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What's the Alternative? | Episode 1 | The Trend is Your Friend featuring Phil Toews
11 Plays1 year ago
Welcome to Banrion Capital Management’s What’s the Alternative Podcast! Join host Shana Orczyk Sissel, the “Queen of Alternatives” Founder & CEO of Banrion Capital Management, as she interviews leaders in the alternative investment space. Learn more about their firms, their passions and about the many different ways investors can use alternative investments to add value in their investment portfolios.
Our premiere episode "The Trend in Your Friend" features Phil Toews, Founder and CEO of Toews Asset Management discussing his passion for trend following strategies and how advisors can use them to manage risk in client portfolios.
Phil grew up under the strict rules and frugality of the Mennonites in rural Kansas. As he broadened his horizons and eventually landed in New York, he found that he thrived on expanding boundaries and challenging conventional thinking.
In 1994, Phil founded Toews Corporation with a mission to help investors realize their goals while addressing the economic and psychological challenges they face.
Learn more about Toews: Toews Asset Management
Connect with Phil on LinkedIn: Phil Toews
Learn More About Banrion: Banrion Capital Management
Connect with Shana on LinkedIn: Shana Orczyk Sissel
Connect with Shana 𝕏: @shanas621
Important Disclosures:
The opinions expressed on the “What’s the Alternative Podcast” are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security.
It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results.
The guests featured on this program are participants on Banrion Capital Management’s platform. As such Banrion may receive payment for their participation as a platform partner.
Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Banrion Capital Management or its affiliates. This information is intended to provide educational value, highlight issues and should not be considered advice, an endorsement or a recommendation.
All Banrion Capital trademarks mentioned are owned by Banrion Capital Management, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
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Transcript
Introduction to the Podcast
00:00:02
Speaker
Welcome to Bonnie and Capital Management's What's the Alternative podcast. Joining host Sheena Orzic-Sicl, the queen of alternatives and founder, CEO of Bonnie and Capital Management, as she interviews leaders in the alternative investment space. Learn more about their firms, their passions, and about the many different ways investors can use alternative investments to add value in their investment portfolio.
Purpose of the Episode
00:00:33
Speaker
Welcome everyone. This is our inaugural episode of what's the alternative where we help introduce you to the managers on our platform. We want you to get to know the types of investment strategies and the types of people that you will have the opportunity to work with.
00:00:50
Speaker
when you work with Bonner in Capital Management.
Meet Phil Taze
00:00:53
Speaker
And I am very excited to introduce Phil Taze, Felipe, if you are more affectionately known, who is one of our first asset managers that joined the platform. Taze asset management is his baby. And I want to really introduce you to him.
00:01:11
Speaker
to the types of strategies that Taze makes available on our platform and help you understand how they fit into portfolios and how you can use them with clients. So without further ado, welcome Phil. Shana, thank you for making me your inaugural guest. Like what an honor. This is awesome. So, and the fact that we're going to, I'm going to be able to have a conversation with you and pretend it's work is even better. So that's awesome.
00:01:37
Speaker
Awesome. Well, Phil and I go way back. I actually had the opportunity to work directly with him and his team when I worked at Orion. And so I've been very familiar with their strategies for quite some time, but what I don't have a lot of insight in, and I think our listeners would love to learn about, is sort of what brought you into this field? What drove you to start Taze? And what are you, you know, what led to your passion and the way that you invest? Because we'll get into it later.
00:02:07
Speaker
how you invest is really unique.
Phil's Early Career in Finance
00:02:10
Speaker
Yeah, well, so it began organically at a firm that was an investment advisory firm that also worked directly with clients out in the suburbs of Philadelphia on the main line for those of you that know that area. That firm was run by a president and we had primarily, you know,
00:02:30
Speaker
We had primarily retired, pre-retired clients. And we would, this is in the era of the 200 page financial plan. So we're going way back now to the early nineties. But when we would run these 200 page financial plans, what we would consistently see is a couple of things. One, everyone needed to be in equities pretty much because they just, although it was in a fluent area, they didn't have enough money to just park it into fixed income and make it work.
00:02:58
Speaker
But the second thing we realized is that they wouldn't be able to afford going through an extended bear market and that was the thing we were focused on at that financial planning firm. So what we did all the way back in early 1990 was build the first iteration of trend following algorithms that attempt to allow our investors at that firm access to the time the stock market
00:03:21
Speaker
but with a system for attempting to de-risk and so the inception of basically everything that we do as a company began as a way of trying to take these sometimes unwieldy investments including stocks which can move down for extended periods of time and making them more suitable or a product that's more suitable for helping them navigate retirement.
00:03:47
Speaker
I love that because I think a lot of people remember like portfolio insurance in the early eighties and sort of how this kind of developed from that. And this is sort of a better way to kind of address some of the concerns that came from that. But what I really want to do is I think you have a really unique
00:04:05
Speaker
background, like prior to even getting into the industry. And I think that that really helps people get to know like, what makes you awesome? Because it is so unique. So what kind of led you into finance? And can you give us like a little peek into like, little Phil before he got into the business and kind of how unique your your growing up was?
Phil's Background and Influence
00:04:25
Speaker
Well, so we're going back that far. Oh, okay. We're going back to the 90s. Okay, we'll go there. So yeah, I'm originally and now I'm sitting here in New York City in Flatiron at 20th and Broadway. And I came here through osmosis. That's how I arrived in New York City, but I began in Kansas in a small town.
00:04:44
Speaker
In the middle of nowhere town liberal Kansas. I was raised as a Mennonite. So we were very frugal. There was no dancing allowed I think that may have changed when I entered junior high so it was that there was this unique upbringing of frugality and concern about
00:05:03
Speaker
Really, I think integrity and also being very careful with your money. I think maybe that and with the things that you had, maybe that is part of what helped curate that initial asset management program when I finally did get into the business.
00:05:19
Speaker
Yeah, no, I think that's interesting. First off, you live like a real life footloose. But also, you know, I think one of the things that I always find interesting is how people's upbringing and their relationship with money can really drive the way that they invest. And I think that that's especially true with you.
00:05:38
Speaker
which is why I wanted to make sure we highlighted that. Cause I also think that's a really unique thing. You know, most people think money managers or, you know, New Yorkers and grew up in the Northeast and like they've always been exposed to that. But I like you did not grow up that way. And I think that helps people kind of get to know the fact that like, you know, there are people of all shapes and sizes and backgrounds and upbringings that come into this business and have success. And a lot of that,
00:06:06
Speaker
initial way that we were raised does help drive the way that we run our businesses and how we run money so I think that's really unique about you and I want to make sure we highlighted that, you know, as you were talking I realize realizing that like, you know, being in campus and then sort of.
00:06:22
Speaker
having to think a certain way and then wake up to sort of the broader world and I think it gives you more comfort with being a contrarian because you're like everyone's like got this one way of thinking right where I was raised and like once you see that oh there are broader ways and definitely you know when I started this company and even when we built that first asset management program
00:06:43
Speaker
There were not a lot of people that were comfortable leaving conventional portfolio management, anything outside of just a typical pie chart. So it pays sometimes to be contrarian, but that was a very early kind of contrarianism in terms of how to invest the portfolio.
Trend Following Algorithms
00:07:00
Speaker
So let's talk a little bit about kind of what you're talking about about, you know, there's trend following algorithms and, you know, getting into like some of the complexities of what you do. But what I want to focus on is, you know, why you felt it was important to kind of build your firm based on that foundation and why it's important that advisors and investors alike should be looking at these differentiated ways that can be a little scary because they feel a little black box, but they have real benefits and, you know,
00:07:30
Speaker
Talk a little bit about sort of how you've kind of built this foundation and why people should be paying attention to these different ways to invest.
Behavioral Finance in Investment Decisions
00:07:40
Speaker
Well, the initial idea I was saying was built based on this fear that we had at the financial planning practice of going through some kind of, or potentially going through some kind of an extended bear market. And that comes from looking back further than the last 50 years. I think when a lot of advisors come up with how they plan to invest, they only include
00:07:58
Speaker
worst case scenarios that look like the financial crisis or the pandemic, when in fact markets can move down for much longer. And that actually is what really starts to hurt for investors is when duration of declines extends for a number of years, five or longer. That's when people who are taking distributions start to really have a problem. So when we were originally building the formulas for this, what we were trying to do is figure out a way just to look at price reactive algorithms to move out of
00:08:27
Speaker
risk assets in the primary phase of when they're moving lower. And what's interesting is if you look at the history of financial markets,
00:08:35
Speaker
there isn't a time when the market just fell off a cliff. In every situation, it begins to move down slowly and it picks up steam. Sometimes it can be quite fast if you look at the pandemic. So we use that data to then build, looking back to 1916, to then build ways to say, okay, what sort of system can we build that would move to the sidelines out of markets in the beginning phase of declines, but not move so frequently
00:09:02
Speaker
that you're creating just some kind of a speculative system. And so we built that, we launched the first one in 1990 at this other firm. And then I started this firm in 94 to market back to the same system or revision of that same system to financial advisors.
00:09:19
Speaker
But since then, Shayna, we've done so much research on financial markets. As a part of that, as an example, you talk about why do people need things like this. If you look at a balanced portfolio, a 60-40 portfolio, and put some real world assumptions like advisor fees, rebalancing, and move it through the Great Depression,
00:09:39
Speaker
that actually runs out of money. And so this idea that you can just invest in a conventional portfolio and as long as you don't panic and sell at the bottom, you'll be fine is not true. There are other great examples. If you look at Japan where over a period of 30 years, their stock market has moved lower. So it doesn't always necessarily work to just stay invested. So I think a key to our strategy, Shana, is this idea that benchmark centricity is less important
00:10:09
Speaker
then creating a way for your investors to have a greater probability of succeeding when you're advising for them. There's two things you mentioned there that I think are super important. First is I think we often forget, and I think advisors and even clients often forget that like, yeah, the market goes up more than it goes down. And if you just stick with it, you'll be fine. But like there is the point in time bias that matters.
00:10:34
Speaker
it's all well and good unless you were about to retire on that one you know that month where the market turned and then they're you know six months or nine months of recovery you know it's all well and good but you know you have to think about those things because that does happen and it does as you pointed out with your great depression example uh result in having to think about different ways to invest but the other thing i think you said that i think is really interesting i'd love to have you elaborate on it is
00:11:01
Speaker
You know, the famous saying, and I say it all the time, it's time in the market, not timing the market. And this is a little bit different than that. But I think what you guys bring to the table, which is the important part, is when we say time in, not timing, we're basically looking at the behavioral aspect of once somebody pulls themselves out of the market, they have a really hard time going back in.
00:11:25
Speaker
And in a way, what you've created is a methodology that makes sure that they do actually get back in the market. Because what inevitably happens is once they pull themselves out, they get really afraid of when to go back in and tend to miss everything. So can you talk a little bit about how you're able to sort of take that time in, not timing, and flip it on its head, but in a way that makes sure that people do get back into the market at an appropriate time?
00:11:52
Speaker
I'm so glad that you took us into the behavioral finance on this pathway because there are a couple of really important things to think about. I cited that example of a 60-40 portfolio. Nowhere in those assumptions did I assume that anyone was going to make even one bad decision in that scenario. In other words, that 60-40 portfolio I'm talking about is with
00:12:15
Speaker
perfect execution of rebalance, even in an excruciating falling market. We just know that that is not the way investors work and we know results aren't like that. So, you know, there are two things to think about here. The first is this basic idea of fear around investing and how do you address that? And it's so important to our company that we built an entire division that we refer to as, we've named Behavioral Investing Institute as a part of our organization.
00:12:43
Speaker
But instead of sort of just tiptoeing around this idea that markets can be bad and we've done something vague in the portfolios, we actually recommend that investors explicitly talk about how bad markets can get, including things like an 86% decline during the Great Depression. And so by doing that, then
00:13:05
Speaker
you let investors know, okay, things can get this bad in the markets, but then the very next step is to talk about explicitly what you're doing in the portfolios to address that kind of a market. And so what that does is there's a change that happens then for investors because instead of them maybe not fully understanding how bad markets can get and not fully understanding what's happening in the portfolio other than some vague
00:13:31
Speaker
mention of diversification, they're focused on that. And so that is the big change up. And then everything beyond that is relentless reiteration of what can happen to the markets, here's what we're doing in the portfolio, and then you can even take that a step further and say, here's what our plan is in the case of a significant market dislocation or a significant move lower,
00:13:55
Speaker
And that is a huge change. But it requires, as we're discussing here, a shift up in how you manufacture portfolios away from just trying to be in there and be in the markets. No, I think that that's exactly right.
00:14:11
Speaker
Advisors, I think, want to make their clients feel safe and secure. And we always say, help you sleep well at night. That's the cliche way that we often talk about it. But sometimes I think there's two things that can happen. You can become overly pessimistic.
00:14:30
Speaker
or you can only want to focus on the positive. And I think there's some realism that needs to be had. And I think what you're talking about is exactly that, like being realistic about our expectations and being realistic about risk and then having a plan to manage those risks. And I think that is the perfect way for us to kind of move into talking a little bit about some of your products and some of the things you're doing, you know,
Exploring the MRSK ETF
00:14:55
Speaker
I am a user and we use in our models here at Bonrion, one of your ETFs, MRSK, which is a Managed Risk Blueprint. And, you know, we've spent a lot of time over the last six, eight months talking about how that is positioned in a portfolio. And I want to talk about A, the product.
00:15:14
Speaker
And B, why it can and should be in a portfolio at all times. It doesn't necessarily have to be a detractor from performance, which I think is what inevitably advisors and clients seem to think.
00:15:26
Speaker
when you add something like this into a portfolio because it can have low to no correlation to your traditional equity markets. And sometimes it's that line item on the statement that is the thing that stands out, but really important to kind of what you were saying that you can actually hold. This is not something you tactically go into and out to. This actually can add value no matter the market conditions, even when markets are going up.
00:15:51
Speaker
and and really does pay off when things get a little hairy so why don't we talk a little bit about that particular product and sort of how especially in markets like we're in today where there's a lot of uncertainty and it looks like everything's rosy but we all know
00:16:07
Speaker
You and I are on TV all the time. We talk about this all the time. You can't slow inflation without slowing growth. That is a virtual impossible thing. Like the whole point is if you're slowing inflation, you are slowing growth. So that means growth is slowing. And that means despite the fact the market has performed exceedingly well,
00:16:25
Speaker
It doesn't mean it's going to perform like that forever because things are going to start to really take effect in terms of Fed policy. So let's kind of start from there and that foundation and why a product like MRSK in particular can be a core portfolio holding at all times. Excellent.
00:16:42
Speaker
Okay.
Structure of the MRSK ETF
00:16:43
Speaker
Did you want to ask a question or should I just go? Okay. I'm going to, I'm going to introduce the product first of all. So I talked a little bit about our trend following algorithms and we have a suite of mutual funds, six mutual funds that we launched back in 2010. We have separate account performance that goes back to 1996 Shana. So before... That's when I graduated from high school. Okay. Okay. Good. You're lively. You feel older. Okay. So, um,
00:17:10
Speaker
But what we did about seven years ago is we began to do some research on different ways of trying to deliver the same return profile that we had with our trend following algorithms. And we were particularly interested in looking to options to see if there's a way we could use options to attempt to significantly carve off the left tail risk, but also allow access to gains. And so we ended up launching
00:17:35
Speaker
that we have separate accounts now over five years. And you mentioned MRSK, that has a track record that goes back. We just got our three-year number, and we rang the closing bell at the New York Stock Exchange about a week and a half ago to celebrate that. But it's a relatively simple construct. And what it is, is its base product is based on just the S&P 500. So you have a full notional ownership of the S&P 500.
00:17:59
Speaker
But then you have an option that's a leap, a further out leap contract for full notional value. And that option is with the primary hedging mechanism to attempt to address the possibilities the markets move lower. And so very, very much unlike buffer ETFs where you can fall through a floor and now you're re exposed to the market.
00:18:18
Speaker
this product, as the more markets move lower, the more typically offsetting appreciation you're going to get inside of this ETF. So it's not something you have to worry about if markets move completely off the rails. It potentially gets stronger if that happens. But either this strategy, and I think key to any auction strategy, is its ability to attempt to pay for that put.
00:18:42
Speaker
Because if all you're doing in any given year is just by buying the market and buying put protection, you can give up, I would say on average, around 5% of your annual gains to pay for that put contract. So inside of the ETF, we do some shorter dated call writing and put spread writing, meaning around 30 to 60 to 90 days. It's all part of a system that's a quantitative system that's built into how we manage this ETF.
00:19:08
Speaker
And so in a normal market, you can potentially pay for the entire cost of that put protection. The other thing that's super important that's very much unlike buffer ETFs is that, so let's say you buy a buffer ETF, Shana, and it has a 12% cap and a 15% floor. It's quite possible that you can buy that ETF in a month or two later, you're at the cap.
00:19:29
Speaker
So just as a natural course during evolving markets, many of these things require dynamically management along the way because you're not going to be really comfortable having downside risk with something that can't make money for 10 months. So what's happening inside of MRSK is we're dynamically managing that put structure. So if the market moves up significantly,
00:19:52
Speaker
Based on a quant system, we can roll that price up, the strike price, to attempt to lock in those gains. And also, if the market falls significantly, we can roll down that strike price of that put and monetize it, which is another key to option strategies. So what you get then, Shaina, with this strategy,
00:20:13
Speaker
Or this ETF is exposure to equity markets, potentially, and we think over the long term, relatively consistent exposure and capture along with the stock market, a very well known index, which is the S&P 500.
00:20:29
Speaker
Fortunately, that's been working very well because it's got those seven mega cap names in it this year and the last year as well. But you have a way to address the possibility that markets move lower. So it fits into the category of liquid all. You can put it into your portfolio. You can own it forever. And it's going to give you some diversification, especially during markets that are falling when you might or do need it.
00:20:54
Speaker
You are absolutely speaking our language. I want to take a moment here to help educate our audience because not everybody is super knowledgeable about options.
Understanding Options Terminology
00:21:03
Speaker
So I think we should have this opportunity since a lot of what we do at Bonrion is about making sure we educate our audience and to just do some basic option information here. Like let's talk about what's a put, what's a call, what's a leap, what's a put spread, like real basic here for our audience. You may not understand because options are pretty intimidating.
00:21:23
Speaker
OK, sure. So let's start off with just a, I said we buy a longer dated put option. In this case, every December, we buy one that's two years out. And again, what's a put option? What is a put option? And a put option is something that you buy, in this case, on the S&P 500. So it's an index product. And it's designed to have a strike price. So for example, if you buy the S&P today, and you buy that put option two years, that's two years out, two years later,
00:21:51
Speaker
any amount that the S&P falls below that strike price or the price that you buy that option at, you'll get that amount in terms of the payout from that put. So what it does is it creates a floor
00:22:06
Speaker
for the S&P 500. Now, however, the way that works in between the day you buy it and the two-year expiration is that as the market moves down, you're gonna get appreciation in that put to reflect the fact that it's been moving lower. So think of it as just breaks on the S&P 500 where the more that S&P 500 falls, the more you're gonna be getting offsetting appreciation.
00:22:32
Speaker
So that offsetting appreciation can start off as much as about 50% of your loss you can avoid, but if it falls significantly and it falls rapidly, at some point you can be offsetting almost 100% of the decline in the S&P 500. So that put is a way of attempting to avoid significant losses by buying it in the strike price near the market.
00:22:53
Speaker
I think that is an awesome way to explain it. You know, when people think of puts and calls and we can get a little bit into a call options as well, you know, understanding that puts are really meant to be a floor. Calls are really meant to be a ceiling is a great way to kind of think about it and whether you buy or sell does matter because if you're buying, it's the right to purchase whatever at the strike price.
00:23:17
Speaker
or to sell at the strike price if it's a put. And if it's the other way around, you're getting a premium and you're betting that that doesn't happen. And I think that's an important kind of basic understanding. And you had mentioned leaps. And I think that, you know, even if somebody does understand puts and calls, leaps is kind of a different animal as well. And there are a lot of products in the market that do investing using different types of leap strategies. So can you kind of walk us through what a leap is?
00:23:47
Speaker
So leap just means a longer dated expiration rather than a shorter dated expiration. So when we say we buy a leap, it means you're leaping out on the calendar. In our case, we go out two years rather than the shorter dated options, which are not leaps, the 60, 30 and 90 day options where we do some selling that are shorter. So they're not leaping out on the calendar. Yep. So I think it's a really important thing for like investors to just understand the basics because like I said, I think options can be overall very intimidating to a lot of people.
00:24:17
Speaker
But quite frankly, when you kind of bring them down to like the foundation of what they are, they're actually not that confusing and they have real value. They can also tell you a little something about the market. Maybe you can kind of touch on how option pricing and how they trade can actually tell us something about investor sentiment and bring back in that behavioral finance aspect of it because option action is often considered some sort of indicator to what's going on in the market and how investors are feeling.
00:24:44
Speaker
So here's something that's sort of fascinating in terms of how options are priced because going all the way back to starting this company, what's so interesting is that when markets are at or near their peak when they've been having a bull market for years or even a decade or so,
00:25:01
Speaker
it's when risk is perceived to be the lowest, right? When in fact, that's when risk is the highest after you've just had an extended bull market. It's like the earthquake example in California, right? Like no one has to have earthquake insurance until there's an earthquake, then everybody wants it. And that's exactly when your risk is probably the least. So in a way that works in our favor, Shana, because what happens is that when you don't need
00:25:26
Speaker
When most people feel you don't need protection, which is actually when you probably do need the most protection, that's when options are priced the lowest. And the way that's represented is in the VIX index, which some people are probably familiar with. And the VIX index ranges from a low of around
00:25:44
Speaker
10 on the VIX index up to as high as during the financial crisis, it can get up into 80 or 85 is a very, very peak level. So the way that's reflected then is that if you try to buy a put contract at the bottom of the market or if you had tried at the very worst day of the financial crisis in either October or that March,
00:26:07
Speaker
costs for buying that put would have been enormously expensive. So how does that play out then in the strategy? So when we buy the LEAP put contract in December each year, that typically happens in a relatively benign environment. So if at some point over the course of that year, you do see fear go up and option prices go up, that works to the benefit of MRSK because now
00:26:35
Speaker
As fear moves up, the price of that put moves up as well. So what that means is the S&P doesn't necessarily have to move lower. If fear moves higher, you can also see appreciation in that put.
00:26:48
Speaker
Absolutely. Now we're going to change the topic just a little bit because I think one of the things that's on everybody's mind right now is the Fed and interest rates and what that means.
Impact of Interest Rates on Investments
00:26:57
Speaker
And Taze also has products that kind of address some of this, something like THY. So let's talk a little bit about the current interest rate environment, how people should be thinking about it and what kind of products and solutions
00:27:10
Speaker
are out there that are pretty dynamic to be able to kind of consider all the potential outcomes here as we consider what the Fed's next move is going to be. So, you know, we're all vulnerable to muscle memory. And so for all of us, what we tend to feel in our bones, actually, I said muscles, right? Do our muscles have muscles? They don't. But what we feel is that we've seen rates move higher now for about 18 months.
00:27:37
Speaker
And it's time for it to move back lower, back to that somewhere between zero and 2% range on short T-mills or the Fed funds rate. And that's not actually what history shows. What history shows is that on average, these yield trends higher and lower
00:27:54
Speaker
changed for about 20 years, going all the way back to the last quarter of the 19th century. Then the 20th century, if you look at the big trend, some as long as 40-year trends. In fact, if you look at the trend that we had right before the moves higher here, you can go all the way back to 1981 and say that, wow, we saw rates come down from highs of 14% on the 10-year all the way down to zero and stay there for almost 10 years. So I think the thing that advisors may not be taking into account is the possibility
00:28:24
Speaker
because you were alluding to earlier that we see rates stay higher for longer or that we could even have a trend higher that moves higher from here. No one's even, that's off the table, right? No, and I'm in complete agreement with you. I think too many people are assuming that the first chance the Fed will cut rates again, but they've been very clear that
00:28:44
Speaker
They intend to keep higher for longer and that they may not continue hiking, but they're definitely not going to be cutting. There would have to be a pretty dire scenario for that to happen, but that's a good point. Let's talk a little bit about the dynamic way we can think about investing because we have an entire generation of advisors, myself included having been in this business since the tech bubble burst, that don't know an environment that involves rising rates or higher rates.
00:29:12
Speaker
Yeah, right. What do you do with that? What do you do with a 20-year trend potentially higher? And so you don't need to make the call. You don't need to say, oh, we think rates are going to go higher for 20 years. But what we should do, what advisors should do, is they should address the contingency that it might happen. Because if you look at the period, the last time we had rising rates was between 1945 and 1981. That was a 36-year bear market in bonds. So what can you do?
00:29:38
Speaker
Well, I think what you can do is you can decide to be adaptive in your fixed income approach. And we have a product, our other ETF, THY, that can be agile or is agile. And it moves into high yield bonds. If high yield bonds are trending higher, but it can also be in short T-bills or investment grade bonds. So it moves based on trend following algorithms to different parts of the market. As an example, it's been a lot of last year just in treasury bills.
00:30:07
Speaker
And so by doing that, then you can both attempt to stretch yields higher, but address potentially address the risk that they move lower, but also position yourself in a way that you don't just have to say, okay, I'm just going to be in investment grade bonds and leave it there, regardless of what happens because that could, you know, as we saw last year, these things aren't always benign. If you can, if you can realize
00:30:30
Speaker
15% losses in investment-grade bonds isn't as much as 25% losses in longer-term treasuries. That's a real risk to portfolios. So we think that that's actually an almost easier decision, Shana, than going at the hedge of equity because there's a need for it. There's a need to address the possibility to see down markets.
00:30:51
Speaker
And even though yields are at 4% or 5% in bonds, that's still only about the rate of inflation if you look back over the last 12 months. So real yields and trying to find a way to have real yields is an easy win, we think.
00:31:05
Speaker
Yeah, I think that's really important to know. You know, I think overall, and you pointed this out, investors are much more comfortable being a little bit different and how they allocate to fixed income than they are with equity. Because more often than not, if you're not totally in the market, when the market goes straight up, you feel like you lost something.
00:31:23
Speaker
For the income markets, it's a little more nuanced than that. And since the returns never are really all that sexy, people tend to be slightly more comfortable going and doing things a little bit different in fixed income. In particular, being more active in fixed income, I think there's a number of studies, and maybe you can tell me if I'm wrong here, that show that active fixed income actually tends, unlike inactive equity, tends to actually be a better idea. And there's more opportunities, I think, to look at fixed income in a different way.
00:31:55
Speaker
Yes, absolutely. And I think then, but you know, if you want to back off then based on the things that we've been talking about, which is a hedge equity approach to address equity contingencies and a fixed income approach, it goes all the way back to what I was originally talking about, which is thinking about portfolios and portfolio construction from a investor first perspective, where investors have certain needs based on distribution and growth.
00:32:19
Speaker
And if you focus on that and address contingencies around all kinds of markets, now you can approach that investor and say, look, this is a way to manage through both inflationary or rising interest rate times, but also times where risk assets and stocks are starting to move lower or don't move higher necessarily.
00:32:40
Speaker
Yeah, and at the end of the day, that's the goal, right? Is to help our clients, to be cliche, sleep well at night and to meet their goals. And these are the types of products that actually can help you do that better.
Closing Remarks
00:32:52
Speaker
And so I'm glad that I was able to have you on as our inaugural guest for our very first show. I hope our audience enjoyed this as much as I did. And hopefully you learned a little something along the way. Thank you, Phil, for joining us today. And if you like this show, make sure you subscribe, leave a comment.
00:33:09
Speaker
And if you want to learn more about Phil and the team at Taze Asset Management or any of the products that they have, we'll leave the information in our show notes and make sure that you can get in touch with the team. So thank you again, Phil, for your time. I really appreciate it. Have a great day. Awesome. Thanks, Shannon.
00:33:27
Speaker
The opinions expressed on the What's the Alternative podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or any specific security. This is only intended to provide education about the financial industry
00:33:44
Speaker
To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any tasks of funding discussed during this contest is no guarantee of future results. The guests featured on this program are participants on Bonnie and Capital Management's platform. As such, Bonnie and Mayra 16 for their participation as a platform partner.
00:34:04
Speaker
Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember investing involves risk and possible loss of physical capital. Please seek advice from licensed investment professionals. Investments are not FDIMC insured, nor are they deposits of or guarantees by a bank or any other entity, so they may be valued.
00:34:25
Speaker
Investors did carefully consider investment objectives, risks, charges, and expenses. This and other important information is contained in the front prospectus and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. Statements attributed to an individual represent the opinions of that individual as of the date of the published podcast and do not necessarily reflect the opinions of primary and capital management or its affiliates.
00:34:49
Speaker
This information is intended to provide educational value, highlight issues, and should not be considered advice, an endorsement, or a recommendation. All Bonding Capital trademarks mentioned are owned by Bonding Capital Management Inc., an affiliated company, or its funds. All other company and product names mentioned are the property of their respective companies.