Episode 228

full
Published on:

14th May 2025

Discover RGBM ETF: Diversification That Clients May Actually Stick To Tired

Tired of Clients Chasing Returns?

Learn how Return Stacked® Global Balanced & Macro ETF (RGBM) aims to provide diversification in a way that helps manage client (mis-)behavior.

As financial advisors, we know clients struggle to stay the course with liquid diversifying investments, especially when 60/40 portfolios have been strong.

RGBM ETF offers a solution: a 100% global balanced strategy stacked with an additional 100% systematic macro strategy. This 2 for 1 combination is designed to help deliver the diversification your clients may need in a solution they can actually stick to.

In this podcast, we explore how RGBM’s unique 'return stacking' approach can improve portfolio resilience and client outcomes. Learn how it minimizes the behavioral challenges of owning diversifying assets.

  • How RGBM seeks to provide diversification that can help clients stay invested, even when traditional assets are performing well.
  • The power of 'return stacking': Combining a global balanced allocation & a systematic macro strategy.
  • Why systematic macro may improve portfolio performance during equity drawdowns and inflationary periods.
  • How to use RGBM as an overlay to your strategic portfolio for capital efficiency.

This podcast may be suitable for: Investment professionals and financial advisors seeking innovative solutions for client portfolio diversification and behavioral risk management.

Transcript
Corey Hoffstein:

Hey everyone.

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Thank you for joining us.

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My name is Corey Hoffstein.

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I am CIO of Newfound Research

and one of the co-founders of the

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Return Stacked Suite of funds.

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And I am delighted to be joined today by

Rodrigo Gordillo, president of ReSolve

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Asset Management, as well as co-founder

of the Return Stacked suite of funds.

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If you haven't heard of the Return

Stacked lineup before, ultimately

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what this suite aims to do is unlock

the benefits of diversification by

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allowing you to introduce alternative

investment strategies and exposures

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into your portfolio without having to

sacrifice core, stock and bond exposure.

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Each fund in the suite follows the same

simple formula every, for every dollar

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invested, we're gonna provide a dollar of

either core, stock or bond exposure, plus

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a dollar of exposure to an alternative

asset class or investment strategy.

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We launched our first funds in the

US back in February,:

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Whole suite has just passed over

$850 million in assets, rapidly on

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its way to a billion, hopefully.

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today I am really excited to have

Rodrigo talk specifically about the

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return stacked, global balanced and

macro, ETF, ticker RGBM, where he is

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gonna get a chance to walk through,

the many ways that this ETF works and

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can be utilized to enhance portfolio

diversification and allow for all sorts of

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different types of stacking opportunities

in your strategic allocation.

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Really importantly, this webinar,

in this webinar, you should feel

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free to ask questions along the way.

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there's a q and a chat box that you can,

ask questions and I'll be responding

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to the questions live in real time or

bringing them up to Rodrigo if he can

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bring some, some color to them as well.

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and that's it.

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So, Rodrigo, let's

start with the question.

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What is return stacking?

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Right?

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So for those of you who are joining

us for the first time, who haven't

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heard this word before, this idea

is, is central and core to what we do

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with our lineup, and it really begins

with the idea of diversification.

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This jumps to the next slide.

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Historically, when we talk about

diversification, it's been a,

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process of what I like to say

is addition through subtraction.

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In this industry, we

agree on very few things.

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One of the things we agree on is that all

else held equal, more diversification is

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better than less, but to add diversifying

assets and strategies into an existing

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portfolio, it has historically required

making room by selling things we

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already own, typically stocks and bonds.

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And so a lot of proponents of

diversifiers will say, we should use

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this idea of a 60% stock, 40% bond

portfolio, sell some stocks and bonds,

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and move to the, what they're calling

the modern 60 40 being a 50% stock,

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30% bond, 20% alternative portfolio.

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This may look really good on

paper, particularly when you look

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at the returns over the long run.

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But this type of addition through

subtraction, making room for diversifiers

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in your portfolio can lead to a lot

of behavioral frictions along the way.

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So let's, let's go to the next slide.

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What this slide shows is the

relative performance of that 50,

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30, 20 portfolio versus a 60 40.

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When the line is going up, the

diversifiers are adding value relative

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to stocks and bonds, and when the line is

going down, they're underperforming the

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stocks and bonds you sold to make room.

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And what we see is that during the early

two thousands, people loved alternatives.

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This was a period where diversifiers

were working, really working really well.

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For those of you who were in the industry

at the time, I'm sure you remember

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everyone was adding commodities and gold

and emerging markets, and long short

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equity and global macro managers, these

types of strategies worked really well.

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And clients really

embrace diversification.

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After the great financial crisis, we

saw a very different picture, which

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was that diversification underperformed

concentration in stocks and bonds.

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And as much as we wanted to preach

that hypothetically on paper,

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more diversification was better.

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The realized experience for most

investors was that they continued

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to underperform the stocks and bonds

that they tend to know and love.

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And so they kept putting pressure on their

wealth managers to move them into simpler,

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low cost, more transparent, more tax

efficient portfolios, closer and closer

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and closer to that 60 40, making it very

hard to maintain that diversification

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for when it became beneficial again,

particularly in a year like:

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Let's jump forward to the next slide.

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So this is where return stacking comes in.

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What is return stacking?

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How does the return stack suite of

funds try to solve this problem?

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Well, for every dollar you invest in

a return stacked fund, we are going to

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provide a dollar of either core stocks

or bonds plus a dollar of exposure to

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some sort of diversifying alternative.

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What this means is that when you buy

the fund, you don't have to give up

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exposure to the core stocks and bonds

that the client knows and loves and

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appreciates to get that exposure

to that beneficial diversifier.

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Let's jump to the next slide.

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So on the far left here, to illustrate

how this works, we have your traditional

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strategic asset allocation, your

your traditional benchmark portfolio

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here, 60% stocks, 40% bonds.

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In the middle, we show the

traditional old world approach

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to making room for alternatives.

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Here we sold 10% of the

stocks, sold 10% of the bonds.

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Took that 20% allocation

and put it in alternatives.

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This is that 50, 30, 20 chart that

we showed before when you use a

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Return Stack solution, because

every dollar you put into a return

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stacked fund gets you a dollar of

those core stocks and bonds back.

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What you can actually end up with by

selling stocks and bonds and buying

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a return stack solution is getting

your core stocks and bonds back,

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and adding that alternative as an

overlay to the portfolio or stacking

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it on top of the portfolio, right?

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So now instead of a 50, 30, 20, you

retain your core 60 40, and that

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20% exposure is now stacked on top

of your strategic asset allocation.

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And what this does importantly is it

hopefully helps mitigate some of the

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behavioral issues that can come along

with trying to access diversifiers.

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So we've taken the same graph we saw

before, but now instead of comparing

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a 50, 30, 20 to a 60 40, we're

comparing a 60 40 20 to a 60 40.

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Maintaining the strategic core, stacking

the 20% alternatives on top, and you can

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see that during a period that alternatives

did well, we still get those benefits in

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the early two thousands, but then in a

period where alternatives, underperform

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stocks and bonds in the 2010s, we no

longer have the opportunity cost, right?

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No longer is diversification a process

of addition through subtraction.

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We can simply add the diversifying

alternatives on top of the 60 40 or

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whatever strategic allocation you choose.

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that, that, and, and therefore, as long

as those alternatives are outperforming

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the hurdle rate, which is cash, we

can actually still see some benefit

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in the portfolio, even when they're

underperforming stocks and bonds.

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Hopefully making it easier for

clients to stick with them, maintain

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them so that they are there when

the beneficial diversification

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properties emerge in a year, like 2022.

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Let's jump to the next slide.

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So there are really two key

benefits to this idea of stacking.

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The first is by taking alternatives

and stacking them on top of your core

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stocks and bonds you can actually try to

pursue different means of outperformance.

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You're adding a another unique,

hopefully diversifying, return stream

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on top of your stocks and bonds.

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And by just adding something more

on top, you can try to beat that

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core stock and bond exposure.

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And hopefully what you're adding on top

is something you have high conviction in.

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Not only being an uncorrelated from

stocks and bonds but something you think

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is gen gonna generate positive returns

with high conviction over the long run.

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The second thing that's important

here is you can stack for

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diversification, and that's really

what we've spoken about before.

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Stocks and bonds should be the core

elements of every portfolio but as

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2022 laid bare, inflationary shocks

make our tend to make stocks and

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bonds go down at the same time.

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And so when we look for a third leg

of the stool, what return stacking can

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enable us to do is add diversifiers to

the portfolio without disrupting that

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stock and bond core, hopefully making

it easier for allocators to hold onto

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those diversifiers for those periods in

which they are going to be most needed.

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Alright, so Rodrigo, with that

introduction of what is Return Stacking

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outta the Way, I'm really excited to

turn it over to you here so you can dive

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into a practical implementation of the

return stacking idea with our new Return

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Stack global balance and macro ETF.

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Rodrigo Gordillo: Thank you Corey.

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That was a great introduction to the

Return Stack concept and uh, what I'm

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gonna try to do now for our Canadian

international investors is really try to

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get deep into the latest exchange traded

fund listed in the Toronto Stock Exchange.

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This is the Return Stack Global

Balanced, and Macro ETF, ticker RGBM.

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So just starting with kind of the, the

base investment case here, as Corey

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alluded to the, the key component of

all of our return stack lineups is

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the concept of capital efficiency.

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That you can do a lot more for your

client's portfolios with a lot less money.

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So in this particular product, for every

dollar that you buy in RGBM, it aims

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to provide a full dollar exposure to

a global balanced allocation strategy.

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So that's a 50 50 stock bond portfolio,

and then another full dollar exposure

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to a systematic macro strategy strategy,

which I'll get into what that actually

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means later in this presentation.

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Now the key thing here from a

diversification standpoint is

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that you really are getting three

very key diversified components.

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Equities and bonds act differently most

time, not always as we saw in:

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And then systematic macro has

long-term, if you look at any

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systematic macro index, very low

correlation to equities and bonds.

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Close to zero, right?

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So three key non diversified components

where the systematic macro strategy

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tends to do well in periods of pain.

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it tends to do well in periods of

inflation given the components that we

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are able to invest in in commodities and

being able to short bonds in periods like

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2022, there's an opportunity here for

profiting during periods of inflationary

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shocks like we saw in 2022, and we may

see in the future, or even bear markets.

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And then the another key structural

component that is only unique to this

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Canadian ETF is the tax efficiency aspect.

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Shareholders here are not expected

to receive any taxable distributions,

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which would be a tax saving for

non-registered holders and absolutely

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instrumental in the overall return

from an investment like this, because

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in Canada, while there are a number

of managed futures managers out there.

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Managed futures are marked to market.

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Whatever gains you have are marked to

market every year, whether you sold

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your ins, your investments or not.

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And then that is taxed as income.

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And so while even in taxable accounts,

managed futures as a diversifier is great.

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You don't get to keep a lot of

the returns as time goes by.

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This changes everything, right?

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The tax efficiency of the ETF means

that when you invest, we don't expect

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any distributions, and therefore

you can compound the wealth for your

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clients inside the ETF long term.

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Now let's get to the nitty gritty of what

betas and what alphas we're stacking here.

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As mentioned before, we're trying to

do a dollar of a balanced allocation

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and dollar systematic macro.

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Now the balanced allocation is a

50% exposure to global equities,

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and this is an unhedged, exposure

to the global, equity markets,

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that includes US and global.

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So you're gonna get the currency

exposure for a glo for any global

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markets, and you're gonna get the

currency exposure in the US and then

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the 50% Canadian bonds is going to be a

exposure to Canadian, futures contracts.

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and then on top of that we're gonna

stack the systematic macro strategy

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that ReSolve Asset Management

has been running for years.

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And again, this is designed to be lowly

correlated and provide a lot of diversity.

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Now let's talk about

the big alpha component.

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What is systematic Macro and,

I think a lot of investors

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have heard of macro investing.

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and I wanna differentiate what

fundamental macro is, which I think is

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the most common, to systematic macro.

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Fundamental macro is often it tends to

be personality based, where there's a

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big decision maker or a small group of

decision makers that are looking at,

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currency and, and, you know, global

markets, bonds and, and commodities and

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making large bets, based on something that

they're seeing in the market structures.

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I.

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It is very different than a systematic

macro strategy where while we are in the

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same arena, we're looking at investing

long and short equity indices globally,

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long and short bond, global indices, long

and short, commodities and currencies.

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The approach is much more systematic.

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The, the goal here is to maximize

diversity, minimize, you know, the

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reliance on any single bet that we

hope actually comes to fruition.

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And it's more about finding small edges

across things like trend com trend,

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uh, seasonality, mean reversion carry,

which we'll get to in a second, right?

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So we want to just spread out our bets and

make sure that the work that is done on

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trying to extract long-term premiums on,

on an anomalies that we find all the work

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is done upfront, years in user research.

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Make sure that we codify it.

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And then the next best, the next step

in the, this word systematic, has to

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do with the fact that we're gonna be

executing those models religiously.

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It is a hundred percent

rules driven, right?

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So we are governed by our algorithms,

and then we want to execute those trades.

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Without any emotional bias and we wanna

make sure that whether there's, it's

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sunny or dark outside and, and the

weather, which we know has affected,

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has effects on decision making.

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We wanna make sure that we

are executing religiously.

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Did did we feel a lot of

emotions over the last few days?

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Absolutely.

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Did it affect the way

that we are gonna execute?

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Absolutely not.

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That's why we we're systematic.

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As I alluded to as well, it's

multi-asset and global focus, right?

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Commodities, bonds,

currencies and equities.

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And then it's the directional flexibility

that also sets it apart from most

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categories in the hedge fund, space.

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So when a lot of people, when we

look at the hedge fund space, we

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see a lot of long, short equity

that tends to be long bias.

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Systematically market neutral tends

to be neutral most of the time.

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systematic macro and things like managed

futures trend take a different view.

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Long-term correlations are around

zero to stocks and bonds, but they

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do take directional directional

bets when things are moving up.

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When equities and bonds are moving up

and there is enough patterns to say, Hey,

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this is a good idea to invest in bonds.

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We will be net long along with

equities and bonds plenty of times.

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But if those, markets shift and

start showing different patterns, we

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have the ability to be net negative

correlation to those markets.

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So the directional flexibility allows

us not just to provide interesting

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long-term returns, but also to

provide really strong offsets in

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periods of abrupt market change.

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And we'll get to that

later in the presentation.

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And the final thing that's super, key

behind systematic is the risk management.

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So we manage this, systematic macro

to a target volatility of around 10%.

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And what that means is that

we are constantly measuring

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the overall portfolio risk.

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We're also measuring the sector risk.

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We're measuring the security risk.

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We're creating certain, limits as

to how much we can own of each.

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And then as, if it, if appeared like the

last month, if we find that volatility

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has expanded across all assets, the

the first thing that's going to happen

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is there's gonna be a reduction in

gross exposure to meet that volatility

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target that we're aiming for, right?

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So while a 60 40 will go from ha averaging

around 12% a year, and then all of a

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sudden having a 45% standard deviation

spike, what we're gonna do here is we're

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gonna make sure we manage that risk so it

doesn't get as high ever, and we're gonna

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try to keep it within a reasonable band.

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And that's the key difference

and that's the value added.

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We think of systematic macro.

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And so what I'm showing you here

is just kind of disaggregating the

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three components that we are looking

to invest here in, um, in RGBM.

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The black line represents global equities.

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The blue line represents Canadian bonds

and the Green line depicts the Pivotal

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Path Global Macro Quantitative Index,

which is just an index of managers that

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are trying to do multi-strategy in the

managed future space long and short.

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And what we can see clearly here

is the benefits of diversification

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of systematic macro to both

Canadian bonds and global equities.

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Okay.

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What is also interesting is in periods

like the tech crisis, in periods like

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2008, less so in 2020, and definitely in

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and offsetting characteristics that I

think everybody here would agree, would

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be crucial to have at the right time.

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And when we look at just those periods,

the tech crisis, and I see how, how

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well they did, you can see that,

you know, the, the bar, in black is

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equities in green, its bonds, and

then you have your, systematic macro

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clear diversifiers and offsetting

losses for, from the equity markets.

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Similar in 2008 in 2020 both bonds and

systematic macro had a bad period, and

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this is, this tends to do with how abrupt

the shift in regimes happened, and that

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systematic macro tends to take a little

bit of time in, in any managed futures,

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any act of strategy tends to take a little

bit of time to shift into the new regime.

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So it is expected to take a, a first

hit if the shift is abrupt enough and

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before it adapts to the new regime.

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But we can see here in 2022 where it

was a bit slower of a regime shift,

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you can see the benefits of the offset.

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And what are we trying to

do ultimately with this ETF?

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Well, first, we're trying to solve

an old problem and it, and it,

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it's an old behavioral problem.

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I think if anybody's in this presentation,

I'm guessing that in their past,

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they have allocated to diversifiers.

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In the past, it may have allocated

to something like Managed Futures.

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I know that MANAHL was

very popular in:

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I owned them through 2006, 7 8, and

they were very, very useful to me then,

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but they then, then we struggled in

the next, you know, four to five years.

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And it's really, really difficult.

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And the, the pitch for these managers had

always been, Hey, look, you, you are this

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black line, in this case, the black line

here, it's a 50 50 bond equity portfolio.

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And the pitch was, look, you're here.

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This is your portfolio,

this is the diversifier.

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And guess what?

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If you add this green line and this black

line, you get a magical, beautiful line.

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That's much more, much less volatile,

much more, consistent and your

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clients are gonna benefit from that.

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And this is the mountain chart

and gray in the back, right?

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That was a promise.

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But the reality was that clients didn't

see the portfolio level beauty of this.

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What they saw is a period post 2014

maybe, where systematic macro did

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positive, but single digit returns.

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Right?

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This is tough to, to try to go back

to clients when the rest of the

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portfolio's line items are going up 10,

15, sometimes 20%, and then you got the

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green line item doing one or two or 3%.

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So the big unlock from a diversification

standpoint is the fact that our,

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that, that the return stacked ETFs

allow you to provide a single line

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item that actually aims to provide

this gray mountain chart in the back.

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And the goal here is to really allow

the client to participate in the

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markets that they really know and

understand while benefiting from the

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diversification that you know they need.

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And I think this is one of the

major reasons why we've grown

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so quickly in the United States.

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You know, this is now starting to come

into Canada and it, it's something that

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we all, in, in the Canadian space are

gonna have to think about more deeply.

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So again, our, this gray line

here is a hundred percent balanced

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allocation, a hundred percent

systematic macro, all right.

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Now let's talk about how we get

exposure to the balanced allocation.

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So the goal here, the target

exposure is to have 50% in global

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equities and 50% in Canadian bonds.

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And this is a decision based on speaking

to advisors where most advisors do

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have some global equity exposure.

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And also have some Canadian bond exposure.

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And if they were gonna be swapping out

something from their portfolios, it

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would make sense to swap out some of

the Canadian, sell some of the Canadian

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bonds, sell some global equities, swap

this in, get those allocations right

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back, and then get the stack on top.

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Okay.

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So how do we get this, in

a capital efficient way?

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Well, a way of doing it here is we

could buy an ETF of global equities.

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And then with the other 50% of

the allocation, we could, we kind

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of leave it in cash, have a, you

know, liquidity buffer there.

345

:

We'll buy t-bills here in order to

get some yield on the margin in,

346

:

in the broker dealer allows us to

then buy a Canadian bond futures

347

:

contract at the full exposure,

notional exposure that we need, right?

348

:

So this is a simple way of getting

exposure to Canadian bonds while

349

:

maintaining, a lot of cash liquidity for

the systematic macro, which I'll, I'll

350

:

walk you guys through a little later on.

351

:

All right, so what, what are the, some of

the key underlying strategies that govern

352

:

the systematic macro component of RGBM?

353

:

Well, a lot of you, when I, when I say

managed futures, it's almost synonymous

354

:

to trend following and, um, while that

has evolved obviously into systematic

355

:

macro, most people will understand and

have been exposed to managed future

356

:

trend following because they've been

around, like the turtle traders back in

357

:

the eighties were, were basically using

futures contracts and trading long and

358

:

short, based on breakout systems and trend

lines and, uh, moving average crossovers.

359

:

so this is obviously the, the one

that's been mostly talked about, but

360

:

the reality is that selecting when

to go long and short any market can

361

:

have, you know, you can have more

than one style that tends to do well.

362

:

Similar to how value investing over the

long term can make money and momentum

363

:

investing, also can make money over time,

but they're non-correlated to each other.

364

:

Or growth investing for that matter.

365

:

There are, there are key, risk

premiums that we have identified

366

:

that, that have fundamental reasons

to exist, but are not necessarily

367

:

highly correlated to each other.

368

:

Right?

369

:

So in this case, we have a

component of trend following.

370

:

You know, the trend following is a

tendency for an asset, recent performance,

371

:

to continue in the future, right?

372

:

So that, that, that's, let's say

we have gold and gold has had a big

373

:

run up, trend following might say,

I wanna have five units long gold.

374

:

then we go to mean reversion.

375

:

I think a lot of people would

know what that probably means.

376

:

And, and we ask mean reversion systems.

377

:

Hey, how, how's, how should

we position for gold?

378

:

Maybe gold's got a six standard

deviation move recently and it's saying,

379

:

listen, this is a crazy move upwards.

380

:

We're probably gonna mean revert.

381

:

I want to sell short three units.

382

:

So now we're, you know, plus

five minus three, we're long two.

383

:

And then we go to the seasonal, systems

and say, Hey, are we entering a good

384

:

or poor seasonal period for gold?

385

:

Maybe it's a poor seasonal period.

386

:

We should be shorting two units.

387

:

Now we're flat gold, right?

388

:

So, and, and on it goes.

389

:

Right?

390

:

So seasonality, you know, if you wanna

see the success there, I think a lot

391

:

of Canadians have been exposed to HAC,

ETF, which has done a, a great job

392

:

of using seasonal patterns to make,

uh, to create alpha, And then, you

393

:

know, other ones that you guys may

have heard of or not is carry, and

394

:

this is multi-asset directional carry.

395

:

It's not the carry that oftentimes

gets confused with currency carry or,

396

:

you know, the, the carry trade between

the Japanese yen, and the US dollar.

397

:

This is carry across all markets

and it's really just looking at the

398

:

tendency for higher yielding assets

to provide higher returns and lower

399

:

yielding assets to provide lower

returns, and we'll go long one and

400

:

short the other based on those metrics.

401

:

And when you look at multi-asset

carry long term it tends to

402

:

have protective, qualities.

403

:

It doesn't necessarily lose

money when there's a bear market.

404

:

Actually, sometimes it mostly

offsets it over enough, period.

405

:

if you give it enough

period time to breathe.

406

:

Skewness is a tendency for assets

with asymmetrical distributed

407

:

returns to exhibit high returns

as compensation for tail risk.

408

:

Right?

409

:

So if we see that there's a big, uh,

distribution of an asset class that has

410

:

a big fat right tail, we are going to

take that and take the opposite bet to

411

:

get compensated for that risk, whether

it's the left tail or the right tail.

412

:

And then relative value is the tendency

for assets priced relatively lower

413

:

compared to their peers or fundamentals

to outperform higher price counterparts.

414

:

So this is kind of fairly

straightforward, right?

415

:

So you put all these together and the

goal here is, you know, all of these

416

:

tend to make money over time, they

don't make money at the same time.

417

:

They're all kind of systems

that are 50, you know, just

418

:

over 50% accuracy over time.

419

:

And when they all, when a handful of them,

or most of them agree on directionality

420

:

of the asset, you end up getting some

positive returns in that asset and,

421

:

and just smooths out the return stream.

422

:

Right?

423

:

More diversification.

424

:

They all make money.

425

:

They make it in different times.

426

:

Corey Hoffstein: Rod, I think you're

touching on it well on this slide,

427

:

but just to ask a question explicitly

that we got asked here, how much trend

428

:

in carry is in the macro sleeve and

and how much overlap would you expect

429

:

from a, say a correlation perspective

of a systematic macro program?

430

:

With a, you know, a standalone

trend program or with a

431

:

standalone carry program.

432

:

Rodrigo Gordillo: Yeah, great question.

433

:

And look, if you look at the long term

correlation of systematic macro strategies

434

:

to trend, you know, long term you tend

to see actually a positive like 0.4

435

:

to 0.5%

436

:

correlation to trend.

437

:

But this is again, looking

at the average, right?

438

:

In any given time.

439

:

If you look at the at any systematic

macro strategy at any given time, if

440

:

seasonality meaning reversion carry are

making money and trend is losing money,

441

:

then the systematic macro strategy will be

negatively correlated to trend following.

442

:

And so there are many periods where

trend following does really poorly.

443

:

And the con, the conglomerate of all of

these signals actually offset and more

444

:

than offset the losses in trend falling.

445

:

We actually have seen that, like we

saw it last year in our strategies

446

:

where trend falling had a, you

know, mo kind of flat to down year,

447

:

whereas the systematic strategies

as a whole were positive, right?

448

:

So again, similar to how systematic macro

is conditionally correlated to equities,

449

:

sometimes positive, sometimes negative,

and conditionally correlated to bonds.

450

:

So systematic macro is also

conditionally correlated to trend

451

:

following and everything else.

452

:

And in terms of the weighting scheme

over the long term, the weighting

453

:

across all these is equal weight,

but over the short term, we are

454

:

looking at every single market and

the strength of trend, the strength of

455

:

immuno reversion for any one of them.

456

:

And when you add up all of the, the

existing weights as to, you know,

457

:

how, the system is overweighting or

underweighting these at any given

458

:

time, you will have certain systems

be overweight and underweight based on

459

:

the market opportunities at the time.

460

:

But long term, it's average, exposure.

461

:

Okay.

462

:

All right.

463

:

so again, all of these systems here.

464

:

Every one of them is making decisions and

bets on what to go long, what to go short,

465

:

across a wide variety of asset classes.

466

:

And here, kind of summarize

15 markets in agriculture.

467

:

Nine bond markets globally, six rate

markets, eight energy markets, 11,

468

:

equity markets, seven metals, eight,

foreign exchange markets, and two

469

:

volatility markets in Europe and the US.

470

:

And again, we're making decisions,

using these signals as an aggregate

471

:

to decide how much and which

markets to go long or short.

472

:

All right, so when we put all

this together in terms of what

473

:

happens to the dollar that you

give us and how it gets deployed.

474

:

Once again, you give us a dollar, what's

gonna happen is you're gonna, we're gonna

475

:

invest it in a global equity, exposure.

476

:

Then we're gonna keep a bunch in cash.

477

:

We're gonna use some margin to both

get exposure, simultaneous exposure

478

:

to the Canadian bond futures, as

well as the full, you know, 50 plus,

479

:

long, short managed future strategy

or the systematic macro strategy.

480

:

All right, so that's

when you stack it all up.

481

:

That's how you get your

50, 50 and a hundred.

482

:

So how does this work?

483

:

Just going back to

Corey's original slides.

484

:

Well, the way that there's been a,

there's a few ways to, to kind of

485

:

use this, but the most common way

that we've seen this being used

486

:

is basically saying, okay, look.

487

:

how do I make it so that I

keep up with my competitors.

488

:

I need to provide a return

that's reasonable to what

489

:

everybody else is doing.

490

:

And if I have a 60 40 portfolio and I end

up perform drastically, that's a problem.

491

:

So what can you do?

492

:

You can maybe sell 10% of your

equities, sell 10% of your bonds.

493

:

Now you have 20% cash.

494

:

What you'll do is you could buy RGBM here,

and what your clients will see then is a

495

:

50% allocation equities, a 30% allocation

of bonds, and a 20% allocation to RGBM.

496

:

That's what they'll see.

497

:

But if you put your X-ray goggles on,

what you're actually doing is you're

498

:

sneaking in that diversification.

499

:

You're giving your clients exactly

what they want, which is that 60 40

500

:

again, but we're sneaking in that

non-correlated return stream on top.

501

:

Okay.

502

:

So this has been the most common

implementation for people that have no

503

:

alternatives, know that they need it

for their clients, and just haven't been

504

:

able to behaviorally find a way to do so.

505

:

this is a nice little way to keep

what you want and have what they need.

506

:

There's another use case that is a

managers that already own managed

507

:

futures products, maybe their

portfolio is something to the effect

508

:

of, you know, 50% equities, 30%

bonds, and 20% managed futures.

509

:

and they don't want to stack, they like

that ah 50, 30, 20 traditional allocation.

510

:

The interesting thing is that you

can actually use this ETF to get

511

:

the exact same exposure, but what

you're doing that is unique is that

512

:

you're eliminating the line item.

513

:

You're not eliminating that, you're

reducing the line item behavioral risk,

514

:

because what you would then do if you

are 50, 30, 20 is you could maybe sell

515

:

another 10% of your equities, another

10% percent of your bonds, and sell the

516

:

managed futures that's giving you trouble.

517

:

Buy with half of the cash raised RGBM

and your clients will see 20% cash,

518

:

20% RGBM, 40% equities, 20% bonds.

519

:

That's what they'll see and they'll

feel maybe that there's some

520

:

comfort in having some cash and

that the allocation has changed.

521

:

The RGBM becomes that mixed beta

alpha bag that is easier to hold.

522

:

But when you x-ray, you're actually

right back at the allocation you wanted

523

:

initially, which is a 50, 30, 20.

524

:

Okay?

525

:

So if you have any managed futures or

any alternative managers that you're

526

:

really struggling with and you don't

know what to do with them, this may be an

527

:

interesting approach where you're using

return stack ETFs to not necessarily

528

:

stack, but to hide some of that weird,

movement of the alternative sleeve.

529

:

Corey Hoffstein: Rod, can I, yeah.

530

:

Can I interrupt in that last slide?

531

:

Sure.

532

:

So, right, we've been using

this 60 40 canonical example

533

:

throughout the whole presentation.

534

:

One of the questions we got asked

is around younger clients who are

535

:

putting a lot of money in just

global equities and that's it.

536

:

And the question was around how

can RGBM be positioned potentially

537

:

as an alpha ad for young clients

who are very equity centric?

538

:

Rodrigo Gordillo: Right.

539

:

Well, let's, let's think about

some of the long-term realities of

540

:

each one of these asset classes.

541

:

So you have the equity risk premia being

something to the effect of four, 4.5%

542

:

long term, the term premium, you know,

the, as in like the, what bonds give

543

:

you, is around, you know, two real,

maybe two to two and a half real.

544

:

And what we expect from the systematic

macro is, you know, maybe three to

545

:

400 basis points long term, right?

546

:

So when you look at the, the opportunity

cost long term here is, equity, equity

547

:

risk premium, and the, what we expect

to see from the systematic macro, I

548

:

think they're roughly equal in terms

of returns and absolute returns.

549

:

Okay.

550

:

The bond premium tends

to be slightly lower.

551

:

Okay?

552

:

But the way you could rearrange these

blocks for your younger clients could

553

:

be, you know, you're getting 50%

of the equity risk premium, you're

554

:

getting 50%, you're getting a hundred

percent of the systematic macro.

555

:

Okay.

556

:

And that should over the long term,

if my assumptions are correct, do

557

:

the same or better than equities.

558

:

And then you also have

that bond component.

559

:

Now think about like rearranging, you're,

you're stacking the bonds on top, you're

560

:

stacking that term premium that acts

in we, in interesting ways, right?

561

:

If there's a non-inflationary bear

market, that'll act to buffer some

562

:

of the losses on the downside along

with hopefully systematic macro.

563

:

and then there's a final value of

diversifying three unique return streams.

564

:

I know that nobody likes bonds, but

especially young people seem to not like

565

:

bonds, but they, they're missing out

on what Corey and I have written about

566

:

extensively, which is this diversification

premium or rebalancing premium.

567

:

Right.

568

:

If you just add up the returns of these

three asset classes long term and you just

569

:

add 'em up, you know this plus this, plus

this, you are not actually going to equate

570

:

to the reality of a rebalanced portfolio.

571

:

What we're rebalancing daily here,

because the rebalancing premium

572

:

is really capturing the mean

reversion, elements of all these.

573

:

So when you combine three

unique return streams.

574

:

And you are constantly rebalancing the,

there's a loser that just went down.

575

:

You are grabbing from the winner,

giving it more to the loser,

576

:

and there's a bit of a rebound.

577

:

What we've found in our research

is that you are we, we've seen an

578

:

extra one and sometimes depending

on how the markets went, an extra

579

:

one to four percentage points, extra

return purely on the rebalancing.

580

:

Right.

581

:

So again, just to recap and answer

your question, you got a young

582

:

client that wants equity, returns?

583

:

Well, I think just purely by equity risk

premium plus term premium plus systematic

584

:

macro premium, I think it's competitive.

585

:

I'm highly confident it will

be and probably be better.

586

:

but, you know, we don't know.

587

:

So I, you know, it's, it's, it, I

think it's, it's gonna be competitive

588

:

to equities and then you have the

rebalancing premium on top of that.

589

:

Okay.

590

:

So that, to me, this is a

no-brainer for young, for young

591

:

investors and old investors.

592

:

Corey Hoffstein: And obviously that's

a lot for any investor to digest.

593

:

The tact I've taken in the past is,

you know, you look at your equities and

594

:

they are great long-term growth engine.

595

:

This is gonna look a lot more like a

higher volatility hedge fund, right?

596

:

You're getting some of that equity and

bond beta underneath it, which they

597

:

want to keep, but then you're getting

a totally differentiated return.

598

:

Macro return profile on top, and so,

right, clients that want something a

599

:

little bit more than just equities,

but don't want to give up the return

600

:

potential, but want that access

to a hedge fund like strategy.

601

:

The return profile of this should

be much more hedge fund, like higher

602

:

vol hedge fund, like over the long

run, which is both beneficial from a

603

:

return and a diversification potential.

604

:

Rodrigo Gordillo: Yeah, and to your

point, Corey, when you look at a

605

:

hedge fund index, the volatility of

that hedge fund index is four or 5%,

606

:

by stacking the systematic macro on

top, what's interesting here is that

607

:

the 60 40 portfolio last I looked

like a, like a traditional 60 40.

608

:

You're looking at a client having

experienced a tr, a standard

609

:

deviation of, you know, between

10 and 12% a year, long term.

610

:

Of course, there's lar large

variations around that by stacking

611

:

systematic macro on top and the

fact that it's non-correlated, on

612

:

average, we're looking at long-term

volatilities, around 13 to 14%, right?

613

:

So even though we're stacking a full

stack because of the diversification

614

:

benefits, the volatility only goes

up a couple of percentage points.

615

:

Right.

616

:

So you're, you're stacking a, you

know, what we consider to be a,

617

:

a, a decent amount of returns long

term without necessarily stacking

618

:

an equal amount of risks, right?

619

:

So that's something that is, and, and

at 13% now, now it's something that

620

:

clients are used to, that they are

getting what they want from the risk

621

:

side of things, and a more diversified

version of that higher risk, right?

622

:

More efficient, higher sharpe ratio just

simply by the, by the fact that there's

623

:

three non-correlated return streams.

624

:

So again, just to recap, I know we, we've,

uh, gone through this numerous times in

625

:

this presentation, but here the objective

is long-term capital appreciation.

626

:

For every dollar that you give

RGBM, we seek to provide exposure

627

:

to a global balanced portfolio and

a one and, and a full extra dollar

628

:

of a systematic macro strategy.

629

:

And that is the global balance side is 50%

global equities, 50% Canadian bonds, and

630

:

the systematic macro strategy is across

equities, bonds, currencies, commodities,

631

:

both long and short and directional.

632

:

we rebalance all of this on a daily

basis, and the distribution is, if any,

633

:

which we don't, we don't expect, but

if any will be in annual distribution.

634

:

any questions Corey?

635

:

Corey Hoffstein: Can you talk a little bit

about the underlying markets specifically?

636

:

You mentioned sort of high level

categories, but can you just share?

637

:

Rodrigo Gordillo: Sure.

638

:

So I.

639

:

The key here is diversity, right?

640

:

your sharpe ratio is directly

related to your edge, as well as

641

:

your breadth of market opportunities.

642

:

And so you can see here that we have all

the major categories across agriculture,

643

:

bonds, energies, equities, rates,

metals and Forex, and a wide variety of

644

:

markets that we can take advantage of.

645

:

And, you know, one of the, it's, it's

sometimes interesting to see, especially

646

:

in the, on the commodity side, how

important one or two of these asset

647

:

classes can be for profits and losses.

648

:

depending on the year.

649

:

I mean, last year cocoa had a huge

run in systematic strategies like ours

650

:

because of the fact that there was

a, I believe that there was a supply

651

:

shock due to some sort of infestation

in the cocoa production that led to a

652

:

massive upswing in cocoa and a lot of

the strategies were able to make money.

653

:

So you're just getting, I always say

to people, when you invest in things

654

:

like managed futures and systematic

macro, you, you're probably, that

655

:

position is probably the most

diversified thing in your portfolio.

656

:

As in a world where hedge funds

and active equity managers and

657

:

active bond managers just stick to

their lane of like picking stocks.

658

:

If you're a mar market neutral or long

short manager, you're in the Canadian or

659

:

US stock space, maybe some global, this

is, the systematic macro and on in the

660

:

future space, it's just simply where the

broadest opportunities exist and, um, why

661

:

I've, spent my whole career doing this.

662

:

it's the most exciting area for me.

663

:

Corey Hoffstein: One of the questions

here that came in is, um, someone

664

:

who's obviously familiar with your

hedge fund programs asking how

665

:

different is macro here from the

Evolution hedge fund that ReSolve runs.

666

:

Rodrigo Gordillo: So this ETF is

built for large assets, right?

667

:

So to to grow into the billions and

billions and not be affected, in

668

:

terms of our ability to create alpha.

669

:

The hedge fund that we run trades a

num, uh, significantly more markets than

670

:

what we are able to trade in the ETF.

671

:

And so what tends to happen in the

hedge fund is that most of the really

672

:

strong alpha, a lot of the really strong

alpha comes from these smaller markets

673

:

that can only be traded in small size.

674

:

And the hedge fund that we run is still

relatively small and we expect to cap it

675

:

at some point to keep that alpha going,

especially using those smaller markets.

676

:

So.

677

:

That's the major differentiator here.

678

:

The other thing is that we run the hedge

fund, like our target audience is fund of

679

:

funds or advisors that really understand

the value of capital efficiency.

680

:

We run that on a 20% volatility

whereas this one is run at 10, right?

681

:

So it's a, just the, the 20% volatility

tends to be, gobbled up by fund

682

:

of fund managers that have a bunch

of non-correlated ALT managers.

683

:

When they put 'em together,

they get a alt fund that is a

684

:

five vol and a sharpe of one.

685

:

It's not very exciting.

686

:

They want to, you know, that that

market wants a bunch of 20 vol

687

:

managers so that when they put 'em

together, they get a, the vol of 10.

688

:

so it's, the hedge fund is

not for the faint hearted.

689

:

and yes, over time we should do better.

690

:

but I.

691

:

Regardless, this 10 vol with

the very, very well diversified

692

:

markets here, it's been, it's, we,

we've run it in our previous ETF.

693

:

It's very creative and it's, you know,

it's gonna be, highly correlated,

694

:

lower volatility and exciting,

695

:

Corey Hoffstein: right?

696

:

People are trying to get an

understanding of how ReSolve has

697

:

performed running these types of

systematic macro programs historically.

698

:

obviously, at least in the US you

can't show a back test for any sort

699

:

of registered investment company.

700

:

is there anything folks can look at

from the other products that you manage?

701

:

Rodrigo Gordillo: Yeah, if

they go to invest resolve.com,

702

:

and they go to the strategy section,

you know, the two popular strategies

703

:

to look at how, how we've done the

first one is the carry strategy,

704

:

which we run for a number of, funds.

705

:

the second one is the evolution

program that is right below it.

706

:

And, and you gotta think

about these as we always have.

707

:

You, they are excess returns and so the

way to look at the returns here is what

708

:

would be on top of my equities and bonds.

709

:

so a lot of the work that we do is

for single family offices that give

710

:

us their, give us a portion of their

portfolio that we use as collateral.

711

:

And what we do for the Evolution

program and the carry program is

712

:

we stack those returns on top.

713

:

and so, seen through that light,

we're not trying to beat the

714

:

index, you know, one-to-one or

the s and p or anything like that.

715

:

We are actually legitimately trying

to stack those excess returns on top.

716

:

So when you go to the site

and take a look, I want you

717

:

to see it through that lens.

718

:

What would this, these strategies

have done for me had I added them

719

:

on top of my equities and bonds?

720

:

And you'll see everything

that we discussed today.

721

:

You've, you'll see offsetting

returns in periods like:

722

:

You will see, you know, non-correlated

on a month to month basis.

723

:

And you'll see positive stacks over the

long term in, in that range that we talked

724

:

about, the three to 400 basis points.

725

:

Corey Hoffstein: Someone here is curious

about other plans we have in Canada.

726

:

Any, anything we can share,

Rod on further launches?

727

:

Rodrigo Gordillo: honestly, the,

this will depend on appetite, right?

728

:

So we're gonna, we're

gonna launch this for now.

729

:

the other interesting thing is that we're

launching a US dollar class very soon

730

:

for RGBM that's gonna be currency hedged

'cause I think this is, you know, there's,

731

:

there's a lot of money in US dollars,

both, uh, domestically and globally.

732

:

so that's kind of the, the, thing

that we're trying to push out now.

733

:

In terms of future launches, it

is going to depend on, on how the

734

:

Canadian marketplace picks up on this

portable alpha return stack concept.

735

:

I mean, it's, it is in full gear

right now in the United States,

736

:

it is a super exciting space.

737

:

Canada tends to lag a little

bit, and so we gotta decide where

738

:

we wanna spend our budgeting

dollars and our marketing dollars.

739

:

But I don't know, I, you know,

depend, we're gonna start doing some

740

:

more marketing, talking more about

return stack and portable alpha.

741

:

If we see an uptick.

742

:

You know, there's a lot that

we can replicate from the US.

743

:

we also have a bunch of very large

Canadian allocators that are interested

744

:

in what we're doing, and if any one

of those comes in with seed, we will

745

:

be launching more product in Canada.

746

:

If, you want to explore anything

else outside of, RGBM, just

747

:

to go to returnstack.com,

748

:

we have a ton of content, like we have

written prolifically on the topic.

749

:

Any questions, any concerns you

may have in terms of how we stack,

750

:

you know, what the cost of leverage

is, how things react in different

751

:

environments we have written about it.

752

:

Go to the go to returnstackedetfs.ca,

753

:

click on the insight section, go to the

articles, read up on 'em, and, explore

754

:

the other, ETFs that we've launched

in the us if, if you're so inclined.

755

:

Corey Hoffstein: All right, Rod, we've

hit the, uh, end of the questions

756

:

here, so just wanna thank everyone

for joining us, taking the time.

757

:

Rod, thank you for walking us

through this product with such depth.

758

:

We're really excited.

759

:

It's one of the first

of its kind in Canada.

760

:

I.

761

:

we really believe it's a, what we

would consider a better balanced

762

:

fund this combination of stocks,

bonds, and systematic macro.

763

:

We understand it's a lot for people

to get their arms around, but it's

764

:

an incredibly powerful structure.

765

:

We think very unique,

differentiated in, uh.

766

:

The Canadian market, particularly

from a tax perspective.

767

:

So we're really excited about

the early adoption and, and

768

:

look forward to continuing the

conversations with everyone.

769

:

If you do want to learn more, you

can go to return stack etfs.ca,

770

:

or you can go to return stack.com

771

:

and contact us there.

772

:

Thank you again for the time.

773

:

Rodrigo Gordillo: Just quickly, Corey,

right before we sign off, in that

774

:

site, there's a couple of pieces here

that I think everybody should review.

775

:

So, in the website here, if

you scroll down all of the

776

:

informational sheets are here.

777

:

Prospectus, fund fact sheets.

778

:

we are considered medium risk,

that's important in the ETF space.

779

:

And the presentation we just

went through, you can click

780

:

on here to get access to it.

781

:

Fact sheet.

782

:

Currently, we can't show any

performance for the first year,

783

:

but there's information there.

784

:

Quick, overview for

clients if needed, needed.

785

:

And then this product brief has

been super useful for advisors in

786

:

the US to really try to explain

what we're trying to do here.

787

:

You know, it has a nice little imagery

as we, uh, showed in the presentation

788

:

why it's important during bear markets,

and then kind of the full connection

789

:

between the individual sleeves and

the stack and what you can do with it.

790

:

So, uh.

791

:

Please do explore the website, take, make

use of that marketing material, and again,

792

:

go to the insights, lots of webinars

and podcasts for you guys to listen to.

793

:

If you're into podcasts, look, look up the

Get Stacked Investment podcasts where we

794

:

try to dive deeper into these concepts.

795

:

So.

796

:

Sorry, Corey, I,

797

:

Corey Hoffstein: no.

798

:

Great.

799

:

Final,

800

:

Rodrigo Gordillo: I

interrupted your goodbye.

801

:

Corey Hoffstein: Great.

802

:

Final points.

803

:

Yep.

804

:

And again, all that information's on the

website and if there's any, any questions

805

:

that you have, please feel free to, reach

out and contact us and we'll be in touch.

806

:

I wanna thank everyone for

taking the time today to tune in.

807

:

We know your time is valuable

and hope that you got something

808

:

new from this presentation.

809

:

and have yourselves a

wonderful rest of your day.

810

:

Thank you.

811

:

Rodrigo Gordillo: Thank you everyone.

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About the Podcast

Resolve Riffs Investment Podcast
Welcome to ReSolve Riffs Investment Podcast, hosted by the team at ReSolve Global*, where evidence inspires confidence.
These podcasts will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media, covering topics that appeal to left-brained robots, right-brained poets and everyone in between. In this show we interview deep thinkers in the world of quantitative finance such as Larry Swedroe, Meb Faber and many more, all with the goal of helping you reach excellence. Welcome to the journey.


*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.