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On March 15, 2023, WealthChannel co-founder Jimmy Atkinson hosted Darren Schuringa, CEO at ASYMmetric ETFs, on a live one-hour educational webinar for financial advisors and High Net Worth investors. The webinar detailed ASYMmetric’s innovative new approach to maximizing income while minimizing risk.
Note: This webinar has been accepted by the CFP Board for 1 hour of CE credit.
- Jimmy Atkinson, WealthChannel
- Darren Schuringa, ASYMmetric ETFs
- ASYMmetric’s innovative new approach to maximizing income while minimizing risk.
- ASYMmetric’s principal protection philosophy for income investing.
- How MORE combines high income with high quality income.
- How ASYMmetric Risk Management Technology ™ seeks to protect principal by identifying assets poised to appreciate.
- Analysis of high-income producing assets classes relative to MORE.
- Portfolio applications for Smart Income solutions.
- Interactive Q&A with webinar attendees.
Connect With ASYMmetric ETFs
Jimmy: Welcome to today’s WealthChannel webinar. I’m Jimmy Atkinson, co-founder of WealthChannel. And today’s webinar is Generating Greater Income with Less Risk. Today’s webinar is sponsored by ASYMmetric ETFs, and our presenter today is Darren Schuringa, founder and CEO at ASYMmetric ETFs. And with that, Darren, welcome. Thanks for joining us today. How are you doing?
Darren: Jimmy, it’s great to be here, wonderful, despite what’s going on in the overall equity markets.
Jimmy: Yeah, it has been somewhat tumultuous over the past, what, I guess 12 months or so, but we’ll dive into that and discuss that in more detail here throughout the course of our hour today. Darren, before we tee up your presentation, before you start sharing your screen and run through your deck, I had a couple questions I wanted to ask you about income investing. Firstly, to start us off, really simple question, why is income investing so popular? We hear from a lot of our audience of high-net-worth and ultra-high-net-worth investors and their advisors that there’s just a huge focus from that audience on building a high-yielding, high-income portfolio. Why is it so populated these days, Darren?
Darren: Jimmy, there’s a number of different reasons. One is that there’s an aging of the population. So, as people move into retirement and your productive asset is no longer your job, your most productive asset now, or only productive asset is your portfolio. So, it needs to generate current income for investors. And so, that’s one, investors are needing and in need of current income. And number two is life expectancy is increasing. So, it’s great to have current income or high current income even better if it’s quality and principal’s safe, but the problem then is inflation, and we’re facing that right now. So, high current incomes, purchasing power is eroded by inflation. So, you also need a portfolio that produces current income or high current income, but also has the potential to appreciate over time so that your purchasing power of your overall assets or your productive asset increases with time and is not eroded by inflation.
And then finally, we’ve been faced with an environment in really the West, but almost globally, where interest rates have come down, and interest rates coming down has penalized savers. And, I mean, if you look at the trends since the late 1970s in the United States through pretty much current, the trend has been downward. Recently, we’ve been in a little bit of an upward trend in interest rates. So, where do savers go to get income? It used to be treasuries offered a decent yield and current income, but that is…today, it’s okay, but generally speaking, that wasn’t the case, especially when interest rates got to zero. So, the need for income is acute. You need current income to live off of as you move into retirement. And then you need current income that produces or has the potential or prospect of generating principal appreciation over time again to outpace inflation.
Jimmy: Yeah, you mentioned that long-term downward trend of interest rates, it was much higher in the ’70s and ’80s, and it’s been kind of a long steady downward trend since then. We have recently seen quite a big uptick in interest rates over the last 12 months. One of ASYMmetric’s ETFs, which I think you’re going to get to in your presentation in a few minutes is MORE, ticker symbol M-O-R-E. It seeks to generate more than double the income of the S&P 500 with less risk. That’s the tagline on some of your marketing literature and on your website. The S&P 500 is currently yielding well below 2%, and because of that recent uptick in interest rates, treasuries are now yielding anywhere from 3.5% to nearly 5%, depending on the duration you’re looking at. You can get 12 to 60-month CDs that are yielding in the fours, touching the fives a little bit in some places. Those types of instruments are more than doubling the S&P 500 with less risk. So, why not just buy treasuries and CDs for current income?
Darren: Well, I think right now, maybe an interesting time to be purchasing some fixed income. Interest rates are back up. You’re actually getting paid to take on a little bit of risk. And there’s no question. So, I think all of the fixed-income instruments that you just mentioned, CDs, treasuries, whatever you’re looking at, are paying decent yields right now. And so, that’s great. They answer one of the questions, they’re giving you current income, but they’re not answering the second part of the equation, which is long-term, the potential principal appreciation, right? The nature of fixed income you…a bond’s $1,000 today, you hope you get your $1,000 back when it matures and you get paid interest rate, you know, you receive dividends or interest…sorry, coupon as long as you own the bond.
So, there’s no appreciation over that period of time. So, where we are in the United States is interest rates maybe look decent. Given what’s going on right now with a little bit of the financial crisis in banks, something did break based on the Fed raising interest rates now, Silicon Valley Bank, and we’re seeing some contagion effects moving into other banks and regional banks under pressure. Now, Credit Suisse is under pressure. So, the Fed’s even in a more difficult position, do we stop tightening? Well, inflation really hasn’t come under control. So, your real rate of return on your bond is not that great when you look at it, relative to inflation from an investor’s standpoint again. So, your purchasing power of that 4.5% is still being eroded by inflation, but the Feds’ hands are a little bit handcuffed.
So, if they keep tightening, it probably gonna drive us into a recession, more so, deeper, more problems than we have right now. So, I look at it, probably the Fed pauses, I don’t know this, I’m pontificating my crystal ball I’ve known for years is really opaque. But that means fixed income is probably decent right now at current yield levels as an investment, but long term, it doesn’t answer the question if interest rates go back down, you have maturity of two, three, four, five years, whatever it may be, what are you gonna do in two, three, four, five years? Especially if we get into this Japan-type cycle of low-interest rates, bit of stag inflation, maybe a bit of inflation. But generally speaking, the trend has been lowered for interest rates. It’s forcing investors, and it has for years, to take on more risk to try to find that income.
So, what MORE is designed to do is find that balance. It’s like you need current income, you need growth in income because of life expectancy. You need growth income because of inflation. And MORE looks at it, and says, “Okay, not all income is created equally.” And so, how do we find good income? And how do we define good income? Good income is, number one, principal appreciation. It has a low probability of losing money, and even better, price appreciation. It has the potential of generating positive returns in terms of appreciating over time. So, that’s what we’re looking at and trying to help investors with exact problem that they’re facing, and that’s what MORE is designed to do.
Jimmy: So, I get the sense that the philosophy of your family of exchange-traded funds, ASYMmetric ETFs is combining principal protection with high current income. Am I right about that? And why is that strategy or philosophy important to you and your investors?
Darren: I don’t know about everyone else on this webinar, but my lessons have been learned, and they’ve generally been costly to learn. So, they’ve been investing, they’ve been money-losing. And so, I’ve spent most of my career as an institutional investor in investing in income-producing asset classes. And I’ve learned one thing that high current income is only one aspect of the investment equation. If you’re gonna lose 50% of your principal in an investment, it takes too long to earn it back in income. And generally, once the principal, the price goes down of that investment, generally, distributions get cut. So, you no longer even are getting the same income as before, you’re getting reduced income. So it’s doubly bad. You’ve lost principal, you’ve lost income. So, you wanna avoid that type of income trap, which is similar to a value trap, but from an income perspective.
So, looking at that, my philosophy as an institutional hedge fund manager is, and most institutions agree with this, I think virtually all do, and again, high net worth individuals and family offices, is that principal appreciation is the most important aspect of investing. I mean, look, Warren Buffet even said it, right? “What’s the number one rule of investing? Don’t lose money. What’s rule number two? Look at rule number one. And what’s rule number three? Look at rule number two.” Right? That’s how important preservation of capital is. And why? From my philosophy, it’s really simple. It’s like if you don’t lose money… And it’s not that you lose 50%, you need to make 100%. Absolutely. But even more importantly than that is that by not losing money, we are, as investors, leaning into the most powerful tool that we have, which is compounding rates of return.
And now, Boeing, again, for someone who’s infinitely smarter than I am, Albert Einstein, he said that’s the eighth wonder of the world, compounding rates of return. If you lean into, if you don’t lose money, it’s not only that it’s hard to make it back up, but it’s like you don’t lose money. You don’t need the same volatility of returns to generate more wealth over an investment horizon. So, let’s give it a 10, 20-year period, you’re gonna get to the same place or ahead with less risk. It’s like it’s the holy grill of investing. So, that’s why capital preservation is core to our philosophy. It’s what the technology I developed, all of our strategies are quantitatively-driven, so there’s no human element, it’s a discipline, repeatable process.
I’ve also learned another lesson that I can become my own worst enemy, right? Fear and greed. I’m a human being, and it affects me too. And maybe even stubbornness you could throw in there, right? I start to think I’m right about something and I disregard what the market’s telling me. You can do that at your own peril. So, our technology, again, quantitatively-driven, rules-based, removes the human element and removes human emotion as one primary investment goal when it was created, and that was to provide protection against bear market losses, which can be catastrophic. And so, Jimmy, if you do that, then my question to the team was, if we do that, what does it look like? What does the return look like? Don’t worry about returns, just, can we accomplish preserving capital enough?
If we can do that and don’t generate any returns, it’s not very helpful because you convenient cash. But if we can do that and still manage to capture the majority of the upside of the market, wow, we have something that’s really interesting and a unique way for investors to gain equity exposure, to gain income exposure. And again, and I think this is what you see in our marketing literature and where our ticker symbol MORE, M-O-R-E fits in, it’s more of what investors are looking for, more income, more equity upside, more wealth appreciation with less risk. And so, that’s the holy grail of investing. So, if what we’re doing and our technology produces that, investors should be flocking into ASYMmetric ETFs.
Jimmy: Well, I’m looking forward to learning more about that, Darren. So with that, I’ll let you start sharing your screen and begin your presentation, Generating Greater Income with Less Risk. And again, for those of you who may have just joined us in the last few minutes, or in case you missed my earlier announcement, we are going to save some time at the end for some live Q&A, and we may even sprinkle in one or two questions during Darren’s presentation. If you have any questions for Darren, please use the Q&A tool in your Zoom toolbar to submit those questions. Darren, I see your screen, it looks great. Please go ahead.
Darren: Okay, thanks. So, Jimmy, a little bit of what we spoke about here, and I’m gonna make this presentation to you as much as to everyone else just to keep it personal, is looking at these topics, and this is our philosophy, what we know. Retail investors have been told in order to achieve desired equity returns, they need to accept equity volatility. And what does that mean? You look at the S&P 500, it’s the potential to lose 50% more of their assets during a bear market. And the S&P 500, since 2000, what have the returns been, 6.2% over the last 23 years, and with 50% downside. That’s a terrible risk-return payoff. So, the question, and going back to our philosophy, do we wish there was a better way to invest? We do, and we know institutional investors, and that’s our next slide, have been looking for that and have found it, is what we’ve seen, and what we see here is institutional high net worth investors are focused on capital preservation. And a capital preservation approach to investing, as I said earlier, leads into the power of compounding rates of return. Portfolios that did not sustain big losses can potentially achieve the same returns, wealth appreciation, wealth accumulation over time with less risk. So, we think there is a smarter way to invest, and we would argue and put forth today in this webcast that ASYMmetric ETFs provides that smarter way of investing.
And so, what do we do at ASYMmetric ETF? ASYMmetric smart solutions are founded on the philosophy of capital preservation. And we believe that a capital preservation approach is a smarter way to invest because it offers the potential for greater wealth creation with less risk. Again, I don’t wanna back off, if our technology only developed and produced downside protection, lower risk protection against bear market losses, it wouldn’t be good enough because there are alternatives that can mirror that. You can get that type of protection and even better by being in cash.
So, smart solutions seek to lower the risk but not the returns. And returns, we’re talking about long-term capital appreciation in a portfolio. So, diving deeper into our smart solutions here, and I’m gonna break out at MORE for a second because we have three different categories: Smart Equity, Smart Alpha, and Smart Income. And the investment goals of each, Smart Equity are equity returns with a fraction of the risk. Smart Alpha, better returns than the market with similar risk. And Smart Income, more income with less risk.
And so, the question that hopefully comes to mind is, well, why are they smart? And why are they smart is for the reasons we just mentioned, because all of these are superior ways of investing. Equity returns with a fraction of the risk, that certainly is smart. Better returns with a similar risk profile, that’s smart. You’re getting more with a similar risk profile, and finally, more income with less risk too, is the holy grail of investing. So, what to expect more of what you’re looking for. And you see that we really do play on MORE a lot outside of our ticker for our recent ETF, but MORE in just the philosophy of what ASYMmetric stands for.
So, why would you invest in these? When you look at Smart Equity, Smart Alpha, and Smart Income, now these are, again, quantitatively-driven strategies. What we’re looking at here are the index returns that the ETFs follow, they go back to 2000 through 2022. And why would you invest in each of them? And these are the main reasons. Well, for Smart Equity, you can get 9.2% market return. So, that’s our goal there, is it’s achieving its goals? Certainly. It’s generating market returns, that’s 79% equity return. We’ll talk about the risk in a second. Smart Alpha, better returns. I mean,14.5% annualized. If you look at that, and one of the things that sticks with me for my CFA is the rule of 72, 72 divided by your return gives you how fast your money or your investment will double. What 14.5%, you’re doubling your money every five years. And that’s smart. If you’re getting market returns are significantly greater than the market, more than 2x the market with a similar risk profile, that makes a lot of sense.
And then, finally, Smart Income is more income. Historically, it’s had an average yield of 4.8%. I’ve been in this business, but now for a fair bit of time, and I remember when we were budgeting initially for making financial plans, we’d have 5% for our fixed income because we could get that from treasuries, and then we’d look for 10% out of our fixed income. Those numbers have changed. Both have come down, your equity returns have come down and your fixed income returns have come down. So, Smart Income is still generating those type of historical income and returns. So, when you look at it more of what you want here on the Smart Equity, it just compares itself to the S&P 500, 9.2% versus 6.2% Smart Alpha, 14.5% versus 6.2% more than double the returns of the market. And Smart Income, it’s giving you 4.8% versus 1.9% S&P 500 yields.
And moving forward, less of what you don’t want, right, which is risk. And when we look at risk, whether it’s an institutional investor, whether it’s a retail investor or high net worth investor, you’re gonna lose or get fired as an investment professional because you lose someone a lot of money, right? Risk, standard deviation, Sortino ratios, sharp ratios, they’re all interesting, but at the end of the day, if you lose someone a lot of money, you’re gonna get fired because people can lose money on their own, and so they don’t need to hire a professional to lose money for them. So, what we look at, and the way we quantify risk is what’s the absolute worst-case scenario within each strategy on a historical basis? And I also suggest, whether you’re looking in ASYMmetric at our suite of ETFs or you’re looking at another manager, you really wanna understand the risk profile of something. Say, what’s your worst scenario? What was the maximum loss that I would’ve achieved or experienced invested in whatever strategy that you’re telling me? And that’s what we’re looking at here.
So, Smart Equity, these are all based on month and numbers. The worst decline from 2000 through 2022 is 10%. So, remember, we said the risk-return profile for the S&P 500 is pretty terrible. Your maximum drawdown is over 50% losses. And, in fact, 50% losses approximately were achieved both in the dot.com bust 2000 through 2002, and again, in the great recession of ’07 through ’09. You lose 50% of your money and your average returns are 6.2% versus 9.2% average returns, annualized returns with a 10% downside, a much better-balanced risk and return, a much better risk and return profile as a result.
So, Smart Alpha risk profile, we say it’s in line with the market. We like to manage expectations, under-promise, over-deliver. It’s had a 39% drawdown versus a 50% drawdown on the S&P 500, but again, you’re getting over 2x the return of the index. So, so far, and all three of our strategies have a return profile that’s less than the S&P…sorry, return profile that’s greater than the S&P 500 or an income profile greater than the S&P 500 with a risk profile that’s significantly less. From least risky, one-fifth of the drawdown to half the drawdown, to essentially, you know, about 80% of the drawdown, but in all cases, less maximum drawdown relative to the S&P 500 with superior return profiles.
And why does it matter? This is why it matters, because it’s the power of compounding rates of return. So, if you look at the S&P 500, a million dollars invested in the S&P 500 in 2000 would’ve grown to above $5 million, right? So, million to $5 million. Well, if you put that into your smart equity, again, you would’ve generated almost…not quite double the returns of the market, but pretty close. Your smart income, and this is where, Jimmy, earlier question is, such as tight current income, but it’s a prospect for growth, has even delivered better returns than that. So, your million dollars has grown to right around $13 million.
And then, incredibly, your Smart Alpha, even after this recent pullback here that it’s experienced in the market, it’s still up to over $22 million. One million’s grown to $22 million versus $5 million. And that, so for us, Smart Alpha is a new source of alpha within a portfolio. It’s an interesting way of getting more consistent Alpha over the market and generating more, again, of what investors are looking for, which is Alpha when we’re in a bull market. So, those are our three solutions today. Most of our time is gonna be spent on MORE, looking at our smart income solution, our disclosure. These are all benchmarks. You cannot invest in benchmarks. They are all followed by our ETFs that we’ll talk about at the end here as I wrap up.
So, digging deeper into our smart technology, this is our smart technology, which is called ASYMmetric Risk Management Technology, powers all of our ETFs. So, the beauty is the technology is rules-based. It’s a discipline repeatable process. There’s no human element in it. So, that removes the random nature of me or other individuals getting involved in making calls which may or may not be right that are based on emotion versus a quantitatively-driven solution. So, it unites all of our products. So, if you understand what you’re getting in Smart Equity, it’s gonna roll over into Smart Income, it’s gonna roll over into Smart Alpha.
And if it works in one, which it has worked in the technology I developed a little over a decade ago, it was probably one of the largest hedge fund seeds in the country in 2015. That was an investment made by an organization called PAAMCO, which is a fund of hedge funds, which has merged with KKR. They’re now a $25 billion fund of hedge funds, one of the largest in the world. It’s been a year analyzing our smart technology, and at the end of it said, “Darren, we love it. It makes sense, it produces market returns with a fraction of the risk, and it’s an elegant solution.”
So, we’ve brought this technology. It hasn’t changed since I developed it, it’s highly scalable. I took it from its initial application and asked an analyst, “Can we integrate into the S&P 500? And will it produce again? Does it provide protection on the downside against catastrophic losses,” which can occur in bear markets, “and is it able to capture the majority of the upside putting those two together to produce, you know, market returns with a fraction of the risk?”
So, what we found is, yeah, it worked, and into triple Qs, [SP] and then we… So, that was our Smart Equity category, and then we introduced it into Smart Income into Smart Alpha. So, let me talk about what the technology does. I’m keeping it high-level and simple. And I see Jimmy came on, so you want me to…?
Jimmy: Yeah, do a… Or, Darren, we had a question from Stuart. Just wanted to interrupt you and see if we can get this question answered. Stuart asks, are those returns backtested? You just said it was developed 10 years ago, but the data is 20-plus years ago.
Darren: Yeah. So, Stuart, great question. All of our returns, and it’s not a plan on war because they’re forward-tested. And what does that mean? If you backtest something… No one’s ever seen a backtest that looks bad because what you do is you keep tweaking the rules until you get return streams that you like and then you present those return streams to the market. What we’ve done is very different as we… I developed this technology, again, over a decade ago. It is the same technology I’m gonna present today. And we applied the technology without changing anything the same way we manage it, whether it’s a hedge fund solution, whether it’s in our initial ETF ASP1 or our two new ETFs MORE CSP1, it’s run the same way. So, we just applied this technology to new data sets, one being the S&P 500, and we looked at what the returns were.
So, when we’re looking at it, that’s called forward-testing. The technology’s already developed, you’re just applying it to a new data set. So, that’s where the returns are coming from. So, it’s not backtesting. Backtesting is when you keep tweaking your model until the returns look good. In this way, the model didn’t change, all we did is applied it to a new data set. So, Jimmy, did that answer the question?
Jimmy: I believe it did, but, Stuart, if you have a follow-up question or if anybody has any other questions, please keep ’em coming, and we’ll keep getting ’em over to Darren. Thanks, Darren. You can continue.
Darren: No, Jimmy, and that’s a good question, too, because really, the first part of the slides are saying, what am I to expect from the technology? And let me even take one step back to Stuart, to your question. When PAAMCO made the investment, which was a quarter of a billion-dollar hedge fund seed, at that point, it was truly just backtested data. It was when the strategy was developed, there was no lag money in a hedge fund, and they came in and looked at it and said, “No, this makes sense. The rules make sense. The way you’re measuring market risk makes sense to us. We see why it’s worked in the past, and now it’s working currently. It should work going forward too based on the rules and the way you’re looking at market risk.”
So, let me touch on how we do that then. So, smart solutions are all powered by our smart technology. It’s quantitatively-driven, rules-based strategies, again, repeatable discipline, repeatable process, no human element powered by our ASYMmetric Risk Management Technology. At the core, what our smart technology does is, as market risk increases, portfolio risk decreases. And this seems simplistic, but it’s very much of an institutional way of managing risk. And if you ask Goldman Sachs on their prop trading desk, what they do is they see market risk rising, they see market volatility increasing, what does the head trader say to the prop traders? “Pull in your horns. So, lower your gross exposure, lower your net exposure.” And it’s really a common-sense approach. Why does she say that? Is because it’s the ability to… You’re mitigating risk. What’s the maximum you can lose is what you have invested in the market.
So, by pulling in your horns, lowering your gross exposure, lowering your net exposure, you can still lose 100% of what you have invested. Therefore, in highly volatile markets, don’t have a lot of exposure to the market. And that’s what Goldman Sachs is doing, that’s what our institutional solution is doing here. So, I wanna keep it simple. As market risk rises, portfolio risk decreases. So, what does our technology do? How does it measure market risk? So, it does three things. ASYMmetric Risk Management Technology measures, monitors, and manages market risk, okay?
Now, the first part of measuring market risk, we measure market risk into three buckets, bear market, uncertain market, and a bull market. So, it’s pretty easy. We put terms to it, risk-on, risk elevated, and risk-off. Risk-off is a bear market. Market risk has increased on a lower overall portfolio exposure. And uncertain market, there’s a lot of uncertainty, conflicting signals of which direction the market’s headed. Is it in a bull market or a bear market? And at that point, we wanna be on the sideline preserving capital, waiting till we’re highly confident we are moving into…or in a bear market or in a bull market.
Then a bull market is when our signals are agreeing with each other. So, we measure market risk classified into three different segments, bear market, bull market, or an uncertain market. Risk-on, risk elevated, risk-off. And so, how do we do that? And this was my John Bogle moment. And John Bogle did a study on active managers, and he said, you know, “Most active managers don’t outperform the S&P 500.” As a result, 80% was the number.
So, if 80% don’t outperform the S&P 500, 80% of investors would be better off just owning the S&P 500. And he’s right. And paying the least amount for investment management services and passive investing was born. My John Bogle moment was, I spent a lot of life and money on trying to look at big data quantitatively and develop algorithms that we’re able to give ASYMmetric an edge on predicting where the mark was gonna go. And at the end, my belief firmly is that it’s impossible to predict where the market’s gonna go. And why? Because black swan events exist, which are events you cannot plan for because you’re unaware of them. And whether it’s in life or whether it’s in an algorithm, it doesn’t matter if you’re unaware of something, you can’t plan for it or you can’t program for it. And number two is that correlations change over short periods of time. And as a result, even if you are aware of something and the relationship changes, what you’re programming for doesn’t work.
So, the John Bogle moment was then, don’t try to predict where the market is, but now with a high degree of confidence, let the market tell you where it is currently. So, that’s what we do. The ASYMmetric Risk Management Technology lets the market tell us where it is currently, and it uses two price-based signals. So, price, that’s the market, right? One is the price movement of the market, so a technical analysis, and two is the price movement of the underlying securities of the market. And that’s realized volatility, which is a proprietary measure of volatility that we created that measures actual volatility versus implied volatility.
And if you think of the common sense again, and hopefully that’s what comes outta this presentation, that this makes sense, ASYMmetric Risk Management Technology, hence why PAAMCO made the investment and why you should as well. I would argue at least at a minimum, take a deeper dive and speak to me personally is because these two price-based signals are telling us where the market is currently. And again, going back to my earlier comment, I’m not fighting the market, right? Why? As an investor, I make money in the market. So if the market’s trending upward, why do I wanna see a bear market around the corner if it’s moving up? No, we wanna participate in an upward-moving market or a bull market. And if the market’s moving down, trending down in a bear market, we wanna offer protection in a bear market, and also the prospect, depending on the strategy of generating positive returns in a bear market.
So, by letting the market tell us with a high degree of confidence what the current market risk environment is, we’re actually playing into to our strong suit, again, which is the market. That’s where we make money and not trying to be contrarian and making guesses or best estimates on where the market’s gonna be, and maybe being right or maybe being wrong. So, with a high degree of accuracy, ASYMmetric Risk Management Technology, by using two price-based signals, is able to predict where the current market risk environment is.
So, if you look at our bear market, our price momentum indicator, again, this is the price movement of the markets. We’re looking at the overall market, a technical analysis, it’s driven by the 200-day moving average. So if the market’s above the 200-day moving average, right here, it’s a walk sign. The market’s trending up, that’s a positive. We generally see that in a bull market. If the market is broken beneath the 200-day moving average, that’s a don’t-walk or a risk-off. The market’s trending down, that’s reason for caution. Nothing good happens below…or potentially nothing good happens below the 200-day moving average if the market’s broken a major technical support.
And then, finally, or flipping over, so those are the price momentum indicators. The price volatility indicator is a measure of dispersion. It’s looking at the price movement of the underlying securities that comprise whatever market we’re managing risk. And so let’s say use the S&P 500 as an example because two of our products are based on the S&P 500, ASP1, and CSP1. It’s looking at the 503 securities currently that comprise the S&P 500, it’s measuring the dispersion. So, the one thing about price fall, which is our proprietary measure of realized volatility, it’s never wrong, and that’s a bold statement, but follow me for a second because it’s measuring the actual movements of the underlying security. So it’s just a quantitatively-driven or a statistical measurement of risk. So, it’s not predicting risk, but it’s same where the current risk is.
So, what you find is that the dispersion of returns, when the market’s in a bull market here, and realize volatility’s low, the dispersion of returns are tight like water in a solid, so like ice, the molecules are tied together and stocks are generally moving up together, technically. As risk starts to increase, water goes from a solid into a liquid, the dispersion of returns start to move apart, and finally as you move into a bear market and you get panic selling, and anyone who’s a little older who’s lived through a couple bear markets knows what that looks like, it’s indiscriminate selling and your dispersion of returns blows apart like water moving into a steam. And it’s really descriptive of what happens with fear and greed in the market.
And so the two things come together, right? We don’t just look at the technical analysis, we also want… The technical, is the market trending up or down corroborated by what are investors telling us? What does investor sentiment look like? It’s measured by realized volatility. Are investors panicking? And so, in a bull market reading, market’s trending up above the 200-day moving average and realize volatility’s low. In an uncertain market, the market’s broken down. Okay, that’s bad. So, our technology says that we don’t like that. Now, what is realized volatility telling us? Is it high or low? And if realized volatility’s still low, we have two signals that are conflicting. So, we’re gonna sit on the sideline. We need both of our signals to agree before we’re gonna commit a portfolio directionally, whether it’s either up or down.
And then, finally, in a bear market, we have the market broken down beneath the 200-day moving average technically, and we have a spike in realized volatility, this blowing apart of dispersion of the underlying constituents of, in this case, the S&P 500, this example, and we see panic selling. When both of those things come together, we’re highly confident we’re in a bear market currently. We’re in a bear market. Tomorrow will be to be determined, but currently, we’re in a bear market. And if you look at it, bear markets last, what? Anywhere from 12 to 18 months. The longest was 4 years, 1928 through ’32. Three years, oh, 2000 through 2002, couple of years, ’07 through ’09.
So, our signals, the benefit of looking at prices is high degree of accuracy of where the market is currently. The downside of price is they’re never gonna tell you where you’re gonna be. They’re always rear-view looking, right? Price, once a price’s printed, it’s history. You’re looking in the rear-view mirror. So, what to expect from ASYMmetric Risk Management Technology is as you’d hope that we would capture the majority of the upside, and I can show you the results of a base buy, our initial fund that captured 81% of the upside of the S&P 500 through the bull market of 2021, and it cut losses in less than half in the bear market of 2022, so… But the market’s gonna roll over before the signals. So, you’re never gonna capture, you’re never gonna top-tick or bottom, pick the bottom out with ASYMmetric, but that’s okay. You don’t need to. Again, these are long-term investment solutions that we’re trying to capitalize on positioning a portfolio to participate or protect, and ultimately to profit in either kind of market by getting the market, right?
So, that’s how we monitor risk, and then we manage it. And I touched on this already, in a bear market, it’s the least amount of market exposure because what can you lose? Going back to the Goldman Sachs example, only what you have invested, and you can lose 100% of it, so don’t have a lot invested. So, we reduce our overall gross exposure to the market, what’s that, capital at risk, and two, depending on the strategy, we actually potentially go, or do go slightly net short so that your money always has the prospect of earning a positive return versus whether we’re in a bull or a bear market. Then, in fact, well, if the technology is accurate in identifying whether we’re in a bull or bear market. And then the greatest exposure is in a bull market. We’re positioned to profit. We wanna participate in the majority of the upside of a bull market because we’re in assets that are appreciating. That’s when we want the income. When we’re getting high current income and we’re getting appreciation, that’s the holy grail, what we’re looking for in MORE.
So, smart technology for Smart Income, this is getting into more here in more detail is ASYMmetric Risk Management Technology for more allocates capital to high-income producing asset classes in a bull market and away from those that are in a bear market. So, the high-income producing asset classes are MLPs, REITs, and utilities. Well, I shot forward the screen. And so, ultimately, what our technology is doing, again, it accurately measures current market risk. At its core, that’s what ASYMmetric Risk Management Technology does.
So now we’re applying it to MLPs, REITs, and utilities, and this is the first question the technology’s asking, is, okay, are MLPs in a bull market based on… And another question is yes or no. And then are REITs in a bull market? Yes or no? Are utilities in a bull market? Yes or no? And if all three are in a bull market, the technology will allocate a third, a third, a third of the portfolio. If one of them drops into a bear market, then we’ll allocate 50/50 to the asset classes that are still in a bull market. And if another one drops off, so you only have one in a bull market, then 100% of the portfolio will be allocated to whatever asset class is in a bull market.
The logic there of the technology, again, allocating away from asset classes where principals at risk have moved into a bear market towards asset classes where the prospect of price appreciation is high or in a bull market. So, you’re getting high income, but you’re also getting high-quality income because that’s the prospect of capital appreciation. So, that’s what ASYMmetric Risk Management Technology is doing in MORE. Now, it’s smart technology, correct? This is a high-income-producing strategy. So if all three, MLPs, REITs, and utilities are in a bear market, what does it do? It doesn’t go into cash. It says, okay. In a risk-elevated environment, the fund seeks to protect capital, will still maximize income by allocating to U.S. treasuries. So, are any treasuries in a bull market? And this what looks at 30-year, 10-year, and 90-day T-bills.
And then says, are any of these in a bull market? If so, we wanna maximize income for our investors, too, but without putting principal at risk or doing our best to protect principal. And so, the risk elevated, it’ll move into the safety of treasuries if treasuries are in a bull market. And then, finally, security. At the end of the day, capital preservation. If there’s no bull markets anywhere, and last year as an example where equities were down and fixed income was down, then the technology will allocate to the ultimate or relative safety of cash from a principal protection standpoint.
So, that’s what MORE is doing in terms of allocating capital, measuring risks across MLPs, REITs, utilities. And if they’re in a bull market, great, we’ll allocate to them. If they’re not, then it says, okay, can we find a bull market story in U.S. treasuries? Great. If we can, we’ll allocate to the treasury that gives us the maximum amount of income. If we can’t there either, then we have to go to the ultimate safety of cash because we’d rather be sitting on the sidelines waiting to have high degree of confidence. We’re entering into a new bull market phase in these asset classes, and at that point, we’re really getting in at the bottom, we’re picking up high current income with asset classes that are poised to really appreciate over time. And we preserved the principal along the way.
So, that’s what MORE is doing. I’ll answer more questions. So, when you look at… Again, this is a report card on the efficacy of the technology. So, here, you’re looking at the risk environments. Where you see the gray lines, you are in a risk-on environment and the white is risk-off. So, you see here, again, ’07 through ’09, MLPs depreciated significantly here. That was almost a 50% decline. The technology had us in a risk-off environment. Again, here, risk-off environment, again here, risk-off environment. So, certainly, and you see that the same for REITs. And two things to notice, pretty much the entirety of the downturn here in these various asset classes, when you see big correction, and this is utilities, that we’re in a risk-off environment. We’re not getting whip side on, off, on, off, that’s not helpful. Our portfolios are rebalanced on a monthly basis. They’re looking to capture and participate in the entirety of a bull market and provide protection or profit in the entirety of a bear market.
So if you look at the efficacy, clearly, ASYMmetric Risk Management Technology is highly effective at identifying bear markets without getting whip side back and forth in between bear markets. So, it does provide the protection, it does measure market risk accurately, and as a result, again, there’s no human element, reduces exposure, and provides protection. So, what you see here, again, is it produces better returns with less risk. And so MORE as a fund relative to MLPs, REITs, and utilities. MORE, we’re looking at, at the index performance, which again, is integrating our technology into and measuring the risk on MLPs, REITs, and utilities.
And then when they’re in a risk-off environment, lowering exposure risk-on, adding exposure to them systematically. You can see that the orange line is more and more at the end of this period of time produces the best performance. But more importantly, it’s… Look at the risk profile. It’s not just the performance, but here’s the swings you have in MLPs, which at one point were the best-performing, but look at the losses that you would’ve taken at this point. You know, more than 50% of your capital would’ve been lost, which is catastrophic over a multi-year period of time. And then bouncing strongly off the bottom, no one can live with that volatility, especially in a fixed income-producing asset class. MORE just gives you a slower, steadier ride to greater returns in higher income. Here’s your REITs. So, ultimately, whether you invested in REITs, utilities, or MLPs, and you’ve used those for current income, please take a look at MORE. It’s giving you better returns with more secure income over the period of the past 23 years that we’re looking at.
So, that’s just an example of comparing MORE to the asset classes that comprise it than making it up. So, better performance with a significantly lower risk profile. So, digging deeper into smart income, it’s engineered to generate two times the income of the S&P 500 with less risk. We use the S&P 500. It could be other asset classes. I saw a question come through earlier on that, and it’s like, the reason we use the S&P 500 is because most investors understand it, especially retail investors. It’s easy. So, if you’re looking at the S&P 500 as a benchmark, which we do with all of our strategies, the risk profile and all of our strategies is below the S&P 500. So, our most risky strategy, our Smart Alpha, has a risk profile that’s less than the S&P 500.
So, we’re doing it just because its ease of understanding for investors. You can compare it to any benchmarks. If you wanna call me and look at other benchmarks, we have a lot of studies prepared that we would be happy to share with you, but we compare it to the S&P 500 just for ease of comparing all of our strategies relative to one benchmark.
The annual yield, as you can see here in MORE, it’s variable, but it’s consistently right around that, the 5% mark. In certain years when it dips below it, it’s because we’ve moved into a risk-elevated environment and some of our asset classes are into risk-off for a period of time because there’s no bull markets, and when that happens, income is gonna go down a bit, always above the S&P 500, even in our worst years. But from an income perspective, you’re looking for higher inconsistent income. So, that 4% to 5% is pretty much most years where you’re finding it. You’ve seen some peaks in the early 2000 through 2002 where it reached 7% in the portfolio.
But it’s giving you an indication, again, consistency of income, certainly more than the S&P 500 consistently since it’s beginning. And less volatile. Annualized performance here that you’re looking at. It’s had a couple of down years, significantly less than the S&P 500, fewer down years than the S&P 500. The upside capture on MORE has been in line or better in most years than the S&P 500. So, you’re getting a significantly more income relative to the S&P 500, significantly less risk, which is important to us, and then even on an annual basis, you’re pretty much capturing what the market’s doing in most cases or a little better.
So, that’s the risk profile. And then it’s the power of compounding rates of return. Why does all this matter? Why does capital preservation matter? Why does safety of income matter? Because you’re getting more of what you’re looking for. At the end of the day, you can get more wealth accumulation with less risk by focusing on capital preservation and leaning into to the eighth wonder of the world, which is compounding rates of return. So, you’ll look at it here. This is a risk-return profile. There’s one thing I do wanna point out, correlation 0.39. If you’re interested in, and a lot of you, I’m sure, well, are, asset allocation, that MORE will lower the risk of an overall multiverse portfolio while increasing the income and the performance due to its low correlation. And then the goal and the investor profile, it’s looking for conservative investor, that’s looking for secure income that is maximizing income and minimizing risk. So, risk profile is low overall for the fund. All of our funds have a risk profile that’s below the S&P 500.
So, I’m gonna turn it back over to Jimmy here and go to questions on MORE or any of our other strategies. So, Jimmy, back to you.
Jimmy: Yeah, great. Well, thank you, Darren. And we did have quite a few questions that came in. We’ve got another eight or nine minutes before we wrap up and call it an hour and call it a day. So, in our remaining time here, let’s get to some of the questions. We had quite a few people ask us if you were able to share a copy of the deck. I know you shared it with me. Would you like me to distribute the deck to our audience or do you want me to direct them to you? Darren, how do you wanna handle that?
Darren: No, please share the deck.
Jimmy: Okay, so we’ll…
Darren: Yeah, we’re big on transparency, and even look at our website, we want investors to understand what’s going on within our portfolio. So, every month, you’ll see what the current allocation looks like across all of our strategies so you know what to expect, or if you’re investing on behalf of your clients, your clients will know what to expect.
Jimmy: Okay, so I’ll get a copy of the deck to everyone who registered for the event shortly here, okay? We had a follow-up question from Stuart. He was the one who had the question about backtesting a few minutes ago. He asks…well, he points out that what you did is called out-of-sample testing, but you must have some in-sample data testing as the foundation of your hypothesis. Often, data managers use 70/30 split between the two data sets, so I’m gathering is that your returns are backtested and not actual traded dollars. Is that right?
Darren: That is correct. That is correct.
Jimmy: Good. Couple questions now from Jennifer came in a few minutes ago. Her first question is, what guardrails do you have around keeping balanced allocation, i.e., end up overallocated in short-term treasuries?
Darren: So, Jennifer, let me… How do we prevent from being overallocated to short-term treasuries? Let me answer how it would take us to get allocated, how MORE would get allocated to short-term treasuries. MORE would only be allocated to short-term treasuries when ASYMmetric Risk Management Technology has not identified a bull market in either MLPs, REITs, utility. So, our high-income producing asset classes are all in bear markets which generally would occur during a major market correction.
So, okay, we can’t find any safety in our high-income-producing asset classes, then it will switch. The technology will say, well, we still wanna generate high income. Can we find a bull market in treasury? So that it looks at 30-year, 10-year, and 90-day T-bills, and it looks for a bull market in U.S. treasuries. If there’s a bull market in U.S. treasuries, it will allocate 100% of the portfolio to whatever treasury offers is in a bull market and offers the high shield. Again, the goal of maximizing income while still providing a potential portfolio or principal protection.
And then, finally, if it can’t find any bull markets in treasuries, nothing in high income-producing equities, nothing in treasuries, so risk-off, risk-off, then it’s gonna go to ultimately cash for a period of time until it starts to identify bull markets again in treasuries or securities. So, when you look at the portfolio historically, it’s not allocated to treasuries. A very small percentage of the overall time is allocated to treasuries, to short-term treasuries, even a shorter allocation over the past 23 years when you look at the index data.
So, I hope that answers your question. Those are the guardrails. The only time we’d be there is if, again, it’s risk-off in all the high-income producing asset classes. And then the only U.S. treasury we can find a bull market would be short-term treasuries.
Jimmy: Hmm. Well, she just asked a follow-up question, which is, is there any point in time in which you could potentially be all 100% allocated to short-term treasuries in this?
Darren: Yes. Yes, there would be, correct, because the way the technology works is that when it looks at treasuries, it’s going to say, okay… Let’s just say they’re all in a bull market. Long data treasuries and short data treasuries are all in a bull market, then what it’s going to do, it’s gonna allocate to whatever treasury offers the highest amount of yield that’s in a bull market. So, absolutely, by the very nature, we’re gonna be 100%, the portfolio will be a 100% invested in treasuries. If there’s no bull market in, again, high-income producing equities or these asset classes, and there are bull markets in treasuries, it will be 100% allocated to whichever treasury is in a bull market that offers the highest yield for a period of time. That’s our risk-elevated posture until we start to see where we really wanna be, which is where we get price appreciation and higher current income, which is in these high-income producing asset classes. So, it’s a holding pattern when we’re into treasuries, it’s not a permanent allocation within the portfolio. Hopefully, that helps to think about. That would be a risk-elevated event or posture within the portfolio.
Jimmy: Yeah, no, that’s great. Thanks for answering that. And thanks, Jennifer, for the questions. Actually, Jennifer had one more question.
Jimmy: She submitted a few minutes ago, which was, what is your cash balance currently?
Darren: Okay, so, Jennifer, currently, it’s pretty close to zero, and as long as we can find the ASYMmetric Risk Management Technology, you can find the bull market either in the high-producing asset classes, which is really where we wanna be invested because they’re in a bull market and we’re getting high current income and price appreciation, two things that investors need and that MORE is looking to produce. Or we’re going to be in treasuries because we can find a bull market there. We’re gonna be 100% invested. The only time we’re going to be in cash in the portfolio is really in catastrophic times. There’s no bull market in equity, so we’re probably into a pretty severe bear market where correlations spiked across all asset classes.
So, no bull markets in high-producing asset classes. On the fixed-income side, interest rates must still be rising because there’s no bull markets in treasuries either. So, there’s not this negative correlation between equities and treasuries. And at that point, we’re gonna be 100% invested in cash for a period of time as we can see, either find a bull market in treasuries to increase the yield or in high-income producing…the asset classes, MLPs, REITs, or utilities.
So, again, let me summarize that. The portfolio more will be fully invested always, and the only time we’ll be in cash is if there’s no bull markets in equities or in treasuries.
Jimmy: Got it. Okay. And then, Jennifer, thanks for all those great questions. Darren, Stuart had another question for you. He says, “So are you just using the 200-day simple moving average to determine if REITs, MLPs, and utilities are in favor or out of favor? And if so, are you using a particular index for each asset class?”
Darren: Yes. So, the answer to that is yes and yes. So, for MORE, we’re using the 200-day simple moving average to determine whether the MLPs, REITs, utilities are in favor or out of favor currently. So, we’re using the price momentum indicator, one of our two indicators from ASYMmetric Risk Management Technology to determine whether they are in or out of favor. And, yes, we are using specific indexes on each of MLPs, REITs, and utilities to determine whether it’s above the price momentum indicator or the 200-day moving average or below the 200-day moving average.
Jimmy: Good. We are just about out of time. I’ve got one more question here for you, and I’m also trying to get that link to the deck shared before we hop off, but…
Jimmy: A question I have for you now, Darren, you know, regarding some of these income asset classes that you’ve been referring to, REITs, MLPs, utilities, are the publicly-traded versions of these valued at a discount compared to private funds right now, broadly speaking?
Darren: I’m not sure. So, like, I don’t have that data in front of me, and I don’t wanna answer a question that I don’t know. And I think the only place you’d have that would be in REITs pretty much, right? So, it wouldn’t apply to utilities or MLPs. So, I don’t have that data in front of me. So, I never wanna answer a question when I’m not certain I could find out. But I’m not sure. Yeah. And so, there’s my answer to that question.
Jimmy: Okay. Well, I kinda caught you off guard with that one, but that’s all right. It was a tricky one. We stumped you once, otherwise, you did great, Darren. Thank you so much for your presentation today. I did just post a link to the deck in the chat. If anybody wants to grab that version right now, that’s the PowerPoint version, you should be able to open it up on your device though. And we are at the top of the hour, so we’re gonna cut everybody loose here. This entire webinar was recorded. We’re gonna circulate the recording to everyone who registered for the webinar, and we’ll make sure to link to the deck in the page that that recording will be hosted on. Darren, I don’t know if you had any final thoughts or final words, otherwise, we’ll let everybody go.
Darren: No, just thank you. Thank you for your intending, thank you for your interest. If you’d like to follow up with me and have a call, my number’s 212-755-1970. Would love to connect in person.
Jimmy: Perfect. All right, well, thank you, everybody, for attending and participating. Thanks for all the great questions. And thank you to ASYMmetric ETFs, our sponsor for today’s webinar, and thank you to Darren. I’ll see you guys next time. Thank you so much.
Darren: Thanks, Jimmy.