S3E23 Bob Elliott Earn the returns of a hedge fund without the red tape

S3E23 – Bob Elliott – Earn the returns of a hedge fund without the red tape
Bob Elliott – Earn the returns of a hedge fund without the red tape. My next guest comes from an unorthodox background with an interesting transition. He’s a botanist, which is an expert in plant science and biology but early on in his career, he got into finance. This emphasizes the fact that you most certainly don’t need a degree in finance to be good at investing. He has nearly 20 years of experience in finance including 13 years at Bridgewater, the largest hedge fund in the world where he served as Head of Ray Dalio’s Research Team. Thereafter he went into venture capital and then he started his own ETF which is designed to match the returns of hedge funds. In this episode, we talk about the pros and cons of hedge funds, what kind of assets are within the ETF, the returns an investor can expect, and how retail investors can buy this product. Please welcome Bob Elliott.

Payback Time Podcast

Payback Time is a podcast for investors. The goal of this podcast is to help make investing approachable and easy to understand. We will interview beginner and experienced investors and ask them to share stories on how they got started, what challenges they faced, what mistakes they made, and what strategy works for them today. The overall objective is to provide you with a roadmap that helps you become a better investor.

Key Timecodes

  • (01:08) – Show intro and background history
  • (04:15) – Deeper into her background and career path
  • (06:22) – You don’t need a degree to be successful in a finance market
  • (07:42) – His transition and philosophy as a VC investor
  • (12:20) – Understanding his business model today
  • (15:01) – Deeper into his business model and strategies
  • (18:52) – Deeper into his ETF business strategy
  • (18:32) – How many partners and employees did he have
  • (24:33) – Who does he sell his products to?
  • (28:57) – Deeper into his numbers and returns
  • (30:06) – How his fund performed in 2021
  • (33:45) – His strategy to build bundles of ETFs
  • (35:30) – One key takeaway from the guest
  • (41:28) – What is the worst advice he ever received
  • (42:43) – What is the best advice he ever received
  • (45:09) – Guest contacts

Transcription

[00:00:03.820] – Intro
Hey, this is Sean Tepper, the host of Payback Time, an approachable and transparent podcast on business investing in finance. I like to bring our guests to hear authentic stories while giving you actionable takeaways you can use today. Let’s go. My next guest comes from an unorthodox background with an interesting transition. He’s a botanist, which is an expert in plant science and biology. But early on in his career, he got into finance. This emphasizes the fact that you most certainly don’t need a degree in finance to be good at investing. He has nearly 20 years of experience in finance, including 13 years at Bridgewater, the largest hedge fund in the world, where he served as head of Ray D’Ali o’s research team. Thereafter, he went into venture capital and then started his own ETF, which is designed to match the returns of hedge funds. In this episode, we talk about the pros and cons of hedge funds, what assets are within the ETF, the returns an investor can expect, and how retail investors can buy this product. Please welcome Bob Elliott. Bob, welcome to the show.
[00:01:10.650] – Bob
Thanks so much for having me.
[00:01:11.850] – Sean
Good to have you here. So why don’t you kick us off and tell us about your background?
[00:01:15.480] – Bob
Yeah, I’ve been a systematic investor for something like 20 years. For a long time, I spent much of my career at Bridgewater Associates, which for those of you who don’t know, is the world’s largest hedge fund. I joined Bridgewater when it was a small challenge r organization. One of the first really on the cutting edge of using systematic understanding to trade macro markets. Macro had been very much the realm of the savant like Soros speculating on currencies. Bridgewater’s real edge was building a systematic approach. Systematic meaning a data driven approach to investing on an everyday basis. Then I was there at Bridgewater from it going from a challenger to being the incumbent in the largest hedge fund in the world, where I did a whole bunch of different things, including building many of the strategies in the flagship fund. I worked with Ray Dalio running his investment research team for almost a decade and really was part of that small handful of investors that built Bridgewater to be what it was. I left in 2018. I wanted to get back to something more entrepreneurial and did a couple of different things, including running $125 million venture fund, which used systematic approaches to identify interesting opportunities in the venture space.
[00:02:36.280] – Bob
So systematic investing in the venture space and all that really culminated for me in terms of my later years in Bridgewater as well as my time in the venture capital space was really recognizing that those sorts of businesses are really good for the managers and not that great for the investors. And so starting a little while ago, I had the idea about whether I could figure out a way to bring diversified, low cost indexing, which obviously I’m sure many of your listeners are familiar with from investing in stocks and bonds, bring those concepts to the world of more sophisticated asset managers. Hedge funds, private equity, venture capital, and try and figure out a way to give access to those sorts of returns to the everyday investor, which right now, many of which are locked out of because you need to have certain assets or certain sophistication in order to gain access. T hat’s why I found it unlimited, which the basic idea was bring diversified, low cost, index investing to the world, what we call the world of two and 20, which is that world that typically charges 2 % management, being a 20 percent performance fee and a 20 % performance fee.
[00:03:46.060] – Bob
That’s typically only for the most sophisticated investors. And we wanted to make that available to everyone. So I started Unlimited a little over a year ago. It’s been an exciting ride. We launched our first ETF, the HFND ETF, like hedge fund, HFND, a little less than six months ago. And it was the number one ETF launch of independent, actively managed ETF launch of 2022. And now we’re continuing that momentum to look to launch other products there out.
[00:04:15.650] – Sean
Nice. I love your back story. I want to go back in time a little bit to the beginning. I’ve been told that getting into Bridgewater is not easy. And you got in at the beginning. How many employees at the time?
[00:04:31.660] – Bob
About 100 employees. Wow. Okay. And it peaked at almost 2,000. So it was quite early in the process, for sure.
[00:04:42.390] – Sean
Got it. And getting in, was it a matter of just building a relationship, or did you need certain credentials or a certain university degree?
[00:04:50.130] – Bob
Bridgewater was and still to this day really looks for folks who have non traditional finance backgrounds. I know it’s hard to believe, but most of what you learn in school about finance, about economics, and about investing is not very good. It’s the reality and not that useful to actually doing those things in the real world. And so a big part of Bridgewater’s strategy was finding folks who had the inclination, interest, experiences around thinking in systems and thinking in quantifiable fields like doing statistical research and things like that. My background, actually, my background actually academic background is in botany. I’m a botanist by academic profession.
[00:05:35.830] – Sean
No kidding.
[00:05:36.560] – Bob
Yes. And on the surface sounds totally unrelated to hedge funds, other than the obvious hedge pun that should come with that. But in many ways, it’s very similar. A lot of what I did in the botanical spaces was understanding how plant systems evolved and developed. In many ways, I think about the world in the macro economy, which is my core training is the macro economy. I think about it as a very complex system of interrelated connections and dynamics that are evolving through time. I personally found the pure sciences to be a great background in terms of thinking about markets and economies and how they intersect with each other. Many of the other folks at Bridgewater had similar backgrounds, whether it was engineering or other areas of the sciences.
[00:06:22.660] – Sean
I actually did not know that about Bridgewater. That is really cool. I see so motivating for so many listeners out there because there’s people who want to get into finance and their immediate response, they’re giving themselves as well, I don’t have a finance degree, which I find, like you pretty much alluded to, can be a bunch of BS because it’s teaching you things aren’t applicable to the real world. I’m, for example, I originally went to school for architecture. I’ll put it this way, I wasn’t in the top 10 % of architecture school. So I’m like, Screw this, I’m moving on. Went to fine arts, got in a video, and that led to software engineering and finance. So bit of a stretch in your story from your degree to what you’re doing today.
[00:07:04.410] – Bob
Yeah. I think most people, part of the skill in being a great investor is having a unique perspective. And so if you’re just another one of the people who just learned the same finance textbook that everyone else did and just repeats it over and over and over again, you’re not going to be insightful. You’re not going to have a unique perspective on what’s going on. You’re not going to see things other people aren’t seeing. And so I find actually that most of the people that I’ve worked with that have who are real cutting edge in terms of how they think about what’s going on in markets and economies are from totally non traditional finance backgrounds.
[00:07:41.500] – Sean
That’s awesome. So then we go over close to 20 years, you could say, and then you transition to create your.
[00:07:49.350] – Bob
Own V. You say 20 years, it makes me shudder. I’ve been doing this for such a long time.
[00:07:55.390] – Sean
Well, at the beginning, you mentioned 20 years, which is that’s pretty solid experience. But I actually want to drill into the VC fund a little bit because that’s an interesting business model where I find you can’t necessarily, from my experience, use an algorithm because you don’t really have historical data. You don’t have bigger numbers like from a income statement, cash statement, or balance sheet. So it falls on, I’ll give you context here as well. With Tykr, we use the framework called the 4M analysis. The first M is the margin of safety. That encompasses all the math. And Tykr does all that for us automatically, which is great. But then you need to have a little fun and you look at the meaning, moat, and management. And that’s where I found with VC is they played a lot of emphasis in the meaning. What business model are we talking about here? How scalable is it? We’ll be around a while. Then the moat is the competitive advantage. Then the management is like, Hey, does your quarterback have experience winning Super Bowls? That’s the analogy, essentially. So I find that the three M’s on the tail end there, you really got to lean into.
[00:08:56.690] – Sean
But there’s not really… Maybe you have an algorithm, but I find it harder to write an algorithm for things like that.
[00:09:03.730] – Bob
When you think about investing, you have to balance that qualitative perspective, which I think is important as you outline, with the more traditional quantitative measures. And it’s true, in most of venture capital investing, you don’t really have access to enough information to be able to make predictive decisions using systematic approaches. The area I was focused in was early stage consumer products. It is one of the rare areas in terms of early stage companies where there actually is a lot of data because every time you shop at Amazon or Shopify or anytime you go into the grocery store, you’re being tracked is the reality. Every transaction you engage in is being tracked and understood. You can imagine building inferential models using that information because you go to the store and this is a very simple example but you choose the off brand or the no brand milk versus the fair life milk. That’s an instance and every individual who’s making that choice between the no brand milk and the fair life milk is demonstrating preference in terms of what they want to do. P articularly, a lot of these data sets are longitudinal, so we can see every time you use your card, your discount card, you’re being tracked longitudinal.
[00:10:29.230] – Bob
You can actually see where are people making decisions where they were once buying one product and are choosing to shift over another. You’d be surprised at how even relatively simple inferential models from using that data is actually highly indicative. Frankly, in the consumer space, actually quite a bit better than a lot of the qualitative stuff because there’s so often that consumer products… I could think of a coconut milk based yogurt, which I ate and I said, God, this is awful. I would never want to eat this. But the reality is if a million people in America want to eat that product, then it’s one of the most widely successful products that exists in terms of a startup. And so you have to… That’s the beauty of using quantitative decision making is it helps you get over whatever biases you might have because maybe you don’t like something, but someone else or many people like what you’re doing, what they’re doing. And so that can really help identify successful entrepreneurs.
[00:11:28.830] – Sean
Over time. Right on. Okay. How long did you run this VC firm?
[00:11:34.050] – Bob
For a couple of years. I had a period of time after I left Bridgewater that I couldn’t trade in public markets. And so this is what I did. I worked on the private side of the two and 20 industry.
[00:11:44.370] – Sean
Got it. Yes, indeed. And did you just wind down the fund or what happened to it?
[00:11:50.460] – Bob
No, I went and let it for a couple of years. Some friends of mine had started it and they needed some help rebuilding their infrastructure. And so I was happy. It was an exciting, very interesting experience to be on the private side of the two and 20 space. But the truth to be told, I’m a public markets guy by training and also just by interest, I’ve always been drawn to the public markets. And so when the opportunity came to start my own business in the public markets, I took the leap of faith and decided to do that.
[00:12:20.690] – Sean
Makes total sense. I’ve met people who it’s interesting. Once they get into one, let’s say it’s the VC or private equity and the private side, they stick there. And same thing for the public, once they’re dealing with stocks, equities, bonds, stuff like that, they stick there as well. So that’s cool to hear your transition going from the public market to private now back.
[00:12:41.400] – Bob
To public. Exactly.
[00:12:44.280] – Sean
The grass is always greener as they say. Right on. All right, so let’s talk about your business today. Is this your straight up traditional hedge fund?
[00:12:55.440] – Bob
No, we’re doing something a little different than a traditional hedge fund. What we do e are, as I mentioned, we issue and advise the HFMD ETF, which is an ETF that’s available on a wide variety of platforms. You can go check it out and see if it’s right for your portfolio. That HFND ETF, the goal of it is to track the growth of these returns of the hedge fund industry. Hedge fund managers, over time, have typically performed… Their strategies have performed their strategies of much better than index investing. That makes sense. They pour billions of dollars into trying to beat markets and have some of the smartest minds doing it. The trouble with hedge fund managers, they’re very expensive and they’re not really accessible to everyone. So if you add in the fees, it leaves investors not that much better off than where they would be on their own. Our idea, our core thesis at Ill limited was leverage our experience, my experience, 20 years in the hedge fund space as well as the co founder Bruce’s experience, a few decades of experience in the hedge fund space, and together leverage that experience with modern approaches to build a technology that lets us look over the shoulder of what those hedge fund managers are doing, see what they’re doing in close to real time, take that understanding and package it into an ETF form.
[00:14:21.550] – Bob
And that’s what HFND is all about, which is intended to replicate the risk and return profile, the portfolio that is driving aggregate hedge fund industry returns. But because we’re using technology instead of highly paid asset managers, we can offer it at a management fee that’s much lower than what a typical hedge fund was. So at a 95 basis point management fee instead of a typical two and 20, which is like a 400 or 4 % annual fee. So that’s the basic idea is give everyone access to these hedge fund returns, but do it at a much lower cost so that they benefit from the strategy.
[00:15:01.690] – Sean
So you’re just shy of a percentage point to manage the portfolio of your customers?
[00:15:08.790] – Bob
Exactly. To manage the ATI.
[00:15:11.070] – Sean
A hedge fund, you mentioned the two and 20, which is common. Do you have any commission on top of that, or is it just the straight up the thing?
[00:15:18.440] – Bob
That is the beautiful thing about ETFs is that ETFs are a great product for the vast majority of investors. Etfs are actually one of the ideal products because they’re diversified. They’re often or usually diversified portfolios of positions or assets. T hey’re packaged in a way that means you can have access to that diversified portfolio and the underlying securities can move around and change. But you as the investor in that security don’t have to book gains and losses when those underlying assets switch around. What you see is as if you are holding an individual stock. W hat that means is that you pay, assuming you hold it for more than a year, and this isn’t tax advice, but in general, if you hold it for more than a year, you would pay capital gains tax on the security in the same way you would holding a single stock. T hat’s a much more efficient process than many other processes, either trying to manage a multi asset or multi strategy portfolio yourself or hiring a traditional hedge fund, which I don’t know how many of your listeners are invested directly in hedge funds, but typically hedge funds are structured in a way that really advantages the manager and not really the investor.
[00:16:29.330] – Sean
Right, exactly. That’s awesome. So no commission, straight up %, just less than 1 % they pay. I just did a quick Google search. I see unlimited HFND multi strategy return. Is that correct?
[00:16:43.620] – Bob
Yes, HFND you type in HFND, you type in HFND, Danny. Any search engine or any platform, it should pop up for you. Yep. Hfnd like hedge. Right on.
[00:16:54.790] – Sean
And I see it’s trading at about $20 a share. Is that correct?
[00:17:00.500] – Bob
And.
[00:17:01.250] – Sean
You can get it on, I assume it’s available, the US market, maybe if you’re using an interactive brokers. Brokers is a hot topic with our audience because we have so many customers around the globe. So they always come to us and be like, Hey, I’m based in this country. What brokers you recommend? So we send them to a list and we try to send them to brokers that have a pretty solid footprint around the globe. Because if you just get a broker that only trade stocks in, let’s say, Indonesia, you’re going to limit yourself. You want some exposure to especially US equities. So it sounds like this.
[00:17:34.050] – Bob
As an example, on interactive brokers is an easy way to access it. Robinhood, TD Ameritrade, the Schwab platforms, all of the main individual trading platforms it’s available on. So you should definitely check it out. And there’s more information about where exactly you can buy it on the product site, Unlimited ETFs. Com. So you can always look at that if you want to get more information.
[00:17:58.830] – Sean
Let’s take a quick commercial break. Do you feel like stock investing is too confusing, too time consuming, or too risky? It doesn’t have to be. If you ever considered investing on your own but you don’t know where to start, I welcome you to check out Tykr. Tykr guides you through your investment journey by steering you towards safe investments and away from risky investments. There were two main reasons why I created Tykr. Number one, I wanted to remove emotions from investing. In other words, I wanted a software to make buying and selling decisions for me so I don’t have to. And number two, I wanted to save time. Analyzing stocks can take hours, if not days, and I didn’t want to spend all day looking at the computer. I have other hobbies in life I’d rather be enjoying. If you’re interested, you can get started with a free trial. Visit Tykr. Com. That’s TYKR. Com. Again, tickr. Com. You are actually the first person we’ve had on that has an ETF. This is a cool topic because there have been a few people that came to us and said, Hey, would Tykr ever be interested in creating a Tykr ETF?
[00:19:06.720] – Sean
And we’re thinking about, Well, we could create the Tykr. Here’s the tech fund. You know, like Vanguard has all its different products you can buy, whether you’re in the industrials or pharmaceuticals or tech or whatever. So we’re thinking about doing that to create this type of business. Break this down a little bit. What costs are we talking about in timeline?
[00:19:28.020] – Bob
Yeah, the ETF business has come a long way. Ten years ago, it was largely consolidated in a small handful of major names like the Vanguard or the iShares, etc. But what’s happened really in the course of the last 10 years is there’s been a relatively significant shift in the regulatory framework for ETF issuers, which allows what are called ETF entrepreneurs. That’s what I call myself an ETF entrepreneur, to work with white label providers. There’s a small handful of white label providers. There’s a small handful of white label providers. Basically what they do is they run, they set up the legal infrastructure to run the ETF and run all of the… It would be typically like the back office, so the trade execution, custody, accounting, legal structures. And you, as an ETF entrepreneur, can essentially serve as the advisor to that product where you’re telling them which securities to buy or sell or hold at any point in time, and they’re doing all the operational work. It’s actually pretty good from the perspective of running a business because the costs of that are meaningfully less than if you were to set up your own fund where you’d have to hire your own legal and set up your own custodian and all those things.
[00:20:49.770] – Bob
Those get socialized, typically with these white labelers, over dozens of different products, and so you see a much lower cost. It’s also highly variable in terms of the cost. And so if you have a good product and you can gain assets under management, it is a very cost effective way to run an investment business. So it’s interesting because the ETF, I could probably go on and on about this, but this is great. Etfs are the best structure for many investors, given the fact that you can have a multi asset portfolio in a wrapper where you only see essentially a single asset and have the tax loopholes associated with it. But it’s also a great way to run a business, which because all in costs of running an ETF in terms of the operational expenses are, let’s say, 10, 12, 14 basis points. So if you have a good idea and you have a management fee that’s meaningfully above that, which for actively managed funds, that’s a totally plausible to have fee structures that are above that, you could run a pretty good business in a very scalable way.
[00:21:54.750] – Sean
I love where you went there because that’s what I wanted to dive into is you’re using a white label as another provider and they’re taking you said, did you say 10 to 14.
[00:22:03.280] – Bob
Basis points? Depends. There’s always nuances of this, but in that order of magnitude.
[00:22:07.730] – Sean
Got it. And you’re at 95 basis points. So your margins there are pretty significant.
[00:22:13.820] – Bob
That’s right. Now, of course, for an ETF, we’re primarily benchmarking ourselves against two and 20 products which are charging 4 % or actively managed mutual fund products, which are often on average charging 2 %, let’s say. Our 1 % is really benchmarked against that. For other ETF products that may be are less sophisticated, you might be charging a fee structure of 40 basis points or 50 basis points. But that still leaves you a lot of room to be able to run those businesses profitably if you can get the assets under management to scale. I think it’s a very exciting world and there’s a lot of resources. The thing that I would say is in the ETF space, I don’t know to the extent you or your listeners are interested in doing this, there’s a lot of great folks in the ETF space. It’s a great community where people help each other out, get things launched and to market. And so if you’re interested in it, there’s lots of great folks who would be more than happy to help you along the way in the ETF space.
[00:23:13.160] – Sean
No, that’s really good to know. And can you give us an idea, with a third party provider, can you name who you’re with? Is it like diversifying?
[00:23:20.390] – Bob
We use T itle. T itle is one of the leading or one of the leading, but it’s certainly one of the key names in the white label space. There’s actually a great Trillions podcast. If people really want to go down the rabbit hole on this. The trillions is a podcast from Bloomberg focused on the ETF industry from a few months ago where they did a specific podcast with a handful of the major white label providers. So if you wanted to go down that rabbit hole, there’s a great podcast there for you that you can check out and learn more about ETFs in general on trillions.
[00:23:53.340] – Sean
Got it. And I’m looking here on your website, your team, you’ve got a co founder, Bruce Mc Nevin, then we get a founding team member, looks like Kayla Yung. Matt Selzberg is a co founder, Andy Selman. So are all these guys active? Are you guys all full time in this? Yeah, we.
[00:24:11.470] – Bob
Have three full time employees. Bruce, who is one of my co founder, who’s one of the co founder, runs and developed the core investment decision making process that we use to run the HF&E ETF. And then, our and then, Kellok is the head of our sales and distribution. So working with our clients and prospects to see whether the HF&E ETF is right for them.
[00:24:32.580] – Sean
Got it. Because this is very much a volume business model. If you’re selling the ones and twosies off to John and Jane Doe out there, that’s not where you’re making your money. So I assume are you working through, are you offering this to financial institutions as a product they can sell to their customers?
[00:24:51.960] – Bob
Yeah. P rimarily who we work with are independent financial advisors. T here are trillions of dollars of assets run by independent financial advisors, folks who have close relationships with families in their community, who aren’t necessarily under umbrella of a big name. W hat they’re looking to do is they’re looking to bring sophisticated strategies to their clientele. I think the thing that I’ve learned through this process is a lot of them often run into challenges. They want to bring alternative investments or more sophisticated strategies to their clients. But when they look at what they can access. So for instance, any hedge fund that would take a small client’s money is probably not one you necessarily want to invest in because you want to have access to the best ones. Or if you do directly invest in hedge funds, they’re often very expensive and concentrated to one manager, and they’re in the facts and efficient structures. The thing that a lot of our advisor partners often mention is there’s a lot of paperwork, which in the day to day, you might not recognize that’s a big deal, but that ease of going on interactive brokers and typing in a Tykr and buying it seems so simple for many of us.
[00:26:02.150] – Bob
But if you’re trying to invest in a hedge fund, you have to fill out literally hundreds of pages of paperwork just to be able for them to take your money. And those are all challenges that these independent advisors have at bringing their clients the sophisticated strategies. And so they really see, we designed HFND to really hit on a bunch of those core aspects and challenges that those advisors are facing. So instead of being concentrated, it’s diversified. Instead of being expensive, it’s meaningfully lower cost. Instead of being tax inefficient, it’s tax efficient. And instead of involving a lot of paperwork, you can buy it on any platform without having to fill out independent paperwork for the product.
[00:26:42.100] – Sean
Right. The friction there is pretty much slim to none for the customer. They can go ahead, for example, I use TD Ameritrate, I can go on, buy it off and running. I’m going to pay the expense ratio, which is just shy of a %. And within that, that’s me working direct. Now, if I work through an advisor, they wouldn’t take a percentage of your fee. They have their own fee, correct?
[00:27:06.890] – Bob
Right. Again, why ETFs are better for the consumer. If you invest in mutual fund products embedded in that process is meaningful kickbacks to the advisor. So you are paying not only for the manager to manage the money, which is typically quite high fee, but you’re also paying a share of the of that to your advisor, whether they tell you or not, which is unfortunate versus an ETF, there are no hidden costs. T hat’s part of the reason why ETFs show lower expenses than mutual funds because in an ETF, the way it works is that you buy it and just like you would buy a stock or anything else on the New York Stock Exchange, our ETF is listed on the New York Stock Exchange, and then you pay that annual management fee for the product and that’s it. There’s nothing more complicated to that. And typically what advisors are in general, definitely advisors that are… Many client first advisors are moving towards ETF portfolios because they know that it’s the best structure for their clients. And what they’ll do in addition is they’ll charge a modest fee for the overall management of the assets that they’re managing.
[00:28:24.080] – Bob
And of course, for many advisors, that fee includes many other things that have nothing to do with the specific asset management. T hey may be providing advice on.
[00:28:32.080] – Sean
College.
[00:28:32.890] – Bob
Education or estate planning or things like that, which are critical things for any person to make sure that they’re getting right. R eally, they’re providing a wide variety, typically, of services in addition to asset management. And so when they use the ETFs, they use those because they’re the best products for that particular goal, which is managing folks’ money on a day to day basis.
[00:28:57.190] – Sean
I’m drill into the numbers here. So I’ve got a few friends that they’re Tykr customers and their fund to just bounce ideas off of different stocks out there and whatnot. But they charge, on average, you could say, maybe 1 %. And with your product, in other words, it would be the 0.95 % plus the 1 %, so the consumer, the cost of consumer would be close to 2 %. Is that correct, math? Yeah, I mean.
[00:29:21.990] – Bob
If you’re working with an advisor, that’s right. Yeah. Got it. Okay.
[00:29:25.430] – Sean
Yeah, that makes sense. All right. This is really helpful on ETFs. What I’d like to do next is give the audience a perspective of what returns you’re generating with your product. We know that we’re pretty much in a bear market recession, depending on how you look at it. The market is still very much down. We’re working our way out of this. Because you founded your fund, what was it, 2021? ’22.
[00:29:51.050] – Bob
’22.
[00:29:52.360] – Sean
Right at the bottom. That’s why I.
[00:29:54.680] – Bob
Say we were the most successful in the active ETF launch of ’22, it was a hard time to launch anything.
[00:30:04.000] – Sean
The bottom. Yes. If you’re creating a fund created at the bottom, because there’s no other way but up. So how did you perform in 2022? Yeah, we.
[00:30:15.600] – Bob
Started in October, so we didn’t have the full period of time for 2022 in terms of our live performance for the course of the year. From October through the end of the year, we were up modestly for in those three months. And since inception through the end of March, which we’re recording just a little bit after the end of March, the product is up two and a half %. That’s pretty good.
[00:30:41.070] – Sean
You’re in the positive because I’m actually going to S&P 500 as we speak in 2022 was down 19 %, up about 7 % for the year. But that’s encouraging. You got a product that’s generating a positive return. With our audience, we inform our audience that we’re all about individual stocks. That’s what Tykr really focuses on. That’s that wealth building strategy. But if you’re in a point in your life where you’re in a transition from building wealth to really protecting it, like everybody that I’ve had on that’s a financial advisor is all about wealth protection. So let’s say you’re retired or close to retired, or maybe you had a big liquidity event like you sold a home or a business, how do we protect it? You’re not going to see those massive returns getting in individual stocks, but you’re also not going to see those massive losses. Unrealistic. Right. And then I.
[00:31:28.400] – Bob
Think for many folks, there is a real benefit to building a diversified portfolio that is generating a good return relative to your risk. I think about, for instance, what’s appropriate for my parents. They are retired and what they need is not to try and put at risk a significant amount of capital in order to generate high returns. What they ideally would do is generate modest returns with modest risk and over time be able to pay their day to day expenses. And so that’s the core. It’s interesting. If you think about the origin of what assets hedge funds manage, while many individual names that are extreme positives or extreme negatives might get a lot of attention, the reality is that the median hedge fund is focused on generating a moderate return with a good risk return profile, essentially better than index investing. And so if you look through time as an example, hedge fund managers, before you include the fees, generated returns that were on par with stocks or a touch better than that over time. But they did so with about half of the monthly volatility and about a third of the drawbacks. And so that gives you a sense.
[00:32:43.410] – Bob
It’s a portfolio that’s not going to generate outside, it’s not expected to generate extreme returns nor extreme returns to the downside. But it’s intended to be a complement to a diversified portfolio that provides a consistent or intended to provide a consistent return stream all the time.
[00:33:02.630] – Sean
Let’s take a quick commercial break. Hey, this is Sean. I’d like to say thank you for taking the time to listen to this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for taking the time to listen to this one. I have a quick request. If you have a moment, could you please head over to Apple Podcasts and leave a five star review? The reason is the more ratings we get and the higher those ratings are, the more Apple will share us with the world. So thanks in advance for doing that. And then I have a quick comment. If there are any questions you want me to ask the guests, please head over to our Tykr Facebook group. You could drop a question right there. I’ll go ahead and make a note and I’ll do my best to ask that question on the podcast. All right, back to the show. I’m looking at Seeking Alpha here, which, and this is cool. We’ll be adding ETFs to Tykr shortly in the next few weeks. Perfect. Yeah. So we should see you in there. We’ll rate, we’ll analyze your holdings within.
[00:33:59.420] – Sean
Now, I’m actually looking at your holdings. It doesn’t look like individual stocks. It’s other ETFs funneled together. Yes.
[00:34:08.280] – Bob
And so the reason why we do that is that what we’re doing is HF&D trades the biggest 60 liquid markets and stock sectors in the world. The major currency, credit, commodity, fixed income, equity markets, stock sectors, and different global indices. And so it’s really trading a whole mix of those different assets. Our universal plausible exposure at any point in time is 60 different exposures. And so you can think about that, that’s very similar to what a typical multi strategy fund would be holding in terms of their net exposures. And the reason why we trade stock sectors as an example, rather than individual names, is because we believe that that’s where we can discern the wisdom of the crowd. And so any one manager might be overweight a particular stock versus another manager overweight a particular stock. But what we find with our technology is that we have best insight into seeing all of their individual decisions put together into more generalized views on sector. So technology sector or the material sector, things like that.
[00:35:15.200] – Sean
You’re using your Bridgewater experience on the macro space and applying it to you. Yes, exactly. So looking at the whole markets or sectors, as you said, as opposed to individual stocks or micro approach.
[00:35:26.740] – Bob
Exactly. Nice.
[00:35:28.740] – Sean
That’s great. Before we transition to the rapid fire run, what is one key take away you can give the audience today? Well, I.
[00:35:36.410] – Bob
Think from my perspective as an investor through time, the biggest thing that I’ve learned is diversification can really benefit you in terms of building a more consistent return. P art of what starts with that is recognition or humility that it can be very hard to generate returns in markets and generate views. I think anyone who’s been doing this for long enough has taken their fair share of losses. And that is totally normal. The best investors, it’s interesting to believe I come from a macro perspective, the best macro investors are right about 60 % of the time on any given trade in any one month. And that means they’re wrong 40 % of the time. But if you can take that 60 % of the time and you can bet it on a bunch of different markets where you have edge in each one of those different things, you don’t have to bet on 100 markets. But if you can bet on 10 markets instead of one market, you actually get an incredible benefit in terms of improving the consistency of your return stream. And so that I think from my perspective, when I think about how to be a great investor, obviously, the first step is to have edge, which the platform that you’re talking about is a great way to develop that edge to get that unique perspective on which stocks or particular positions look uniquely advantageous to hold.
[00:37:03.660] – Bob
Then the second step is not putting too much on any one particular position because you might be right or you might be wrong or there might be something that you didn’t even think about and that no one was thinking about that comes in and affects the position. So if you can create that diversified portfolio, if you could have 10 positions that are unrelated to each other and you have a 60 % of the time, you can be one of the best investors in the world. So just think about that. So you can get a long way through diversification.
[00:37:33.600] – Sean
You sound like you took a page right out of Principle’s raise book.
[00:37:38.670] – Bob
I like to say there’s very few free lunches in investing, but diversification is one of those… The benefits are pretty well known and pretty reliable over time. So that’s one of the things that you can rely on, or at least I rely on as an investor as part of the core tenets of my decision making process.
[00:37:59.850] – Sean
To the listeners out there, if you haven’t read the book Principles by Ray Dalio, you should check it out. It gives you a really good approach on how that business, that hedge fund is run and how they look at businesses. It’s a cool perspective from Ray and his team. It’s cool to hear the inside scoop from somebody work there.
[00:38:18.140] – Bob
There you go.
[00:38:19.700] – Sean
Right on. Well, this is fun. We’re definitely going to have follow up conversations on what you’re doing with the fund. But what I’d like to do next is transition to the rapid fire round. This is the part of the episode. All right, I’m ready.
[00:38:31.550] – Bob
You’re.
[00:38:31.830] – Sean
Ready to go.
[00:38:32.750] – Bob
Awesome. If you.
[00:38:34.200] – Sean
Can try to answer each question in 15 seconds or less. Here we go.
[00:38:37.760] – Bob
15 seconds or less. Sorry, my timing.
[00:38:39.820] – Sean
You can do this. If you take more than 15, that’s fine. But I always say that because you’ll get that guest on the show that will give 15 minute answers. And it’s like, okay, it’s not… It’s not Joe Rogen. This is not a three hour podcast. All right, first question is, what is your favorite podcast?
[00:38:59.810] – Bob
I love B eb Favors podcast. I think it’s one of the most interesting ones that’s out there across investment. Nice.
[00:39:07.420] – Sean
What is the recent book you read and would recommend?
[00:39:10.660] – Bob
The Allen blinder book, I think, is really good about the history of monetary fiscal policy over the course of the last 50 years. I know it sounds dry on the surface, but I promise you it’s actually quite an excellent read and totally worth picking up.
[00:39:25.560] – Sean
Yes, I actually like… You’re right, it is dry, but it gives you so much perspective because you find that the market, it repeats itself or rimes against previous events.
[00:39:37.410] – Bob
Yes. And certainly, none of us have lived through an inflationary experience. But you pick up that book and you read it about what was happening in the ’70s. And it’s almost eerie how similar certain aspects were. The names have changed, but the dynamics and the pressures remain essentially the same. And so I found it to be really an enlightening read given the current dynamics. I haven’t read.
[00:40:02.660] – Sean
It, but I know I’m probably going to like it because I try to remind your audience, when events like this happen, 2022 was not fun for most people. But if you embrace it and you buy a lot or as much as it can when it’s down, it can be like the buying opportunities of 08 or 2000 to 2002. You had the quick blip ’87, black Monday, and then you go back before that, you had the great global recession between ’80 and 82. It’s like you see the trends and, Okay, this is similar to this in the past. This is what I could do now.
[00:40:37.140] – Bob
Exactly. That perspective is super useful because what you see is it’s folks who have a lot of experience have real edge in new and unique environments. It’s hard to generate that experience. There’s nothing better than real experience. But one of the ways that you can start to improve your experience is by studying history and appreciating the commonality and the way in which people operate the same way over and over and over again is, I think, really helpful in seeing the patterns of what’s happening at any point in time.
[00:41:11.460] – Sean
Totally agree. All right, we got a fun one here. What is your favorite movie?
[00:41:16.780] – Bob
It’s a classic, but I think I’ll probably go with Shawshank Redemption.
[00:41:21.530] – Sean
There we go. One of my favorites. Great film, great screenplay, awesome choice. All right, few business questions here. What is the worst advice you ever received? I think.
[00:41:33.640] – Bob
Probably the worst advice I ever received was that the people around you are… The people in your industry should be seen as competitors and not collaborators. I think it’s been a real transition for me moving from the hedge fund space, which is secretive and Bridgewater is in the woods of Connecticut for a reason, to the ETF space where, frankly, we would not have been anywhere near where we are today were it not from great collaboration from people in the community. I’m talking about even people who ostensibly are competitive to us, us working together, recognizing that there’s a bigger common good in terms of the success of the industry or the areas. That really, I think, that’s been a big lesson I’ve learned over the course of the last couple of years and has been great from running a business, but also from feeling fulfilled in terms of what I’m doing on a day to day basis.
[00:42:28.700] – Sean
100 % agree. We’ve taken a very similar approach. We look at our competitors as, hey, let’s work together. There’s so many customers out there that need help with the stock market. How do we team up and make an impact? Right.
[00:42:42.370] – Bob
All.
[00:42:43.220] – Sean
Right, let’s flip through your question. What is the best advice you ever received? I think.
[00:42:47.310] – Bob
The best advice is probably to look for a spark in the people who you’re working with. It is so easy to feel the pressure and the tension of filling a role or finding a person who can just do. I think what I found over time is that you make for a better team and a better day to day when you find people that inspire you. T hat doesn’t mean necessarily that they look or act or have experiences like you. If anything, that circle can be very complimentary. But you want to find those people who have passion, incredible passion for what they’re doing, because those are people who are going to be great at their jobs but also are going to be fun to hang out with on a day to day basis. I think that’s really focused on building teams over time that have put that as a center point. That really is the center point to developing a great team. That’s great advice.
[00:43:47.360] – Sean
I love it. All right, and last question. Here’s the time machine question. If you could go back in time to give your younger self advice, what age would you visit and what would you say? Well, I.
[00:43:57.750] – Bob
Think the biggest thing that I think I’ve seen over the course of the last couple of years is that diversity of experience, I think, is really valuable. I’d probably go back to, I don’t know, college or something like, sometime like that, and say there’s so much pressure to be on a track and build a path and go down that path in a very direct way. Your life and frankly, your ability to do your jobs more effectively is better if you have range rather than focus only on one particular outcome. I think I would have counseled myself on that. I think I probably would have gotten, hopefully, to starting my own business earlier rather than when I did, although I’ve still got a lot of years left in me. I think that I would have had a lot more, a wider range of experiences than my career has had the first, let’s say, decade of my career. I think that that’s really something to keep in mind, the school system really focuses people on narrowness and the world really incentivizes breadth and flexibility. Totally agree.
[00:45:09.120] – Sean
All right. And where is the best place the audience can reach you? Yeah, for sure.
[00:45:13.860] – Bob
If you’re interested in what we’re doing at Unlimited and the HFND ETF, you can check out UnlimitedFunds. Com. It has a wide variety of information. We publish a regular blog, which you can sign up for on a variety of different asset management topics, as well as a link to our product information. Then if you’re also interested in something that’s a little more day to day, I’m on Twitter @bobb unlimited, very active in the macro space talking about what’s going on, giving advice, trying to contextualize what is a relatively crazy time in asset markets these days, and hopefully helping people. So definitely check me out at @bobby unlimited on that. Awesome.
[00:45:57.330] – Sean
Well, thank you so much for your time, Bob. Appreciate it. Thanks for having me.
[00:46:00.230] – Bob
All right, we’ll.
[00:46:01.000] – Sean
See you. Hey, I’d like to say thank you for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for spending some time with me. Also, if you have a moment, could you please head over to Apple podcast and leave a review? The more reviews we get, the more Apple will share this podcast with the world. So thanks for doing that. And last thing, if you do hear any stocks mentioned on this podcast, please keep in mind this podcast is for entertainment purposes only. Please do not make a buy or sell decision based solely on what you hear. All right, thanks for your time. Talk to you later. See you.