there are all kinds of alternatives products, not just liquid alts, all kinds of alts products, advisors don’t understand, family offices don’t understand. And so, a big part of this lift is just education. So, kudos to you for that. But to be clear that, you know, what we’re talking about now, are we talking about DBMF, the DBi managed futures strategy ETF?
Andrew: Completely. Yeah, yeah. Yeah. But you gotta start with managed futures and why you’d wanna be invested in the space, right? So, but, what managed futures is is basically, it’s a whole bunch of funds out there, run by incredibly smart guys, like firms like AQR, Man AHL in London, AlphaSimplex in Boston. I mean, these are, you know, firms packed with PhDs who build computer models. And the computer models are very, very sophisticated ways of almost applying technical analysis to [inaudible 00:08:24] deciding whether something would go up or down.
So, you put Ben Graham on this show, when you talk about managed futures, and his bias is gonna tell you it doesn’t work, right? You put a University of Chicago trained economist, who’s an efficient market guy, and he’ll tell you, “No. Trend-following doesn’t work.” But it does. Right? And the reason it works is because sometimes, when oil’s going up, it’ll go up a lot more than people expect. Sometimes when it’s going down, it’ll go down a lot more than people expect.
And so what these guys do is build models that analyzes a lot of recent price data, across commodities, rates, currencies, and equities. So, they’re all over the place. And what the models are basically trying to do is look at each of these individual markets and say, you know, are the market signals saying it’s gonna keep going up or keep going down? And if we think it’s gonna keep going up, we’re gonna basically buy futures contracts on it, and then if it’s going down, we’re gonna sell futures contracts on it. But the output of what they do… Right, so, the space overall was up about 20% last year, right. Incredible. Right?
And it was up in the high single digits in 2021, right? So, there is almost no other strategy that nailed the inflation trade as much as managed futures. And so, but in concrete terms, what happens? How did they generate a decade of alpha in two years? And the answer is that, as we know, human beings were really, really late to the inflation trade, right? It started in January of 2021, when Stan Druckenmiller, I mentioned this before, this macro investor, says, “Hey, I think inflation’s coming back.” And I wrote a note on it, basically saying, boy, if inflation’s coming back, that’s gonna be great for this strategy, because if rates go up a lot, guess who’s gonna be shorting treasuries and making money on the way up? If the Dollar gets strong, guess who’s gonna be shorting the Yen or shorting the Euro?
Andy: And this trend kind of continues beyond what logical humans are expecting. Is that kind of the idea?
Andrew: Well, it’s on both ends. When people are slow to react, so there’s plenty of time for, where you start to see, not everybody, but a lot of people are slow to react, and then people pile in once the trade gets going. Now, that doesn’t always happen. Right, in the 2010s, you know, things would start moving, and then the Fed would say something or Trump would tweet something, and the markets would reverse, and these guys were getting whipsawed back and forth a lot. But in a period like this, where things go, and the Yen goes from 115 to 151, that’s an impossibly big move in FX land. You know, the two-year treasury, in the beginning of this year, people thought the two-year treasury might hit 50 basis points, and it goes to 4.5. But what happens is, the reason the alpha is there, at these particular times, is because, going back to this point about constraints, when I wrote that paper, I talked to RIAs about it, and every single RIA that I talked to was not taking any action. And why?
Andy: Because what am I supposed to do with my 60-40?
Andrew: Exactly. And everyone had huge low-rate bets. Right. So, you own the S&P 500. You’re filled with FAANG stocks, whose valuations are dependent upon low rates. You’ve got, you know, AA-credit portfolio, that’s earning 1.5% with an 8 or 10-year maturity. And the playbook that people had for it was an old playbook. They said, well, we’ll buy gold if we’re gonna do anything. Or we’ll buy TIPS. Right? Gold was down. TIPS is down, was around 12% or 13% last year.
So, what happened was, so, there are a lot of really, really smart guys who, even if they wanted to change camps, because imagine that advisor who calls his clients and said, “I just read this interview that this guy, you know, this great macro investor’s in, and he says inflation’s coming back. We’re selling everything and flipping our portfolio.” Right? What if you’re wrong? Right? We’ve all seen false positives.
So, it’s that tension, where we’re trying to be rational and think about what the right bets are and the right trades are. But, you know, we’ve communicated to our clients, to the world, kind of a particular view of the world. And so what that does is it creates a lot of hope. It created the transitory arguments, the hope that it’s not gonna get as bad as we would like. That we all grew up in the 2010s, where you did have these false positives and they never happened.
So, in those periods, these trends kind of kick in. And so, the strategy as a whole is really, really interesting in that it brings diversification because it acts the way we don’t act, right? I was trained by one of the great disciples of Benjamin Graham, right? Something goes down, every fiber in my body thinks is it the right time to buy? You know, I also know, I don’t wanna be the guy if something doubles, I’m never gonna be the guy who steps in and buys it, even if it then doubles further from there. So, a lot of humans are kind of wired to assume that the world is gonna revert to some sort of a mean. That the price that we got to… Even Cathy Wood, right. I mean, you can see kind of, like, all these heuristic biases. She says, well, you know, it used to trade at 1,000, and it’s trading at 100 now, so it’s not even… And when it was trading at 1,000, I thought it was worth 3,000, so it’s still worth 3,000. Like, that’s not the way the world works. But it’s the way 99% or 90% of the people who invest and manage portfolios, they’re wired. They can’t change quickly. They’re gonna spend a long time defending it. And then what…
Andy: And by the way, even if I might, that is the way I’m wired, and that’s the way I want to invest, you can almost say, well, 80%, 90% of my portfolio is gonna be long-only, and looking for value, with that sort of wiring. But you can still include that slice to a different strategy, right? To hedge against the year that that doesn’t work, like 2022.
Andrew: Right. And look, diversification means different things for everybody, right? I mean, some people think it means, you know, no correlation, never moves, whatever. Look, cash has zero correlation to equities. Nobody considers it to be a, you know, like, oh it’s generating alpha relative to equities. But, you know, if you’d had a 10% allocation to managed futures last year, you would’ve saved 500 basis points on your drawdown. Okay.
So, what I’ve realized in talking to advisors, look, I’ve been super lucky since we launched this ETF three-and-a-half years ago, in that a lot of advisors have been really patient, taking a lot of time with me, to let me learn about their businesses, and how they look at it. I mean, I’ll be 15 minutes left in a call, and I’ll be like, guys, tell me what do you think about this? How does it fit in your business? Does it not? And, you know, what I realized was that if you have something last year, they call it a beacon of green in a sea of red. We have a chart that shows managed futures up 20% last year. Everything was down, with the exception of commodities.
So, you know, yes, you went into value stocks. They were still down 8%. You stayed in growth stocks, they were down 29%. You had REITs in your portfolio, they were down 25% or 27% or something. This is what happened in 2008. A lot of things that people thought were diversified was all of a sudden go down. It happens to be the moment in time when managed futures tend do the best.
So, it’s this basic idea that there’s an economic value to diversification. But for advisors, and this is what I’m trying to write about, there’s also value for them in the context of their business. So, when you stop at that, right, every advisor will say, “Oh, I’m either gonna have 5%, 10% or 20% of my portfolio in this thing.” The problem is, 10% of the people who’ve invested in this space are happy. Okay? So, the great paradox of managed futures is this thing on paper, that has all this diversification bang for the buck, and really unhappy customers. And so, you know, our whole business, at least in the managed futures space, is trying to solve that. We’ve tried to create the product that actually lines up with advisors’ want and need, when they decide that they want the space, because our argument is almost nothing else out there does. I’m not being [crosstalk 00:17:05]
Andy: It’s interesting you mentioned that with managed futures and with this product, because, in the non-traded REIT world, and in some of these other spaces of alternative investments, there’s a modern iteration of a particular product type that might be leveraging technology or new innovation, and that is very different from a similar product or strategy from 20 years ago. But there’s this memory, you know, especially… And who can blame them, right? Who can blame an investor or an advisor who’s been burned by non-traded REITs, you know, of 25 years ago, or of a managed future strategy, you know, or product of, you know, 10, 15, 20 years ago, for having that question, you know, for the modern iteration of that product? But it sounds to me like the hedge fund replication strategy in how you’ve built this particular ETF, it is a new way to allocate to the space, that potentially doesn’t have some of those drawbacks from investors who may have been burned previously in the space.
Andrew: Absolutely. And part of it is, look, I was a history major by background, right? And my great grandfather was great friends with this philosopher named George Santayana, who famously said, “Those who forget history are doomed to repeat it.” You know, going back to your point, there is an institutional memory, and you’ve gotta understand why and what happened, right? So, the managed futures space had a very, very sketchy reputation for a long time, because, in the ’80s and ’90s, and even into the early 2000s, there were products with 1,000-basis-point expense ratios. And some of the products would go up or down 20% or 30% a month. There were guys selling it to wealth management clients whose careers were made on the back of the commissions they were making on these products. And, even in 2013, Bloomberg wrote an article about this. And even then, there were funds that had 800, 900-basis-point expense ratios. And the title of the Bloomberg article was something like “How Clients Give Up 89% of Their Gains in Futures Funds,” or something.
The modern issue is more of the fact that the big development on the wealth management side, I think it’s an enormously positive development, is the growth of model portfolios, right? And 15 years ago, I think there was much more of a mentality of, I’m gonna stare at the little equity piece and see how that’s doing, and I’m gonna stare at this, and, like, kind of stare at each of the components. I think people have gotten much better at saying, “If we wanna take our clients and have them retire happy in 10 or 20 years, we’ve gotta have an integrated approach, with all these different asset classes working in tandem, so let’s focus on the overall pie.” This goes back to what I was saying though about, when you build the asset allocation model and you want to fill a pie, you don’t fill emerging markets with Alibaba and hope it works, right? You don’t fill it with a single stock, or, going back to your point about, you know, you don’t say, “Well, I don’t need a private REIT. I’m just gonna go lend money to, you know, some local guy in a private…”
Andy: You’re giving up your free lunch, right? You’re giving up the only free lunch.
Andrew: You need diversification. Right? And so what happened in… And, thing you have to remember about managed futures funds is they weren’t built for the retail or wealth management world. They were built for pension plans, and high-net-worth investors. But in particular, pension plans will never put all of their money with a single fund. Like, from a diversification perspective, it’s crazy to do that, because all you need to do is look at 20 years of data in this. And we have these great charts that basically show, okay, these are all the stars at this point in time, and then over the next five years, they’re all over the place. Some guy, like, can’t do wrong for two years, and then he craps out.
And so, what happened was they took that model and they brought it to the retail world. So, in the mutual fund space, you’ve got great mutual funds, that are run by Man AHL, AlphaSimplex, PIMCO, AQR, and these are huge institutional-quality firms. The problem is, you as an advisor should own all four of them. Because if you don’t, what you end up doing is, and AQR is kind of the poster child for this, because AQR… People, back in the early 2000s, AQR came out with a great product in 2010 or 2011. They basically said, “We’re bringing our best institutional-quality thinking on managed futures, we’re gonna put into a mutual fund with 120-basis-point expense ratio.” It was a huge step in the right direction.
Allocators got it wrong. And they said, “I love this space. Look at how well it did in 2008.” It did really well in, I think it was 2013, 2014. And they said, “I’m just gonna give it to AQR.” And so AQR’s mutual fund ballooned to $14 billion. Fourteen billion. Today, the largest mutual fund is still only $4 billion. That was, like, so far out…it was 40% or 50%, maybe 60%, of the overall managed futures mutual fund space. And so people just said, “I want managed features. Nobody’s smarter than AQR. I’m just gonna give them all my money in this space.” And then over the next five years, AQR went down by 20%. And so, what happened was, what do you do as an advisor? You know, it starts to underperform. Every quarter, you’re sitting there. Here’s my pick, here’s the index. And you’re constantly under the index for three or four years. The way to get out is you throw out the whole space. Some guys said, “I’m gonna get out of AQR, but I’m gonna move into this fund that’s been doing better.” And then often, that fund would then go through a tough period of time.
Andy: But most RIAs are saying, “I’m gonna take this 5% allocation and we’re gonna round it down to zero, and maybe allocate that to…”
Andrew: And you blame it on the space. “The space is broken.” And so, what happened is they lost 90% of the assets in that fund. And even as the industry was recovering in 2021, they were still losing assets at AQR, but it was starting to go into the other guys. And so, when advisor looks at the managed futures mutual funds space, it looks easy, because you’ve got five funds, four or five funds, multi, you know, billion-dollar-plus or multi-billion-dollar funds, that all look great, relatively speaking. Or four of the five look great, right?
The problem is, you’re looking at the survivors. There are 8 or 10 other guys, by perfectly credible funds, who, people just gave up and shut down the funds. So, instead, so, when people give money to one of these funds, they’re taking far too much single-manager risk. I’ve never seen a guy with a 5% allocation to the space have five funds in it. It’s too weird for them, when you’ve got a single allocation for U.S. large cap stocks, a single allocation for emerging markets. You know, you have, like, 15 line items, and then one of them has five different funds in it. So, this is where replication is ideal, because we can take those five great guys, 15 other great guys, that are all part of kind of the upper tier of the hedge fund industry, and we have our own risk models. We don’t do what they do. They try to figure out whether gold is going up or down, or crude oil is going up or down. Instead, our risk models try to figure out, do they think gold is going up or down, and by how much? And so, if it says they’re short 8% gold because they think it’s going down, if our model says that, then we just simply short a gold futures contract. And so, what you do in a sense is you get…
Andy: I’m sorry to interrupt. So, this is not indexed. It’s…is this an actively-managed fund that is sort of mimicking an index? Or?
Andrew: Yes. We’re technically an actively-managed ETF, because there is no investible way of investing in…there is no index in the managed futures space. And so, it’s an approximation. And the approximation has three benefits. So, you get about an 85% correlation over time to the index. So it’s not perfect, but it’s really close. The second is that it’s really efficient. So, using a relatively simple portfolio of futures contracts, we do about 100% of what they get from, on a pre-fee basis. So, if they make 10 before fees, and clients make 5, and we get 10 before fees, but charge 1, we tend to outperform by a lot, over time. Four hundred basis points a year. Like, those kinds of [crosstalk 00:26:02]
Andy: Now, are you kind of piggybacking off of their research ?
Andrew: Absolutely. Absolutely. I mean, imitation is the greatest form of flattery. And the third benefit is we can put it into an ETF, right? Because…
Andrew: Well, because we only trade 10 really big, really obvious futures contracts. Things like the Dollar versus the Yen, the 10-year Treasury, the S&P 500.
Andy: And then, like the hedge fund, like the long/short hedge funds, these are the big moves that are responsible for most of the alpha, most of the…
Andrew: Exactly. Exactly. So, you know, the fund was up a lot last year. I mean, people can look at it, but basically, it made money, and we were long crude oil at the right time. We were short treasuries throughout pretty much all the year, as rates were going up, and we were long the Dollar versus things like the Yen and the Euro at the right time. And you don’t need, you know, whether these big hedge fund luminaries were long or short lumber futures contracts, it doesn’t matter, in their, you know, in their overall P&L.
But the other thing is, the reason we focus on the ETF space is none of these guys will go, I don’t think will ever go into the ETF space, because they’re really big, and you can see our positions every single day. You can pull it up off of the website. So, you know, it’s a reason why Bill Ackman isn’t going to launch an ETF. He doesn’t want the world to know that he’s selling one of his stocks because, you know, there are thousands of traders out there who would take that information and find ways to use it. And if a $10 billion or a $15 billion managed futures hedge fund turns out has a big cocoa futures contract, or, you know, looks like people can infer that they own a lot of the cocoa market, guess who’s gonna get squeezed out of a position?
And so, we focus on the ETF world because it’s really a greenfield opportunity. We’ve had a handful of competitors, going back to, I think, you know, we’ve been doing this a long time, but they’re traditional asset management firms, whose products have never really gained traction, because they’re not really managed futures funds. When you’re talking about where are those diversification benefits that I’ve talked about, where those diversification benefits reside, it hasn’t been in the current suite of ETF products.
Andy: Got it. Wow. Really unique product. And again, that ticker, the managed future strategy ETF is DBMF. I’m going to make sure to link to that ticker in our show notes. Andrew, this has been just super educational for me. I mean, you know, part one of our interview, talking about hedge funds, hedge fund replication strategies, and now on this episode, talking about managed futures. I mean, you know, we’ve already covered managed futures a little bit in this show and I knew a little bit about them, but just a whole lot of nuance in your understanding, and, you know, which is good, obviously, as being that you, you know, are a sponsor, an issuer of this ETF, but just really appreciative of how open you are and, you know, sharing your knowledge with us.
And that being said, you’ve referenced that you’re writing a white paper, and I know the ETFs are also listed online. So, where can our viewers and listeners go so they can, you know, get your new research, as well as to learn more about the ETFs that we’ve discussed today?
Andrew: Sure. So, first of all, I’m on LinkedIn, so please reach out to me on LinkedIn. It’s Andrew Beer. It’ll be pretty obvious. I’m also on Twitter, but less so. It’s @andrewdbeer1 on Twitter, where I comment on things pretty frequently. You know, our website is www.dynamicbeta.com. The whole thing is being redone right now, so I hope that in a couple of months we’ll have something that looks really terrific.
But I think the big thing is gonna be, is the white paper that I’m writing, and some of the collateral material that follows the Barron’s editorial is, you know, I mean, I would just reiterate this. I’ve been really, really lucky in that, you know, I realized that we came to the managed futures space not as guys, we weren’t quants who were saying, like, “How can we build a cool product that we can sell?” It was, “How do we solve a problem?” And the problem was, I want those crazily valuable diversification benefits that I’ve described, but we identified some really, really big problems between getting from here and there.
And fortunately, you know, it happened to line up with how we view the world, which I think in this case, for a lot of allocators, copying the big trades is a much safer long-term bet in a low-cost ETF than trying to figure out who’s gonna be the next star tomorrow. But what has to turn it is, back to your point about this institutional memory about bad experiences, and creating a language around it that’s less intimidating. Because I talk to the guys who run these funds, and I don’t understand what they do. I’ve been in the hedge fund industry for a very long time, and I’ve done a lot of different things in the space. There’s a disconnect between this insider language and most of the guys who are thinking about making the asset allocation decisions. And I’ve gotta bring more people into the tent, by asking the questions that they would ask, or ask questions that I’ve already asked, and then try to find a way to articulate it in a way so they get comfortable, and understand how they can add this and why, and how to talk to clients about it, and where it fits in their portfolio, and how to explain it in different regime situations, and all those different things are just a critical component that I think the industry has largely been missing.
Andy: Absolutely. And I think, you know, again, your op-ed was very good. I’m gonna link to that. And hopefully, we’ve reached a few wealth managers and some RIAs and family offices with this episode. Really exciting product. I mean, I started in the ETF world close to 15 years ago, so, just to see how things have played out in the innovation that’s still going on is so inspiring. So, Andrew, thanks again for coming on the show today.
Andrew: Andy, thank you so much. It was really a pleasure to be here. I appreciate it.