Introduction The 60/40 portfolio, the bread-and-butter portfolio of today’s wealth management industry, is limited to just two core drivers of returns: equities and bonds. Is there someplace else we can turn to for a compelling yet distinct source of returns? Yes, there are several places to look in fact, one of the most interesting being Equity Market Neutral (EMN) investing. EMN strategies can not only provide a compelling source of return that is distinct from equities and bonds, but they can also offer linear diversification to the 60/40, as well as non-linear diversification in the event ..read more

Introduction A costless collar, sometimes referred to as a hedged equity or defined outcome strategy, is a risk management strategy that combines holding a long position in a stock or index with buying a put spread defined by a specific set of strikes (e.g. 5% OTM long put, 20% OTM short put). This provides downside protection for the long stock position if the stock falls within the put spread’s option strikes. The strategy finances the cost of the put spread by writing an out of the money call option with a variable strike depending on market conditions, creating a "costless" approach to bal ..read more

Introduction The latest inversion of the Treasury yield curve has been a popular topic of conversation among market pundits and participants alike. In this blog, we explain what a curve inversion is, why it is important, and what (if any) bearing it has on bond prices going forward.   The 2s10s Yield Curve The 2s10s yield curve is a measure of the difference in interest rates between the two-year and ten-year Treasury bonds, which, as Figure 1 shows, generally tend to trend together with 10s yielding a premium to 2s. However, on rare occasions, the front end of the curve can become invert ..read more

Introduction Attractive sources of income are hard to come by today.  Bond yields are near all-time lows after 40 years of falling interest rates.  Stock dividends are increasingly uninspiring as equities continue their meteoric rise.  But not all sources of income have been squeezed away.  One attractive source of yield today is the income generated by selling volatility.  Yet selling volatility can be risky and years of precious income can be lost quickly. In this blog we present compelling new ways to manage the specific risks associated with selling volatility. &n ..read more

Disruptive companies reimagine the landscape of an existing industry or outright give birth to an entirely new industry, allowing the most visionary of disruptors to devour market share and leave competitors in the dust. And not surprisingly, the wealthiest people on the planet tend to create their wealth by concentrating in disruption of precisely this form, either as founders or early investors in the greatest disruptors. But building significant wealth by concentrating in disruptors requires two critical ingredients for success: 1. Accurate identification of disruptors before they are disco ..read more

As 2021 progressed, observers of the economy understandably wrestled with the nature of increasing inflation and the term “transitory.”   While that term transitory was initially spoken with deep, sonorous gravitas, it was poorly defined and poorly received, and ultimately most observers abandoned the term if not the belief that inflation was short-lived and limited to sectors hit hardest by the pandemic. Some of the debate about the meaning of the word “transitory” was sophistical. Because inflation is expressed as a rate of change, by definition all inflation is transitory; in this se ..read more

While some observers, focusing on the dramatic demand destruction globally, believe that disinflation or deflation is more likely, we can generously suggest that others disagree. Arguing in favor of a more inflationary possible outcome, some point to the supply-side destruction and the decline in free and open trade policies; even more concerning to us is the potential that the combination of awe-inspiring monetary and fiscal stimulus could provoke an inflationary outcome that would be especially difficult to manage in an environment of weak real growth ..read more

Introduction With more than 118 million Americans in or nearing retirement (age 50 or older)[1], income has become a key component for many portfolios.  But as asset allocators reach for yield in a low-rate environment, they must be extra mindful of the additional risks they may be accepting. In this blog we demonstrate that the equity volatility premium is a compelling strategic income holding given its attractive risk-adjusted income profile.  We also show that the short volatility strategy allows for effective tactical positioning based on starting VIX levels and starting expecte ..read more

Introduction Managed futures strategies (aka CTAs1) have a long history of playing a key role in enhancing investment portfolios for wealthy individuals and institutions with access to hedge funds.  With recent SEC rule changes around the use of leverage and derivatives, managed futures are now available via ETFs, democratizing one of the most compelling risk exposures outside of bonds and equities.   This blog begins with a brief overview of managed futures, then walks the reader through the three core potential portfolio benefits:         1. abs ..read more

Introduction The shape of the US Treasury curve over the past five decades has provided investors with the opportunity to create more efficient long duration exposure than simply buying long-dated Treasuries.  In this article we will show how the most efficient long duration exposure is often generated by levering a point in the middle of the Treasury curve.  This technique maximizes the attractive coupons, roll yields, and relative financing rates in the belly of the curve, while simultaneously reducing volatility and other curve risks. The Two Drivers of Carry in Treasuries In this ..read more