Return Stacking, The Bogle Effect & Flows

First up, with Lydon, he and Geraci look at ETF flows and performance, as mentioned, as well as a broader look at how investors and advisors are reacting to everything. It’s important, as not everything is currently working, with broad stocks and broad bonds down around 10%. There’s a decent amount of concern, which is worth looking into.

Looking at ETF Flows, as far as what advisors are concerned about, sure, it comes down to volatility on the equity side of the market, but for Lydon, it’s really the fixed income side of the market, with all the pressure of inflation and rising interest rates.“Little money has been going into fixed income,” Lydon adds, noting how “areas have been moving out of the traditional 60-40 into alternative areas like commodities.”

It’s worth noting that commodities ETFs have taken in more than fixed income ETFs overall, so far this year. There are also the recent outflows from S&P 500 ETFs. Looking at earnings, the thing to look at is that they have not been disappointed. It more comes down to concerns regarding the global marketplace, global tensions, inflation, the Fed’s possible reaction, and other variables. “The average advisor is seeing more money in motion than in the past ten years,” Lydon notes.

Taking this a few steps further to the bottom line, Geraci points out that everything is still down this year outside of commodities and gold. Noting this return data, Lydon acknowledges that the economy is currently in an inflationary boom, and it’s important for advisors and investors to be figuring out things like portfolio construction as far as what there is to do.

Later in the show, Corey Hoffstein, co-founder and CIO at Newfound Research, speaks with Geraci about the recently released suite of ETF model portfolios in partnership with Simplify ETFs. Hoffstein believes investors and advisors need to rethink portfolio construction because of the changing dynamics in the financial markets. Investors should be considering things like capital efficiency, return stacking, and hedging for sharp tail events. The continued innovation in ETFs allows for products to accomplish these things.

Keeping the theme in line with innovation, it’s worth noting that Hoffstein’s firm is behind the Strategy Shares Newfound/ReSolve Robust Momentum ETF (ROMO). More recently, Hoffstein authored a paper titled Return Stacking: Strategies For Overcoming a Low Return Environment, which ties into the theme here and will be a focus of this conversation.

To clarify, return stacking allows investors to get $1.00 of exposure to an asset for less than $1.00. This allows the investor to earn more return for the same risk or reduce the amount of risk needed to earn the same return. In this conversation, the WisdomTree U.S. Efficient Core Fund (NTSX) is brought up as an example that fits with this model.

Hoffstein goes on to explain why investors should shift their mindset to leverage, which is not always looked at highly in this industry.

Closing out this week’s episode is Bloomberg’s Senior ETF Analyst, Eric Balchunas, whose new book, “The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions,” has dropped the day of this recording. Having read the book, Geraci has plenty of thoughts he wants to get into with Balchunas.

As far as why Balchunas wanted to write this book, he explains that he had hours of interviews with John Bogle, who provided so much information that was both valuable and possibly prophetic in terms of the way he was looking at the economy (Bogle passed away in January 2019). Balchunas also notes Bogle was softening on ETFs as far as what sort of success they were proving to be having.

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