Risk Management And How It Intertwines With The ETF Landscape (Podcast Transcript)

Oct. 12, 2021 9:53 AM ETASYMshares ASYMmetric 500 ETF (ASPY)
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Summary

  • Learn how risk is being viewed in the investment marketplace and how ETFs can provide support.
  • Understand what ASPY is all about and how it can be integrated into a portfolio.
  • Darren Schuringa, CEO of ASYMmetric ETFs, provides listeners with insight into how risk can be managed with ASPY.

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Editors' Note: Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy.

Podcast Transcript:

Jason Capul: Welcome to Let's Talk ETFs. I'm your host, Jason Capul, and I've been monitoring the investment space throughout my entire career. Here at Seeking Alpha, I'm an ETF Strategist and my role is to uncover and bring forward news and information to the investor community that is meaningful and actionable. Each week, a different guest and I will take an in-depth look at a particular aspect of the rapidly evolving exchange traded fund space, with a focus on how Investors can best utilize ETFs to reach their investment goals.

Before we begin, a brief disclaimer. This podcast is for entertainment and educational purposes only. Nothing said here should be taken as investment advice. All opinions expressed on this show are those of individuals expressing them alone. A full set of disclosures will be included at the end of this show. You can subscribe to Let's Talk ETFs on Apple Podcasts, Google Podcasts, Spotify or whichever podcast platforms you prefer.

For reference purposes, this podcast is being recorded on the morning of September 23, 2021. Joining Seeking Alpha today is our guest, Darren Schuringa, CEO of ASYMmetric ETFs. Darren holds an MBA from Rollins College as well as a Bachelor's degree in accounting and finance from Western University. He's also successfully founded and grew and sold two ETF businesses, Yorkville ETF Advisors and Exchange Traded Concepts. His pioneering work in the rule base risk management has led to one of the largest hedge fund seeds of 2015. ASYMmetric ETFs combines his background in the hedge fund world and the ETF world. And ASYMmetric ETF was actually just shortlisted for two of fund intelligence mutual fund industry ETF awards for 2021, the Newcomer ETF firm of the year and also the Newcomer Alternative ETF of the year. So well done on that.

And we're very excited to have Darren here with us to discuss the topic of Risk Management and how it intertwines with the ETF landscape. So without further introduction, please welcome Darren Schuringa.

Darren Schuringa: Jason, thank you for having me on.

JC: Absolutely. How's everything going for you today?

DS: It's a wonderful day. Probably not as good as Montana. But New York City is looking pretty bright.

JC: Absolutely. And for listeners that might be peeking in today, I'm actually in Flathead Lake Montana. Usually I'm in the New York area, but I'm away this little bit. So yes, we are enjoying them. And yeah, I'm glad that everything's going well for you as well.

So Darren, the way we usually love to kick our podcasts off is by allowing our audience to just learn a little bit more about information, about who you are as an individual, the organization you're behind. Would it be possible if you could kind of elaborate? I know I did a little bit of a brief introduction, but to provide our listeners with a little bit more of a story around your background.

DS: Love to. So this is my -- ASYMmetric ETFs is my third ETF venture. But it's my greatest passion. ASYMmetric ETFs is looking at where I saw a need in the marketplace and the need was investors today don't have the tools that are required to meet the challenges of today's market as well as the risks. And so ASYMmetric ETFs is bringing an institutionally vetted hedge fund solution down to main street investors.

And, Jason I love this analogy because it rings so true to me and then the bigger vision of what we're trying to do. It's the uber analogy, Uber through technology brought black car service to the masses and revolutionized the way people commute. And prior to Uber, the masses didn't have access to Black Car services.

And ASYMmetric through technology is bringing the benefits of hedge funds, which are ASYMmetric returns, because a lot of hedge funds are broken too and don't work to Main Street, and our goal is to revolutionize the way investors manage their portfolios and invest.

JC: Awesome, yeah, everyone's got to change the traditional way of business and rock the boat a little bit to bring forward new innovative ways on how to look at the looking glass. I like to hear that.

And one of the cornerstones of investing, as we all know, is risk management. And just looking at the current state of the financial markets and its recent sell off, and now actually rallying today and this week rallying back, where are you seeing the kind of money flow? Is this time to be risk on risk off, perhaps cautiously risk on? How are you as an investor looking at risk right now?

DS: Okay. So let me -- I'm going to take your question in two parts. The first part will be the cornerstone of investing as risk management. Let me touch on that more briefly and then I'll get into to what I'm seeing in the marketplace right now.

So I think the concept of risk management as a cornerstone is investing a step further, I would argue, the secret to wealth creation is capital preservation. And that's a little bit of a contradiction to the way most people think of it, like wealth creation, well, that's alpha generation. And that's partially what the market's thinking today, Jason as well. They're chasing the hot dog looking for, for greater returns. You've seen that meme stocks, you've seen that with Bitcoin, we've seen that with a lot of different asset classes that have been really hot, investors chasing alpha.

And we want to change, ASYMmetric wants to change that narrative. It's like no, you're missing it. If you’ll talk to an individual that's had a liquidity event or a multi-generational family of wealth or even in a risk, what’s the first thing they say is don't lose my money. And it makes common sense, number one, because I think at a fundamental, whether you're a retail investor, whether you're like my wife, who's an educator, and you're saving up in your 401(K), it takes a lot of effort to create savings. And so you don't want to lose it, number one. That's why wealth creation is so important.

And the second part is mathematically, the last two bear markets, the S&P 500 has experienced, it's experienced losses of 50%, well, you lose 50% of your equity value, you need to make 100% up to get whole again. So by not losing your principal, you have the benefits of compounding interest. So you have your principal. It's always available for you and if you can get growth out of it every year, it's growing for you. So that's to me, we need to change the narrative, stop thinking about alpha generation, as investors. This is Seeking Alpha, the way you're going to get alpha is by capital preservation and the benefits of compounding long-term. So that's my first point.

And then the second one, I think, when I look at the market today, the unintended consequences of low interest rates have forced investors to take on more risk in their portfolio. And I'm seeing this as I talk to advisors on a daily basis. And one of the areas where it's so obvious is that with interest rates near zero, historic lows, advisors are looking for income, investors are looking for income for their portfolio, and what are they doing? Well, they're taking on more risks. They're looking at REITs, they're looking at utilities, they're looking at preferred, they're looking at high yield.

And all of these asset classes that are providing alternative sources of income are great when the markets moving up, but they're not so great when the market goes down, because they correlate with equity. So my concern for the market today is that portfolios overall are assuming more risk, whether it's a retail investor or an advisor, portfolios just have more risk in them today. So let me leave it at that right now and turn it back to you.

JC: Yes, no, absolutely. And I kind of agree with you in a sense that the investors are almost in a way forced to take on more risk, because what else is out there and from an alternative option, depending on what the overall portfolio structure you have is, and I like what you mentioned the idea of capital preservation and the idea of it's always just about limiting the downside, but at the same time, you want to maximize that upscale trend, put the chips on the table when it's appropriate.

And you guys have an interesting ETF, the ASYMmetric 500 ETF, which from my understanding is more of a quantitative fund designed kind of around that, around price volatility to essentially aim to make money in the bear markets, protect against those losses while still capitalizing on the gains during the uptrend. And you can correct me if I'm wrong, but I was hoping that you could kind of dive us into a little bit more of what the building blocks of the ASYMmetric 500 ETF, ticker ASPY, A-S-P-Y is all about?

DS: Sure. I'd love to. So let me start by benefits and then I'll drill into what some of the building blocks are. We won't cover it all on the call but we'll get through a lot of it. And so ASPY is designed to, which is our ticker symbol ASPY, the ASYMmetric version of the S&P 500 is designed to address the problems we just discussed above.

Investors are taking on more risk in their portfolio and they need new tools to combat these portfolio risks. And historically investors have had two options, Jason, they've had stocks and they've had bonds. Now as you know, there's many flavors of stocks and bonds in funds today. But when you boil it down, that's basically two choices, alternative A and alternative B. We're giving them a third alternative, which is now ASYMmetric returns and when we define ASYMmetric returns, it's the ability to make money in down markets and capture the majority of bull market gains. So it's an absolute return producing strategy.

When you add ASYMmetric to your portfolio, what's -- it's a disruptive risk management tool. And it does what nothing else can do in the market today, when you look at stocks or bonds in that, it actually, when you add it to a portfolio, you have the potential of reducing the risk and improving performance. And that's very different. What I mentioned earlier, if you're taking on more risk and in chasing yield, well, that's adding risk to the portfolio. It's going to highly correlate with equities. If you go into high yield, you have again, equity like risk when the market corrects, and if you do nothing on your equity side, well, markets are at all-time highs.

So we're giving a new tool to investors, is this ASYMmetric return producing solution that's designed to optimize portfolios, lower the risk and improve performance. So again, the technology, it's new, and in ETF form. It's been around for about a decade, the most notable use of ASYMmetric risk management technology, was behind the hedge fund seed. It was one of the largest hedge fund seeds in the U.S. It was a $250 million seed made in 2015 by an organization called PAAMCO, Pacific Alternative Asset Management Co., that they're a fund of hedge funds.

So at the core, what does ASYMmetric risk management technology do, because to produce ASYMmetric returns is not easy. It's a tough and tall order, is with two price based indicators that measure market risk and when we, in an attempt to accurately measure market risk, then we position the portfolio to, or in this case, the ETF but it's still a portfolio, the ETF to profit from the current risk environment we see.

So let me kind of simplify that again, if I can. So two price-based indicators accurately designed to accurately identify market risk. And when we identify the market risk, what do we do, we then systematically change the portfolio exposure. So there's no derivatives in this portfolio, it’s a long short portfolio. What are we doing?

We're dynamically or systematically managing that exposure. So in a risk on environment, as you said earlier, when you want to have your chips on the table, volatility is low. The markets trending upward, those are the two signals. We're 75% net long the market, meaning, we'd expect ASPY to capture 75% of the upside.

In a risk-off environment the other end of the spectrum, the market's broken down technically, volatility has spiked. We are in or the portfolio is in a risk off environment. We're net short the market. So when vols spite the market's broken down technically, and the portfolio is net short, what are we short? We're actually short, in this case, the Spider, SPY.

So if we're accurately identifying that the market is in a bear market, it's losing money, and the portfolio is net short the market, what's going to happen, the portfolio should go up, correct.

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JC: Absolutely. So I guess taking that a little bit of a step further. I'm trying to, I guess, say this in a way for everyone to understand that who maybe didn't catch on all the way. So ASPY and a traditional benchmark, SPDR ETF, SPY or the S&P 500. Is there a breakdown comparison difference? Are you guys both kind of more, because you said there's no derivative products that are unrelated to the ETF? Are they both kind of in parallel conjunction, and for example, ASPY is just the additional gas on break when needed? See if you could kind of dissect away of what the difference is between the two from that kind of standpoint?

DS: Absolutely. So ASPY is the ASYMmetric version of the S&P 500, which means ASYMmetric returns are the ability to make money in down markets and produce positive returns and capture the majority of bull markets. So clearly that's not the S&P 500. So what are we doing and what is our technology doing, and how does it relate to the S&P 500? Well the S&P 500 is the building block. Okay, we start with the S&P 500, and that becomes the tools at our disposal to create ASYMmetric returns.

So with the S&P 500 as our building block, we integrate our technology, ASYMmetric Risk Management Technology into the S&P 500. Now by integrating our technology into the S&P 500, we transform [indiscernible], beta high volatility exposure into low volatility uncorrelated ASYMmetric returns stream. So we create something completely different from it. And how do we do that?

First of all, I like your analogy, the gas in the brakes. We're dynamically managing net exposure. So we are net long in a risk on environment when it's a money making environment and in a risk off environment, we're net short. So we always have long exposure in the portfolio and we always have short exposure, because again, we want to be the conservative equity exposure within an investor's portfolio. We're not swinging for the fence. Capital preservation is our mantra. And every aspect of the portfolio construction is designed to deliver upon our investment objectives.

So our two books then, so at its core, as market risk rises, we lower portfolio exposure, and really that's at the core, as market risk rises, we lower portfolio exposure. Now that seems really simplistic, but think if it, what does Goldman Sachs tell us prop traders, as market volatility increases, pulling your horns, correct. Lower your gross exposure, lower your net exposure. In a risk off environment, it's not the time to be a hero. Don't lose the bank's capital, because the probability of being right is so low, it's like a roulette wheel, when you bet on a single number, the probability you're going to get that is extremely low.

Now if you get it right, you make a lot of money. But that's not the way banks play with their capital. They're looking for slow and steady returns. So ASYMmetric Risk Management technology is doing the same thing for retail investors. We are, as market risk rises, we're lowering the overall portfolio exposure, because what's the maximum amount of money you can lose, is what you have invested.

So that's our first line of defense, just lower overall exposure. And we can do that in a tax efficient fashion because of the ETF structure, which is also a tremendous benefit relative to regular commingled hedge funds.

The second thing that we're doing is we're managing ultimately net exposure. In fact, net beta adjusted exposure, if I get a little more technical. So in a risk on environment, again, we were 75% net long, in a risk off environment, we're 25% net short. We expect to capture the majority of the upside of a bull market and we expect to by being net short, and being net short the market, we expect to make money in a bear market.

So in summary, what we've done is the S&P 500 is our building block, and it's our benchmark. We take the S&P 500, integrate ASYMmetric Risk Management Technology into it and transform it into an ASYMmetric Investment Solution. And to-date, we haven't seen anything in the marketplace in an ETF form that does anything near what ASPY does.

JC: Got you. Excellent. So I guess really, ultimately, volatility is in some degree, the Holy Grail for how the fund is going to react, depending on what's going on in the current environment, be it a high volatility situation that we've kind of had over the past week versus traditionally low vol at times. So and then that would relate back to the gas and brake aspect of is it time to push forward or pulling the reins a little bit, and we'll go back and forth depending on markets the way they swing.

DS: Correct. Ball is a big part of the overall risk management technology. And yes.

JC: So excellent. So another way of kind of a better picture of how ASPY works, where do you see it fit into say, a traditional portfolio? A lot of people are listening. They have kind of, maybe the 60-40 portfolio or whatever they have set up. Where do you see it kind of sliding into kind of that traditional landscape?

DS: As a core equity holding, that's where we see ASPY fitting into a portfolio and think of it again. If ASPY it has historically, is currently and has a high degree of probability continue doing so going forward is able to produce these consistent returns across both bull and bear markets, that's ideal for investors. It's that slow and steady and the old adage, slow and steady wins the race. So that's your core equity holding that keeps you on target to achieve your investment objectives if you're saving for retirement.

You're consistently seeing portfolio growth and most incredibly even in bear markets. And that gives you a comfort level, let's sleep well at night when you have that is a core part of the portfolio. And then the flip side of your portfolio now, again, post modern portfolio theory, post quantitative easing portfolio theory, is now you build out your satellite positions that are your alpha generating positions, where do you think you're going to make more money, where do you think you're going to get alpha on the market based on current market conditions, based on what asset classes you like, based on what sectors you like, based on what managers you like, and you can build those around the core of the portfolio.

So long-term, we see ASYMmetric being a core holding, that slow and steady in the portfolio and then building around it with your positions to generate alpha.

JC: Excellent. And yes, no, I appreciate that's kind of what I was thinking where it would fall in line. It kind of gives you that built in hedge without you having to go to the derivatives market or go other way, other places. Awesome. And also I know obviously you guys are relatively new fund, launched roughly about six months ago and guys are up roughly around 10% or so since inception. How has the fund been welcomed to the market? Any sort of feedback, you're hearing, any trends or things that you're observing or noticing? And are you foreseeing any challenges also?

DS: So the reception has been wonderful. I mean, the fact that we're up for two awards, we’re shortlisted for two awards is a third-party endorsement of what we've been doing. There's another organization called MOBI that selected ASPY as their top ETF pick of 2021. Asset growth has been 10x since we've gone live six months ago. We expected to grow another 10x over the next six months.

So ASPY is opening new frontiers in investment management to retail investors, these ASYMmetric returns and what they need for the portfolio. All our feedback has been positive. We've had conversations with the gatekeepers that at all of the major broker dealers. We had conversation with Morgan Stanley, we got to the end of the conversation and it was, how do you -- what type of demand you think you'd have in your channel and one of the individuals on the call said, we had a call just yesterday from an advisor looking for a solution that provided protection on the downside using shorting. That's not a dedicated short fund and we had nothing to offer them.

That's Morgan Stanley, one of the largest networks in the world for that matter. So and that's been the feedback we've been getting investors when they're looking at it are saying this is incredible. We don't have anything like this in our portfolio and there's nothing that's comparable that we can look to. So that's the feedback that we've been getting. The challenges when you are opening new frontiers anywhere and doing pioneering work, there's a lot of education right. We're changing a lot of thinking.

Again the thinking that alpha generation is key to generating long term wealth, and we need to turn that argument on its head. It's like no, it's capital preservation is the way you seek alpha going forward. And so there's a lot of education. It's a new tool to advisors to look at and retail investors and how does it fit into the portfolio. So we're having a lot of fun educating people today, and the more we get out there and spread the message of how ASYMmetric returns can help optimize your portfolio, I see a lot of -- we can help a lot of people is the bottom line through ASPY.

JC: Yeah, absolutely. I mean you guys are kind of -- I don't say new to the market but in a way new kid on the block shaking the boat a little bit and rocking the traditional system and you're getting some eyes to all of a sudden say hey, looking at it from a different view and I didn't realize that this was available, or there it's something that's now being brought to light which is excellent.

Regrettably, we are kind of getting a little bit towards the tail end of the podcast, but I did want to also just essentially reach out to you and ask you, I know we discussed a lot about ASPY and some topics today but I did want to just kind of give you the floor for a moment. I know we covered a couple different areas if there's anything that we overlooked, or anything that you want to mention, kind of give you the floor to do that.

And also, if you could just provide our audience some information on obviously, where they can learn more about ASPY, your organization, yourself, be it social media websites, that would also be great.

DS: Jason, I'd like to start by saying thank you for having me on today. It's been a pleasure. I won't go into more. There's so much more that we could talk about. I'd like to talk about price vol, which is a proprietary measure of volatility that we created, that’s more granular, and arguably a more accurate way to measure market risk. If any of the listeners here are interested in receiving a white paper that we published on it, they can contact me and/or ASYMmetric ETFs.

My concluding comments would really be, explore how the third alternative ASYMmetric returns maybe able to help radically change the risk and return profile of your portfolio, if you're listening to this. It's something completely new. Here are the resources that are available to you that -- through ASYMmetric. Our ETF website is ASYM Shares, asymshares.com.

The index is a rules-based strategy. There's no human element which again, it's a disciplined repeatable process. So it tracks an index. The index website is ASYM, A-S-Y-M and then solutions.com. I'm just starting to tweet, so you can teach an old dog new tricks at ASYM ETFs. Check it out. And then asymmetric ETFs is our LinkedIn page. And if you want to become a member and receive emails on our product and future funds that we're going to roll out, we'd be delighted to you can sign up on our website at asymshares.com.

So thank you, Jason. That's it for me.

JC: Absolutely. And I appreciate everything you discussed with us today. And again, want to thank Darren Schuringa, CEO of ASYMmetric ETF for joining us today on The Let's Talk ETFs podcast, to take a deeper dive on how risk can be monitored and taken advantage of in certain ways within a ETF portfolio. But until next time, I'm your host, Jason Capul signing off and we love to hear back from everyone soon.

For disclosure purposes, Jason Capul is not long any ETFs discussed. Darren Schuringa is long ASYMmetric 500 ETF, ticker ASPY.

This article was written by

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Let’s Talk ETFs is Seeking Alpha's podcast dedicated to the exchange traded fund space. Hosted by Seeking Alpha’s ETF expert, Jonathan Liss, the podcast features long-form conversations with industry insiders, ETF issuers, asset managers and investment advisers to explore the ways in which ETFs continue to evolve, helping investors to reach their financial goals.

Disclosure: I/we have a beneficial long position in the shares of ASPY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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