Ryan Nauman hosts Zephyr’s Adjusted for Risk Podcast with guest Edison Byzyka, Chief Investment Officer of Credent Wealth Management, a $4.5B fee-only RIA headquartered in northeast Indiana. They discuss today’s macro uncertainty (Iran conflict, oil, inflation) while emphasizing skepticism and reliance on data such as economic surprise indices, forward inflation expectations, labor resilience, and high-yield spreads that don’t signal major distress. Byzyka explains how Credent defines risk primarily as drawdowns rather than benchmark-relative volatility, aiming for positive risk-adjusted returns over three-year cycles including tax and accounting alpha. He highlights key current risks: difficulty monetizing AI-related capex and lofty forward earnings expectations in mega-cap AI names, which may pressure market-cap-weighted indices and favor equal weight. They cover valuation implications for five-year returns, question fixed income’s stabilizing role, and describe using structured notes and selective constituent selection to mitigate downside while maintaining upside participation, concluding that active management and partial illiquidity may become more important in portfolio construction.

Zephyr can help financial advisors create modern diversified portfolios. Learn more here.

Learn more about Credent Wealth Management here.

00:00 Welcome to the Podcast

01:13 Meet Edison Byzyka

01:32 Credent Wealth Overview

03:51 Big Ten Sports Banter

06:03 Macro Uncertainty Check

10:40 Markets vs the Headlines

11:46 Defining Investment Risk

16:05 Biggest Risks Right Now

19:08 AI Capex and ROI Questions

20:20 AI Risks And Rotation

21:14 Advisor Focus And Flows

23:21 Mitigating With Selection

25:12 Structured Notes Surge

29:21 Valuations And Equal Weight

32:21 Rethinking Fixed Income

35:36 Bond Alternatives With Notes

37:37 Portfolio Construction Outlook

39:24 Closing And Resources

Connect with Ryan Nauman:

LinkedIn

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Let's go.

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Ryan Nauman Market Strategist Zephyr:

Hello everyone, and welcome to

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zephyr's adjusted for Risk Podcast

from the shores of Lake Tahoe.

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I'm Ryan Amman, the market

strategist here at Zephyr.

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Investors are faced with

an interesting dilemma.

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On one hand, they're faced

with numerous concerns.

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On the other hand, markets have

continued to defy expectations over

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the past three years in climb hire.

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Well, I have on an industry expert who is

going to help us make sense of the current

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market environment, what he believes

is the biggest risk in how portfolio

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construction strategies have evolved.

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first, today's episode is sponsored

by the award-winning Zephyr, which

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helps investment professionals

make more informed investment

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decisions on behalf of their clients.

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All right.

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I've already talked enough.

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Let's go ahead and move on

to the star of the show.

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I'd like to give a very

warm welcome to Edison Bika.

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Edison is the CIO at

Credent Wealth Management.

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Edison, thank you so much

for coming on the show.

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It's an honor to have you.

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I'm really looking forward

to this conversation.

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We had a great conversation

earlier in the week.

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This can be a lot of fun.

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Can you please tell us a little bit more

about yourself in Cred Wealth Management?

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Edison Byzyka Chief Investment Officer Credent Wealth Management:

Yeah, Ryan, great to see you

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and, and, and thanks again.

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Yeah, so I'm the Chief Investment Officer

of Creed and Wealth Management and,

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credent is, is kind of unique in the space

in that unique and not unique, right?

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I, I, I think it's I think it's

very natural for all of us to

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say our firms are all unique in

their, in their own particular way.

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But Credent Wealth Management is a four

and a half billion dollars fee only.

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RIA and we're headquartered out of

northeast Indiana, but we kind of

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have offices all over the place.

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We're in, we have, we're in central

Texas, we're in far West Texas, up in

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Minneapolis, Cincinnati, Kentucky kind

of offices everywhere, but home office,

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kind of where we think of it as kind

of the, the shared services structure

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of, of the main services of the firm.

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Is outta here out of northeast

Indiana where I am, or Ryan.

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I can tell you the seasons fluctuate

quite tremendously from, you know,

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80 degree days to 30 degrees days.

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I'm sure you can relate to that from,

from your, your background as well.

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But.

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One of the things we focus on here

at Creon, which is adamant, right?

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Most RAs we all do three simple things

at the end of the day, service planning

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investments we really hone in and

try to capture the highest kind of

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integrity, highest quality profile

of each part of those components.

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And we do that by integrating

all assets under one name.

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One roof, one service model, one

client experience, really trying to

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hit that quality threshold for clients.

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And really just trying to put our best

foot forward in, in how we approach the,

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the, the, the, the, the business there.

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Personally I've been here for

close to 14 years now, which

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is crazy to say that out loud.

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And I don't quote any years anymore.

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You know, I, I started working here $4.4

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billion ago as, as we grew the firm.

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Ryan: like

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Edison Byzyka: Yeah.

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Ryan: Edison.

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Edison Byzyka: As we grew the

firm for about 90 million of fee

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only assets, the current level.

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So it's been an awesome ride.

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We're just hitting the surface and really

excited to get to work every day for

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what the next six months looks like.

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So

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Ryan: Yeah.

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Edison Byzyka: that's a very

high level background there.

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Okay.

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Ryan: That's fantastic, Addison.

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I love it.

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I love how create, well

three kind of pillars.

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Sometimes I wonder if in this industry

we make things too complicated.

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Too many words to describe

really things that are simple.

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Some not saying it's simple, but it

simplifies things for the end investor

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or financial advisors being, and

Deanna, you're a Indiana alum, correct?

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That's why I pulled out.

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I had to pull out my best Wisconsin

Badger shirt for today's conversation.

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congratulations.

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I, I don't know what happened, Edison,

you guys went from a basketball

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school to a football school.

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Now sure it's a lot of fun.

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You guys kicked the, the Badger's

butt earlier this year on the football

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field, but congratulations on a

great you guys have turned it around.

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Edison Byzyka: It, it, it

has been a Cinderella story.

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Right.

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What's funny is my, my father-in-law is

a, is an IU alum, and he talks about the

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heydays of the sixties and the seventies

and, and those nostalgic moments.

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Right.

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So, so this was great For me, it was

even better for those that have been

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waiting for this for 30 plus years, right.

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To get back to the heydays of what

it is to be the top of IU football.

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It's been really fun.

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Yeah.

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And, and, now with the draft NFL

draft at play and, and the results

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of that I think is just added.

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The excitement continues,

which has been really fun.

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Ryan: Yeah.

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And ti you guys' co he's fun to root for.

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He is an interesting character.

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It just, it makes it a good story.

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'cause I remember when I was a kid,

Indiana, I mean, they were the laughing

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side, two wins, three wins, and now

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Edison Byzyka: Oh yeah.

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Ryan: they've turned it around.

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It's great.

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Edison Byzyka: No, so, so, so the

if Purdue now would've done a little

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better in the NCAA tournament, I

think Indiana as a state would've

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swept up the championships nationally.

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That would've been really fun

to talk about, but unfortunately

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not as, not, not as lucky there.

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Ryan: Yeah.

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Well, I don't know if I

could have done with Indiana

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sweeping all the championships.

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Well, let's just leave it at one.

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Let's just leave it at one Edison.

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But at least it's

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Edison Byzyka: Fair.

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Ryan: State or, you know,

something like that.

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Edison Byzyka: A lot of

colleagues that are very diehard

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Ohio State fans in the office.

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So absolutely, that was

a sour, a sore spot.

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Ryan: Well, my fiance is too,

and there's way too much Ohio

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State stuff in this house.

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But anyways, better, we better

move along here, Edison.

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We could, we could talk

sports Big 10 for hours, but,

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Edison Byzyka: yes.

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Ryan: Let's just start at the top and talk

about the macro, current macro environment

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and the, and the uncertainties there.

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There's a lot between Iran war conflict.

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We have high oil prices, the macro

environment's, a little shaky,

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new fed chairman coming on board.

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What are you watching closely in

terms of the macro uncertainty.

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Edison Byzyka: Yeah, I mean, I, I think

you hit the nail on the head there.

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The way I think about the macro piece

is, is first and foremost kind the

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way I would, you know, we talk about

it and actually analyze it in our

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investment policy committee meetings.

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First, and for foremost have

a healthy sense of skepticism

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about what's happening.

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And that's skepticism in the

sense of what could go wrong,

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but also on what could go right.

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I think sometimes those

discussions tend to be one sided,

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and as we are one sided, right?

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As human beings, we tend

to be more risk averse.

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But as professionals, I think we have to

weigh both sides of that equation equally.

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The, it's, it's, it's easy to take

the geopolitical structure right now

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with the atran war and the pressure

and oil prices and what that means

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for inflation, what that means for

potential stagflation issues that

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may arise, and to be very bearish or

very cautious in this environment.

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What we're paying attention to though

is yes, you have to pay attention

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to the high level sentiment data.

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However, if you look at the sim, simple

nature of just what's happening with

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economic surprise indices and what's

happening to the broader data and

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what's happening to forward inflation

expectations on the five year, five

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year, or, or just tracking even the labor

market, which has been so resilient.

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The macro backdrop kind of has has a, has

a really clear two-sided approach here,

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meaning from a pure sentiment standpoint,

it's very easy to be bearish and very easy

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to build a negative outcome when you apply

the real data set behind that, right?

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Not that it's super rosy, but

it gets really difficult to

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build that same conclusion.

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And one of the things that's

actually, that's a telltale sign

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of that is just even look at high

yield spreads, as is one example.

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I mean, the bond market tends to

provide some significant leeway to

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what may happen to the equity market.

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Looking pretty good at that, you

know, Subpart 300 basis points range.

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The labor market has failed to

actually showcase the real cracks.

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And, and earnings still are

holding up fairly well, so.

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None of that's to say that

we are uber bullish, right?

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I wanna, I wanna stress that aspect of it.

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But when we allocate and we, we go to

and choose constituents based on what

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that macro backdrop may indicate or

may lead us to, it's very objectively

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difficult to provide a backdrop that

says we need to be extremely pessimistic.

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The Iran war is going to be super

detrimental and so on and so forth.

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So for us, again, frothiness may be

there a little bit on the macro side,

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and the downside could still be there.

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It's still a midterm election year.

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I go back to the more fundamental

components in this environment,

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which Ryan reminds me of, of, of

how COVID backdrop panned out.

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If you recall, you know, in, in that

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the year, we had economists and analysts

kind of pulling their hair out because

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their estimates relative to the actualized

results were tremendously different.

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It was so hard to actually

pinpoint what was gonna happen.

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I view this as a very similar backdrop.

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That, that is just it's gonna

take some time to unwind, but I

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always go back to the data as the

ultimate decision factor here,

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Ryan: Edison.

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I love that.

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And you're exactly right.

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A lot of things to to cover there.

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Going back to COVID, we should

have been in a recession by now.

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The yield curve

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Edison Byzyka: right?

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Ryan: everything was saying.

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Recession.

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Recession, the alarms are going off, and

the recession we did have during COVID,

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you know, kind of a synthetic recession

and would say, well, with that being said,

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I'm really glad you brought up the data

too, like just the fundamentals, because

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all the headline risk, if you look at

the headlines, you would think we're in

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a bear market right now, but we're not.

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And markets continue to rip higher.

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But like you said, look at the, the

yield spreads and credit spreads

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and bond markets aren't really

showing any distress in markets.

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They're, you know, might be a

little bit wider than average,

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but they're not spiking.

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So you're exactly right.

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There's some indicators out

there that say, Hey, let's just,

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you know, the party continues.

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Edison Byzyka: I Absolutely.

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And you, you brought up

the bear market piece.

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I think there's been a lot of

segments in the, in the market

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that have had their bear market.

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Right.

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Even, even not only within tech,

there's pockets of the healthcare sector

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that have been in that bear market.

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There's pockets of the industrial

sector that have been in

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that bear market already.

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I.

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Which makes an argument for great.

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I mean, is that equal weighted

approach going to finally show its hand

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relative to market cap weighted and

is this the catalyst we've all been

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waiting for, for the past 10 years?

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Right.

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A lot of those data, a lot

of that data points to the,

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maybe that inflection point.

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Ryan: That's a great point.

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And it's times like this.

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Yes.

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The, the market cap weighted indexes,

they've done really well because

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they've been riding the waves of

technology and the MEG seven, but

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the market has broadened out some.

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you know, like, like you said, the

equal weight, it might be the time

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to shine here, but like you said, it,

there's a lot of uncertainties and

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we'll talk about it shortly about, you

know, diversification and why, why it's

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important during markets like this.

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Let's

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Edison Byzyka: Mm-hmm.

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Ryan: risk.

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Edison Byzyka: Okay.

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Ryan: talked about more on

the macro side of it, but how

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do you view investment risk?

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Is it just volatility, draw down risk?

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Lot of different ways to slice and

dice investment risk, but what is,

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what's the, how do you view it?

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Edison Byzyka: Yeah, great question.

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I think for, you know, for, for Credent

we are a planning first firm, right?

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So, so if, if I were looking at it from

our client's perspective and kind of

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what we is that we do every day and

how we actually put that into fruition.

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Investment risk from a

planning from a planning lens.

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First for, to me is how can that

client, how can he or she or they

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be able to sustain their standard

of living as a function of what

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they have on platform, right?

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And that investment risk.

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And that risk in and of

itself tends to define that.

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Willingness and the ability for us to

invest in the, in the markets, right?

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Because ability is a very

quantifiable factor for us.

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In the risk backdrop.

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I can quantify someone's ability

based on cash flows and so on and

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so forth, but the willingness is, is

that sleep at night factor, it's that

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it's that really subjective approach.

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So that's one way where we, we

assess risk at the individual client

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level and, and really understanding

that from a planning standpoint.

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When we go to the investment piece though,

Ryan from a risk backdrop standpoint, we

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are fundamental believers that we look

at markets and allocations on three year

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cycles, meaning our goal with clients

is positive risk adjusted returns.

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A goal with alpha over three year market

cycles, and that is not only on an

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absolute investment return basis, but also

on an absolute tax return basis, right?

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Tax alpha, accounting alpha,

investment alpha, those are all three

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different all important and different

components that we pay attention to.

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It.

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Volatility and risk at the end

of the day in the eyes of the

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client, is that drawdown, right?

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It's the drawdown concept

of how much am I going down?

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A and it's sometimes it's not even a

relative to the index conversation, right?

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No client likes to say

that index is down 20%.

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I'm down 15.

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Awesome.

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That is not the sentiment

profile we're going for.

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So for us, the way we view risk

is how do we try to, not avoided.

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That's, that's, that's a,

that's a terrible thing to say.

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Avoided that, that puts us in the

market timing spectrum, which we are

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not, but mitigating it and actually

profiting from it is how we view

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risk and to us, we are always okay.

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Missing a little of the upside.

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It means protecting more of the downside

because I have to, there's less I

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have to make up to be better off.

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And in almost every three year

market cycle, there tends to

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be two to three opportunities.

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Ryan, right?

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You probably know better than most that

you can capture that profile in that

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10 to 15% draw down in that segment.

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And if you miss that, or

miss maybe even half of that.

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Your risk adjusted return

profile for that three year cycle

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just benefited tremendously.

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So we have tools in our approach

to doing that, from constituent

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selections to allocations to

liquid and liquid components.

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What we have been quite successful in that

approach over the past 13 years throughout

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our Gibbs compliant track record.

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Ryan: Yeah, edis, I'm so glad

you brought up draw down risk.

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I'm gonna age myself here.

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I feel like I do this every conversation.

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When I started in the industry

20 some years ago, it was all

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about volatility you know, kind of

comparing your risk to a benchmark.

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And I'm really glad you brought up that

you don't really compare to the benchmark

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drawdown risk because, you know, during

great financial crisis it was down 50%.

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you know, I don't want it to

be relative to the SP 500.

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I just don't wanna lose

my money, whether it's

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Edison Byzyka: Right.

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Ryan: 20%.

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Right.

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So at Zephyr, we've done a lot of work

on measuring do down, draw down risk,

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and trying to protect your losses

because we feel that is the biggest

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risk to investing is losing your money.

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Edison Byzyka: Mm-hmm.

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Ryan: give me, listen, gimme all

the upside volatility you want.

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It is that downside volatility

that I want to try and limit or

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Edison Byzyka: It's

funny you mentioned that.

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I, I don't think most clients

associate upside with volatility.

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Right.

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But, but you're a hundred percent right.

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And that upside volatility is

a quantifiable factor just as

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much as that downside piece.

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Ryan: Yeah, you're exactly

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Edison Byzyka: Yeah.

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Ryan: keep talking about risk.

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What do you feel is

the biggest risk today?

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There's a lot of options out there.

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You talked about the macro side.

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Talked about, you know, maybe on

the market side is there's some

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concentration risk, but I just

recently did some research there.

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Concentration risk is

around for many years.

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I mean.

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It's not like this is something new.

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You've got ai, people think AI

is going to rule the world here.

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What is, what do you feel is the

biggest risk today for investors?

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Edison Byzyka: Yeah, it's a,

it's a great question, right?

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And I think you could probably have a,

a, a, a full week's worth of podcasts

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just to talk about that aspect.

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From my standpoint, you know, when

I talk to clients and when we gauge

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allocation structures on the constituent

base of the s and p or the mid cap

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sector or small cap sector, one of the

dislocations that's been evident to

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me over the past six months is this,

this ability to monetize AI spend.

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And and I'm talking about anywhere from

like Home Depot to Pfizer, to everything

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in between the, the, I feel like

there's been this peer pressure amongst

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the companies and executive teams to

ensure the words AI and efficiency gain

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are included in their earnings calls.

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To what extent those are actually going

to materialize is interesting in that

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now we're seeing companies that are,

have high CapEx in that space that are

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laying people off and the stock actually

sees a drawdown that's, that's odd.

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Typically you see the, the opposite.

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So I think the biggest risk.

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Especially for those investors and

managers that are choosing individual

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equities in active management, which I

think is gonna be a great five year cycle.

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But in the interim is

overestimating the benefits from

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monetizing that ca, that CapEx.

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Into new revenue or better

efficiencies or lower payroll spend

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on their, on their, on their balance

sheets and the income statements.

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So that quantifying that has become

significantly more difficult and

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that peer pressure that a lot of

these executive teams are feeling has

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become evident because that mention

of those components are spiking.

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So I would dub that as kind of

risk number one first and foremost.

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Then secondly, risk number two.

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What I would say is, and you

alluded to it on the, on the, on the

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concentration of the market cap waiting

it's not so much that that's bad.

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The risk that I'm seeing is that

the forward earnings estimates of

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a lot of these big AI names that

are, are concentrated so much on

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the market cap basis, their forward

earnings are, have gone from

367

very exuberant to just exuberant.

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The market is not liking that.

369

So we've, we've, we've fallen off

this high of massive exuberance and

370

gains to still really strong gains,

but all of a sudden maybe that's not

371

becoming as appealing as a result.

372

I think indices are going to suffer from

that on the market cap side, but not

373

as a function of those are bad names,

simply as a function that the sugar

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high may be weaning off a little bit.

375

So I'd, I'd say here at least of

the next six to 12 months, those

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two are, are probably the, the

biggest risk that I see Ryan.

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Ryan: That's great.

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Edison, let's go back to your first one

about just the huge investments a lot of

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these firms are making in AI data centers.

380

You know, on the tech side,

these large companies, it's

381

Apple, you know, Microsoft.

382

They're usually sit on a hoard

of cash, big pile of cash.

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Now they're putting that cash

to work and how are they doing?

384

Like what's gonna end up being the

ROI on these investments for ai?

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Is it gonna pay off?

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Is it going to, you know,

meet expectations for it?

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And I'm not sure anyone really knows.

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Edison Byzyka: I think you hit

the nail on the head, right?

389

As, as investors in those individual

companies, you want management

390

to put the money to work, right?

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I mean, having hordes of cash at that

point 10 is, is notably a drag, just like

392

cash drag is in any individual portfolio.

393

I think the, the narrative that's been

coming out though is as they're putting

394

that money to work, management teams have

been extrapolating what the potential

395

ROI is, and we're now starting to see

the actualized deviations from that, not

396

only in the ROI estimates themselves,

but also in the duration of time it's

397

going to take to actualize those returns.

398

So as you, as you bundle those

two together, that's where the

399

very exuberant to just exuberant

estimates are coming into fruition.

400

And investors are starting

to question, okay, well.

401

Is now maybe a time to shift

some of those assets elsewhere.

402

Tremendous valuation benefits

in other places of the market.

403

And, and the inability to fully quantify

that duration timeline, I think is

404

what we're seeing coming to into

play, which I think is very healthy.

405

Right.

406

I, I think it's, it's a natural

consequence of this evolution of

407

the shift that we're heading into.

408

Simply we got into it really, really fast.

409

I think management companies, largely

speaking outside of the creators of the

410

AI space, so to speak they, they try

to be early adopters and as a result,

411

they're forced to provide these estimates

of which they're deviating from big.

412

It's not that it's a black box, it's just

a really big box, if I put it that way.

413

Ryan: I love it.

414

Yes.

415

Very, very big box Edison.

416

So do you think those two risks that you

mentioned with, you know, just the AI

417

spend there and then also concentration.

418

Risk there.

419

Do you think investors or financial

advisors are o overlooking those

420

risks and they're focusing maybe

too far on other risks or maybe,

421

maybe they're focusing on it?

422

Edison Byzyka: Yeah, great question.

423

Right?

424

I, I think as financial advisors in

general because clients are more so

425

exposed to the macro backdrop and

what's happening in the, in the news

426

for the most part there tends to be a.

427

Biased focused, I think on the

geopolitical set of things.

428

What's only likely to happen with

inflationary pressures or oil or the Iran

429

War at this, this political point in time?

430

Those are valid, right?

431

But I think truly paying attention to

those advisors that are actually active

432

managers I think there is some, there,

there is some allocation benefits

433

to, to paying attention to that.

434

And I think they are

paying attention to it.

435

One of the ways we track that is just

tracking, you know, non-institutional

436

dumb money flows as, as it's called.

437

Right?

438

And that's smart money versus dumb money.

439

I am dumb.

440

Money flows in this case.

441

Ryan: So you're, I'm

way down there, Edison.

442

So.

443

Edison Byzyka: In tracking those

flows, there has been a, a, a sizable

444

shift to, to some of those names

in tracking the ETFs in, in that

445

space and the funds in that space

that are allocated to those names.

446

And although it's not been tremendous

shifts, there's been cracks in

447

that in that, in that foundation.

448

I think to me that points to maybe

some profit taking in the space to

449

maybe some hopefully kind of purview

into what's happening in the things

450

that I'm talking about from advisors.

451

And I think it's very healthy, right?

452

I think it's a very healthy skepticism

in that space because at the end of the

453

day even if the AI craze continues, there

has never been a time in history ever.

454

Ever where such an

exuberance lasts forever.

455

So therefore, we're either perpetuating

an eventual bubble, which may

456

come in 2, 3, 4, 5 years, or we're

starting to kind of mitigate that

457

risk with what's happening right now.

458

And I'm in favor of the latter.

459

Ryan: Yeah.

460

So let's talk about mitigating that risk.

461

How do you mitigate that risk that you're

talking about, whether it's a macro

462

environment or the market environment

that you talked earlier, maybe about.

463

You know, going equal weight index versus

cap weighted, obviously diversification,

464

but how do you mitigate those risks?

465

Edison Byzyka: Yeah, great question.

466

Numerous techniques in

that, in that approach.

467

I'll just talk about maybe, maybe

two that are, have been very

468

dominant in our approach and

have yielded tremendous results.

469

And actually it's something

clients enjoy, right?

470

As financial advisors, one of the, one

of the things that we really have to

471

be good at is not only having the right

solution, but be able to explain that

472

solution to your, to your 65-year-old

client that has $3 million on platform

473

and getting, make sure they understand it.

474

First and foremost.

475

Yeah.

476

I, for us, constituent selection

within the large cap, mid cap,

477

small cap and international

space on the, at the individual

478

equity level has been paramount.

479

And we run a very, very, very kind of

bottoms up approach in the constituent

480

piece once we kind of run a top

down of where we wanna be allocated.

481

And that process is very, what I'll

call quantum mental, very quantitative

482

and fundamental and, and, and, and,

and qualitative and quantitative

483

in that, in the same timeframe.

484

And for us, as I mentioned, we do

have that 13 year third party verified

485

track record where that selection

process has yielded tremendous

486

results in that space and risk.

487

There is paramount equal weighted

and, and, and everything, everything

488

else that goes along with that.

489

Secondarily, though, you know,

I, I'm humble enough to say that

490

often I can't be wrong, right?

491

Whether it's professional life or personal

life from that, from that matter, right?

492

And how do you hedge against

a really good process, right?

493

Which sounds counterintuitive, like how

do you hedge against yourself and a great

494

record if you have a really good process.

495

And one of the ways we've been doing that

adamantly over the past five years is the

496

utilization of structured assets, Ryan.

497

And, you know, structured assets.

498

Many advisors have used them in the past.

499

They got a bad rap starting in the

global financial crisis, right,

500

with, with what was happening.

501

But structured assets when constructed

appropriately, when constructed

502

with the right banks that have the

appropriate capital, tier one ratios

503

and the appropriate credit risk, they

provide the best backdrop of swapping

504

volatility for consistency of returns.

505

And when you carve out various components

of a portfolio and say, you know what, my

506

large cap growth portfolio, we're gonna

go 75% constituent selection process,

507

but 25%, what if we protect it at 25%

of the downside and cap it at a 10%

508

rate of return over the next 13 months?

509

That risk return example when

replicated over multiple cycles.

510

Only has to work two or three times in

a three year cycle to actually provide

511

the relative performance benefit to

not only outpace the absolute return

512

benchmark, but also to outpace and

provide a much better downside capture

513

ratio relative to the indices and.

514

Those structured notes in

the us are ramping up, right?

515

I think three years ago total

notion of value in the US was less

516

than, I think $30 billion to today.

517

2026, we'll be on track for over

150 billion in in, in notes here in

518

the States, which by comparison is

only about a third to what happens

519

in Europe on an annualized basis.

520

So that process of swapping out that

volatility for that consistency.

521

While employing a very methodical

and structured and well-tested

522

constituent election process for us

is a great risk mitigator Ryan, right?

523

Not a risk avoider.

524

Risk mitigator to to, to a strong degree.

525

Ryan: Listen, I've heard a

lot about structured products

526

recently in my conversations.

527

Do you think, and it is a great product,

do you think a lot of that popularity

528

is due to the market environment?

529

Like we talked about, equities

keep ripping higher, yet there's

530

a lot of risks out there.

531

You know, you've got these

hard earned three year returns.

532

You wanna protect it a little

bit because you just don't know.

533

Eventually equities.

534

The, the, the party, it probably

will end who knows when.

535

So structured products, they,

they're popular now and they're a

536

good product because they give you

still some upside potential, but

537

also mitigate some of that draw down.

538

Is that why?

539

Especially in this market environment,

when sell off could happen at any time.

540

We have no idea.

541

Edison Byzyka: I, I think it's a,

it's a, it's a solution that has been

542

brought to market, I think by the ETF

providers to help drive that narrative.

543

I think it's a hundred percent right?

544

I mean, you know a lot of ETFs in

the space lately that have buffered

545

options to a whatever degree for

protection, and it's a, it's, I

546

mean, at the end of the day, it's a

great solution to your point, right?

547

Client says, Hey, markets up here

is a time to actually go to cash.

548

Take that money out.

549

The reality is that's always the

worst answer to a client, to,

550

to cash out and getting cash.

551

You never know what's gonna happen next.

552

So these solutions do

provide that backdrop.

553

I think there are, there, there's

the, the right way to do it and, and

554

maybe the not so right way to do it.

555

I don't think there's a wrong way

to do it in this particular case.

556

But for those advisors that can

employ that narrative with clients

557

and have an ability to actually go

directly to the banks and underwrite

558

them directly, cut out the middleman.

559

Which is how Credent approaches

that the terms are better, the

560

pricing is better, the liquidity

is better, the duration is shorter.

561

It, it really adds an

edge to that process.

562

So I, I do think this is the next

wave, Ryan in the, in the, in the

563

industry for advisors in the, in the us.

564

I think over the next couple of years,

we'll probably be a twice the notional.

565

Underwritten value here in the

United States across the RIAs.

566

And I do see this actually taking a

lot more traction in the media and

567

in the coverage for not only podcasts

like this, but I think just broader

568

financial media on a daily basis.

569

Mm-hmm.

570

Ryan: Yeah, I completely agree.

571

Edison, let's real quickly

earlier, just touch on valuation

572

metrics real quick, forward PE.

573

You know, it was around 25

or so hovering around there.

574

You know, the average

is below 20 cape ratios.

575

Again, they're elevated.

576

Even though they've come

down some of these PE ratios,

577

they still remain elevated.

578

Cape ratios are close to 40, whereas

the average is below 30 are lofty

579

valuations and issues still in your mind,

even though they have come down some.

580

Edison Byzyka: Yeah, that's

been a narrative and discussion.

581

I think for the past couple years.

582

Pretty, pretty fu pretty

fundamentally and adamantly.

583

Two, two things to note on valuations.

584

In and of themselves, valuations

tend to be very poor historical

585

market timing indicators, right?

586

So over a span of six to 12

months, making a decision on a pure

587

valuation metric has, has no real

statistical value in doing that.

588

Having said that, you extend that

duration to a five-year snapshot, Ryan,

589

which I think is, you alluded to that

perfectly in that five year timeline

590

when you start at a 25 x forward.

591

Price to earnings ratio.

592

There has never been an

occurrence where returns are

593

above that five to 6% annualized.

594

And by the way, that's a

nominal return gross of any

595

fees an advisor may be charging.

596

Which based on that pure empirical data,

you could say, well, is a client better

597

off just buying a 10 year treasury?

598

And just sticking with that right

now and capturing a four to four

599

and a half percent annualized yield.

600

Right?

601

No advisor wants to

propose that to clients.

602

And, and I think that's, that's

a, that a very appropriately, so

603

what this means to me, and we kind

of talked about it a little bit

604

earlier, is as I think about that.

605

Those are expected return profiles on

market cap weighted indices, right?

606

And this cycle of equal weight to

market cap weight, outpacing and, and,

607

and chasing those return profiles.

608

That tends to shift every 10

to 12 years or so historically.

609

It's, I don't think it's coincidence that

we're at the precipice of that happening

610

right now, where over the next five

years, just probabilistically speaking,

611

there is a high, high chance your

average stock outpaces the s and p 500

612

simply because of the valuation profile.

613

And I think as advisors, it's really

important to note that and, and making

614

the appropriate adjustments in portfolios

to just use the research and the data.

615

To at least make a strong case

for it, not to make a purely

616

sentiment based decision on that.

617

So I, I, I do think they matter.

618

They're notably relevant today.

619

But so, you know, maybe not full attention

to them, but certainly a good chunk.

620

Ryan: I, you're exactly

right about market timing.

621

It's a bad indicator for market timing,

but like you said, it's always something

622

that should probably be in your

toolkit when you're analyzing markets

623

and individual securities and so on.

624

So, real quickly, let's a

wrap this convers talk about

625

fixed income at the end.

626

We talked earlier, you mentioned that.

627

Credit spreads haven't

really shown any distress.

628

Still remain relatively narrow considering

all the uncertainties out there.

629

So you are you really getting paid

to take on credit risk, I would

630

say not fixed or on high yield.

631

You're still getting,

finally getting real return.

632

After years of not, so there

is some opportunities there to

633

be attractive, but what is it?

634

Time to rethink fixed income as a, as a

portfolio kinda stabilizer, diversifier.

635

Edison Byzyka: Great question.

636

I mean, you know, the, the

637

for everybody as correlation

spiked between, bonds to stocks.

638

Here's what I am fundamental

believer in, right?

639

And I, I may be a contrarian,

contrarian in this statement, but

640

Edison Byzyka, CIO Credent Wealth Management:

I fundamentally believe that

641

bonds carry more risk than stocks

over the next two to three years.

642

Hands down there is notably more

uncertainty in the bond market because

643

there tends to be this sentiment

structure of more certainty in what's

644

likely to happen in the Fed funds rate.

645

Zero idea, right?

646

Yes, we can track fed funds, futures,

contracts, and all the min minutes

647

from the FOMC that come out, but

seeing how they have shifted just

648

in the past six months alone, from

two to three car cuts, guaranteed,

649

I use quotation marks there, right?

650

Edison Byzyka: To now almost zero cuts

651

Such a quickly shifting landscape

tells me there is way more

652

uncertainty in the bond market.

653

And it's easy to say that bonds for a

client that doesn't want to have full

654

equity market participation are going

to provide that downside protection.

655

I would say buyer beware, right?

656

It, that is only the case if you are

truly structuring a non duration play.

657

Meaning if we're playing duration

to capture the best return profile

658

and bonds for a client, you are

introducing a lot more risk if your

659

hope is to have a lower correlation

in the event that stocks correct.

660

So my, my, my approach to

that is really quite simple.

661

Every advisor should truly answer the

question of why are we using fixed income?

662

If it's true downside protection,

the structured note world actually

663

provides tremendous value and

capabilities in portfolio construction

664

for risk management if it's income,

different story there as well.

665

And if it's total return mandate,

different story there as well.

666

So I, I, I don't think a lot of

advisors are fully scrutinizing that.

667

I think it's a very important

piece, not only with yourself,

668

but also with the client.

669

Why are we using fixed income?

670

Ryan: That's a great point.

671

Edison, like you said, it should be

something that we all reevaluate.

672

Just like all, all investments,

you should reevaluate what and ask

673

yourself why is this in a portfolio?

674

Is it doing its job?

675

Is we talked about football earlier?

676

Is the right tackle really doing its job?

677

Part of the team is fixed income or

commodities alternatives, equities.

678

Is it filling its responsibility

within a investment portfolio?

679

So you bring up a great point there.

680

So, and you brought up

structured notes for, you know,

681

mitigating some of that downside.

682

So if not fixed income, then

what is the alternative?

683

Fixed income has been, you know,

a mainstay and a portfolio, if

684

not fixed income, then what?

685

Edison Byzyka: Yeah, fixed

income has been right.

686

Think of your typical balanced client.

687

I think that automatically our brain

goes to, okay, well, 40% bonds.

688

What does that look like?

689

For us I, I go back to the notes

piece for us Ryan, if we're.

690

Trying to generate a balanced portfolio

where the goal, let's say, for

691

example, is a low correlation to the

s and p or negative, A correlation

692

to the s and p 500 is one example.

693

One of the fundamental components that

we've been utilizing are principle

694

protected notes directly in that

portfolio, because if I can swap out

695

a piece of my bond portfolio and give

it an equity market return profile

696

tied to a principle protected note.

697

Then if the market is negative,

I still get my principle back.

698

I am mitigating the potential risk

that stocks and bonds maintain a

699

positive correlation during that slide.

700

2022 was a fantastic example with a

relative performance profile In just

701

that one year we generated in that

savings makes up for the next three or

702

four years of, of, of, of, of benefits.

703

Really scrutinizing that and,

and, and really gauging how can

704

you strip out interest rate risk

for a calculated credit risk.

705

While doing that and actually

increasing that expected return profile.

706

That's a, I think an underutilized

function in portfolio construction

707

among advisors in the states.

708

For the most part.

709

I think abroad, it actually surprisingly

how, how much often it happens in Europe

710

and even in Asia, but in the US I think

that's a trend that's going to change.

711

I hope it changes.

712

It is what's better for the

client and it does provide a

713

better expected return profile.

714

Ryan: Listen, you just

hit it right on the head.

715

What's best for the client?

716

Right?

717

What's best for the end?

718

End investor?

719

Financial advisors or clients.

720

And at the end of the day, that's what's

most important is what's best for them.

721

So let's just wrap up this conversation.

722

You've brought a ton of great insight.

723

We talked equities, you know.

724

fixed income alternatives to fixed income.

725

Brought it all together.

726

So what do you think does, what

does all this mean for portfolio

727

construction moving forward?

728

We talked a lot, but what does it

all mean for portfolio construction

729

and maybe what's the most important

aspect to portfolio construction?

730

Edison Byzyka: Yeah.

731

I, I think moving forward, portfolio

construction in general, I think advisors

732

in general should just anticipate

that the catalyst shift away from

733

passive being the winner has shifted,

in my opinion, to now active being a

734

dominant factor over the next 10 years.

735

That's simply a function of a decreased

expected capital assumption profile.

736

Secondarily, I think the, the,

the notion of introducing partial

737

illiquidity in portfolios over the

next 10 years for that benefit of

738

swapping volatility for consistency

has increased in value way more than

739

it would have in the previous 10 years.

740

When something like the

s and p annualized 14.5%

741

annualized, I think that

backdrop has changed.

742

The sooner portfolio managers and,

and that are working in portfolio

743

construction actually realize that

and fundamentally visualize it and

744

quantify it and making those changes.

745

I think clients will be better off

portfolios will be, will be better

746

off, and I think advisors will

continue to add the immense value.

747

They continue, they add in, in,

in relationships into what is

748

likely to be a weaker performance

environment across the indices.

749

I think those are fundamental.

750

I think they're really important and those

that do not adapt I think are going to

751

face some challenges in this environment.

752

Ryan: Wow, Edison.

753

Awesome conversation, insight.

754

Thank you so much for coming on

and sharing such great insight.

755

It's really been a fun

conversation and I learned a lot.

756

I know our audience.

757

I love it when you can kind of open up

your minds in these conversations like,

758

huh, maybe I should rethink something.

759

It happens a lot to me.

760

I should rethink a lot

of things that I think

761

Edison Byzyka: I love it.

762

Thanks.

763

Same here.

764

Ryan: my

765

Edison Byzyka: Thanks for having me on.

766

Ryan: my diehard love for the Badgers.

767

Maybe I need to rethink that some.

768

Edison Byzyka: I was gonna leave

you with that and say, I hope they

769

have a tremendous year and I'll

be, you know, they'll be the second

770

team I root for this time around.

771

Ryan, how's that?

772

Ryan: Yeah.

773

Well it's same thing before

like I said earlier, Indiana

774

was usually an afterthought.

775

They're really fun team to watch.

776

TI is a fun coach, you know,

kind of listen to character.

777

I really enjoy Indiana, so they're,

they're probably my second favorite too.

778

Edison Byzyka: Hey.

779

There you go.

780

We'll, we'll, we'll align on that.

781

Ryan: There we go.

782

Awesome, Edison, thank you so much.

783

Where can our audience

get more information about

784

Credent Wealth Management?

785

Edison Byzyka: Yeah, absolutely.

786

So credent wealth.com

787

is the main website.

788

Also very active on our YouTube page.

789

Very active on LinkedIn as well.

790

A lot of information on there, on how

we approach things and how we handle

791

client experience, relationships,

and investment management.

792

So love for you to check it out.

793

Ryan: Yeah, great resources on there.

794

I do might surprise some, I do do

a little bit of research before

795

getting on these conversations.

796

Went to create, you guys

have a lot of great.

797

Content on there.

798

So great job and thank you everyone

for listening to this episode of

799

zephyr's Adjusted for Risk podcast.

800

You can watch all of our other

episodes on the Zephyr YouTube channel

801

and wherever else you get all your

podcasts from, please be sure to

802

like and subscribe to those channels

and give us follow on LinkedIn.

803

Thank you very much and have

a great rest of your week,