In this episode, Corey Hoffstein and Adam Butler take you inside the latest Q2 commentary on the Return Stacked® ETF suite. They break down key strategies behind ETFs like RSSX, RSSB, RSBT, and RSST—covering everything from performance differentials in trend strategies to the mechanics of trend model replication.

You’ll hear sharp analysis of return stack carry funds, year-to-date performance, and how they behave in multi-asset portfolios. The hosts also explore fixed income sector positioning, the role of energy exposure, and why merger arbitrage deserves a closer look as a diversifier. The episode wraps with the new RSSX ETF, blending U.S. stocks, gold, and Bitcoin to meet evolving market demands.

*The performance data quoted above represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost, and current performance may be lower or higher than the performance quoted above.

RSSX does not invest directly in Bitcoin or Gold.

For prospectus, performance and risks visit the fund pages.

RSST – https://www.returnstackedetfs.com/rsst-return-stacked-us-stocks-managed-futures/

RSBT – https://www.returnstackedetfs.com/rsbt-return-stacked-bonds-managed-futures/

RSSY – https://www.returnstackedetfs.com/rssy-return-stacked-us-stocks-futures-yield/

RSBY – https://www.returnstackedetfs.com/rsby-return-stacked-bonds-futures-yield/

RSBA – https://www.returnstackedetfs.com/rsba-return-stacked-bonds-merger-arbitrage/

RSSX – https://www.returnstackedetfs.com/rssx-return-stacked-us-stocks-gold-bitcoin/

BTGD – https://quantifyfunds.com/stackedbitcoingoldetf/btgd/

Forside Fund Services, LLC Distributor.

(0:00) Introduction to the Get Stacked Investment Podcast and symposium announcement

(5:49) Overview of new ETFs: RSSX, RSSB, RSBT, and RSST

(10:29) Performance differentials in RSSB and trend strategies

(18:00) Performance tracking and replication strategy of trend models

(23:42) Analysis of performance drivers in trend strategy

(29:22) Year-to-date return of the trend model and currency trends

(31:17) Introduction to return stack carry funds and strategy primer

(36:12) Performance and correlation of carry strategy since inception

(39:15) Energy potential in portfolio and fixed income sector analysis

(44:43) Combining trend and carry strategies in portfolio construction

(48:59) Comparison with GSAM cross asset carry index

(52:25) Bonds and merger arbitrage strategy introduction and explanation

(56:37) Merger arbitrage as a diversifier and comparison with corporate bonds

(59:53) Introduction and rationale behind RSSX: US stocks, gold, and Bitcoin ETF

(1:07:37) Closing remarks and symposium reminder

Corey Hoffstein 0:00

Hey, everyone. Corey Hofstein here. I wanna personally invite you to an event that's all about rethinking portfolio construction. On October 8, we're hosting the return stacking symposium at Cboe Global Markets in Chicago. It's a one day in person deep dive into capital efficient strategies, and we're featuring speakers like Jonathan Glidden, CIO of Delta Airlines, Patrick Casley from One River, and Mark Horbul, managing director of the Systematic Strategies Group at Canada Pension Plan.

This is your chance to hear directly from the institutional allocators leading the charge on portable alpha and return stacking. But space is limited, so head over to returnstacked.com/symposium to learn more and register. Hope to see you there.

Speaker 2 0:48

Hello, and welcome to the Get Stacked Investment Podcast, where we delve into the exciting new world of return stacking. Join us as we break down complex financial concepts into accessible insights, speak with leading experts in the space, and analyze real world applications for return stacking. GetStacked is here to help you break out of the traditional portfolio construction mold and get you to start thinking differently about the path to successful investment.

Speaker 3 1:14

Corey Hofstein is the co founder and chief investment officer of Newfound Research, and Rodrigo Gordillo is the president and portfolio manager of Resolve Asset Management Global. Due to industry regulation, we will not discuss any funds managed or sub advised by these firms on the podcast. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinion of neither Newfound Research or Resolve Asset Management Global. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of these firms may maintain positions and securities discussed in this podcast.

For more information, visit returnstack.com.

Corey Hoffstein 2:03

Clients Alright. Well, welcome everyone. Thank you for joining us. My name is Corey Ofstein, Chief Investment Officer here at Newfound Research and one of the co founders of the Returnstack suite of ETFs. And it is my pleasure to be joined by Adam Butler, CIO of Resolve Asset Management Global, and also one of the co founders of Return Stacked ETFs.

We're gonna be doing something a little bit different today. This is the first quarter that we're doing it. We'd appreciate your feedback as we go through this, but based on prior quarters, we thought it would be a useful exercise for us to go through the commentary that we just published on our ETFs, go through what we're seeing in each of the ETFs, what we saw last quarter, what we're seeing big picture, what have been the performance drivers, some expectations going forward, talk about some of the new products that we brought to market and why we brought them to market. And overall, just give everyone a chance to ask some live Q and A. And that is what this is all about.

So please, if you have any questions, have any comments, enter them into the chat. Both Adam and I will be keeping an eye on the chat in real time as we go through the conversation, and we'll try to either address your questions in real time as they come up, or we will address them at the end. What I want to begin with is, I want to make sure I can do this correctly, is not the commentary. First, I want to make sure that I talk about a really exciting event that we are putting on this fall. We are hosting our inaugural inaugural return stacking symposium.

I think one of the things I hope you will see and appreciate is that we have completely removed ourselves from the lineup. This is really meant to be a full day educational event. The opportunity to hear from industry practitioners, both institutional allocators, folks like Jonathan Glidden, who's the CIO at Delta Airlines. We have Mark Horbold, the managing director of systematic strategies of the Canada Pension Plan. We have all sorts of phenomenal people.

Buck Betten from the MacArthur Foundation in Chicago, Roxanne McNeil, who used to lead UPS's investment trust. Again, real true institutional practitioners, as well as other financial advisors who have implemented either portable alpha from an institutional capacity or return stacking from financial advisor capacity. So if this is an area you're interested in learning more about, and you don't wanna hear a pure marketing pitch, you wanna hear it from other people. Are truly third party experience in implementing these ideas both from a performance expectations and a communication and a governance perspective. This is the fur truly the first symposium of its kind, and you can come to this page, check out the agenda, learn more about it, and reserve your spot.

Space is limited. We have only about a 100 seats available and 80 of them are already taken out. Only about 20 seats left that are available. So if you want to attend, I'd I'd highly recommend you register now. Adam, anything you wanna add to that before we dive in to actually talk about the commentary?

Adam Butler 5:39

No. I'm really excited. I think it's gonna be an unbelievable event, and, wanna encourage people to sign up now because we're actually limiting seating. So, you wanna come? Then get in touch.

Corey Hoffstein 5:49

Alright. Well, let's dive into the commentary, the reason everybody is here. And, again, if you have any questions about the symposium, you know, again, about the agenda or anything like that, please feel free to reach out. But let's let's dive into the actual commentary of itself. This was just published on Friday.

Apologies if you didn't see it beforehand, but hopefully we can walk through some of the really important high level stuff and if there's any details you want to go through. This is really the opportunity. So let's this is the Q2 commentary. One of the exciting introductions in Q2 is that we launched a new ETF. This is our return stack US stocks and gold Bitcoin ETF, ticker RSSX.

For every dollar you invest in this ETF, you'll get a dollar of exposure to core US equities, plus a dollar of exposure to a gold Bitcoin strategy. We'll talk about that a little bit more towards the end, but this is one of the exciting new things we launched this and it adds to the suite. We now have seven ETFs in The US return stack ETF suite. We think representing a broad diversified lineup of both stock and bond core exposure, as well as a different set of diversifiers, including trend following carry, merger arbitrage, golden Bitcoin, and then a generic capital efficient solution in RSSB that allows you to really stack whatever you want. With that, I'm gonna start working through this because there are a whole lot of funds to get through and a whole whole lot of interesting fun details to go into.

We're gonna start with RSSB. And, Adam, I'm gonna pass it over to you here to talk about RSSB. Quick high level, what is the fund? What's its intention? What have we seen from a performance perspective?

Anything else we wanna point out?

Adam Butler 7:27

Thanks Corey. Thanks for teeing that up. Remember that the whole point of the return stack suite of ETFs is to provide a dollar of diversifying exposure on top of a dollar of core exposure, and to take advantage of all of the available potential capital efficient real estate in the portfolio to create the most diversified portfolio possible out of the premia that you have a fundamental conviction around. So the return stack global stocks and bonds ETF was the first tool in the toolbox. We think it's extra special because it's the one that maximizes the flexibility in the portfolio to add any other diversifier that you might want around it.

So this ETF provides $1 of exposure to US large cap equities and another dollar of exposure to diversified US bonds. We get the bond exposure by allocating to a ladder of two year, five year, ten year and long term treasury bonds. So you get $2 of total exposure for every $1 invested, which means that for example, in theory, you could put 50% of your portfolio in RSSB, and that would actually give you basically a 100% Sorry, a full 50% allocation to US large cap equities, plus 50% allocation to US diversified treasury bonds, and leave 50% of the portfolio available as real estate for you to add any other diversifiers that you might want. And as a result of the fact that we're basically just allocating to a US equity ETF and a global bond ladder, we would expect this to track the benchmark very closely. And in fact, it did.

I think we came within less than 1% total return Delta over the period, which is well within what we would expect in terms of tracking error for the portfolio over that period in the long term. So doing exactly what we expected it to do, no surprise there. It's a relatively simple structure delivering as it was designed to.

Corey Hoffstein 9:55

The only things I wanna add, Adam, from from a details perspective is as you said, dollar US equity. I just wanna clarify, it's a dollar of global equities. So this is a global equity US treasury fund. Just wanna make sure we we get that.

Thank you.

Yeah. Sometimes sometimes it's easy to to misspeak with all the different funds we have. So dollar invested, again, dollar global equities plus a dollar of diversified US treasuries. One of the things we pointed out in past commentaries, often people will come down to the standardized performance. The thing to obviously compare is RSSB NAV versus this hypothetical 100, 100.

The 100, 100 here being that combination of global stocks, US treasury index netting out a T bill assumed cost of leverage. And what we would generally expect to see is that RSSPs now should come very close to this. Points of friction in there obviously are gonna be our expense ratio, realized trading The fact that our US treasury ladder is not going to perfectly match a diversified US treasury portfolio. And then there's actually some really interesting dynamics when it comes down to pricing global equity indices. And you can actually see something like a global equity ETF be plus or minus 50 dips of the global equity index because some of those stocks are actually not trading at the time the ETF closes.

So figuring out what the index value is versus the ETF value can lead to some point dispersion. What we have found over this period is that almost all of the performance differential can be really explained by some variants in that point to point dispersion, a little bit of variance in the US treasuries versus our treasury ladder, which tends to ebb and flow every quarter as to which is outperforming or underperforming, but the majority of the performance is just basically our fee differential, which is exactly what we want it to be. So again, at Adam's point, this is a hugely flexible tool. This, in my opinion, should not be looked at as, you know, why would I invest in a portfolio that's a 100 percent global equities plus 100% treasuries? This is a tool that allows you to stack whatever you want.

This is the Swiss army knife of stacking to really let you choose your own adventure. Yep. Well said. We don't have any questions on that yet. It is our most probably one of our most vanilla products.

I didn't expect too many questions, but if people wanna dive into the nuance details of some of those performance differentials, please feel free to ask questions. I'm gonna dive into maybe some more interesting stuff, which is RSBT and RSST. This is our trend. RSBT and RSST have very similar mandates. For a dollar invested, RSBT will provide you a dollar of core US bond exposure plus a dollar of exposure to a managed future strategy.

RSST will provide you a, for every dollar invested, a dollar of exposure to core US equity, plus a dollar of exposure to a managed future strategy. So the idea here being is that both of them again provide that capital efficient exposure. One is bonds plus trend, the other is equity plus trend. And this allows you to mix and match how and where you want to develop your capital efficiency within your portfolio. Now our commentary, and this has been consistent since these funds were launched, has largely focused on the trend piece.

Our trend strategy is an actively managed strategy, but the key differentiator here is that that active management is not done in a way where we are trying to pick and choose signals that we think generate alpha. What we are effectively trying to do is run a program that gives generic trend data. And a way to think about that is when we look at managed futures trend following as a category, there can be a massive amount of dispersion in the individual manager performance year to year. But often what allocators look at is an index like the Softjack trend index or the old Morningstar systematic trend index, where it's really showing a basket of managers performance. And so what our trend program seeks to do is provide exposure that replicates that basket, eliminating a significant degree of that single manager risk.

And the way we do this, and I'm glad Adam's on the call because he actually pioneered all the research behind the program is that we take a two pronged approach. We do one approach that's called top down replication, and this is a regression based approach where we're looking at prior returns of a basket of managers and saying, what positions long and short would have closely matched those returns? Let's assume we could hold those going forward for a day. Then we also have a bottom up approach, which actually builds a true trend following strategy. But the parameterization of that trend following strategy, like how much weight should we put in certain contracts?

What trend speed should we trade? All of that parameterization is designed and selected in a way to try to track the long term performance of that basket of managers. And each of these approaches had its pros and cons. We've gone through this in detail in prior webinars, but the idea is both of them ideally will track in their own unique ways, the performance of a basket of trend managers. They error at different times.

And so by combining them, we get some process diversification. We combine them in a weight of sort of the 30% top down, 70% bottom up. We really like being anchored to a true trend following process. Just in case our replication is poor, we know then there is a true trend following process driving the returns. What we plotted here in figure two is a number of things.

First in the black line is the performance of the Softgen trend index. It's It's a lot more fun when trend following is going up. Obviously, it's been a very rough twelve months for trend following as trend following continues to try to navigate global economic turmoil. Some of this is just based on, you know, what is the Fed gonna do? We've seen significant whipsaw in bonds in particular.

You can see a standout sell off here being in the Liberation Day tariff announcements in early April this year. Trend following frankly has struggled to find its footing and that's reflected in the black line, which is the SocGen trend index, which is an index that is made up of 10 trend following managers. The green line here is the performance of our trend replication model, net of all estimated fees and transaction costs. And this is a blend of our underlying models. And I hope you would agree that we have tracked the trend, broader trend space quite closely.

We did outperform the broader trend space by a couple 100 basis points over this period. I would love to pat ourselves on the back. I'd love to pat Adam on the back especially and say this was pure alpha. The reality is this is within the tracking error expectations of our models. The gray dots here are the different trend models.

We can see a top down number one program. This is that top down regression based approach. Number, the number one program uses a smaller universe of contracts. Then we have the top down number two, which uses a larger universe and the bottom up, which is the bottom up process. And the green line is a combination of those underlying models.

Figure three is probably one of my favorite figures to plot. It's a little bit technical, but the idea here is we're taking the curves, the equity curves on figure two, and we're dividing them by the SOC Gen trend index. And so we're getting a relative performance chart When this line is going up, that model is outperforming the trend index. When the line is going down, it is underperforming. Perfect replication, which is in an ideal world what we're going for would be a perfect flat line across.

And so what we want to see in this green line is something that is as close to a perfect flat line across. Over the long run, it would be perfect flat line with a little bit of incremental positive return, hopefully coming from fee differentials between our strategy and the underlying managers. But ideally we have as little variation as possible. What really stands out here is two things. One, I think, again, I would argue that this graph highlights how well we have replicated the broad index, that broad category of managers within, you know, the degrees of uncertainty that we expect.

Replication is not a perfect science. We don't know what they're holding. We're trying to back that out. Again, I think we've done a very admirable job of achieving that, but what really sticks out here is the relative returns of that top down number one index. And you can see particularly a really large jump here in early April around that liberation day period.

One of the obvious questions is, okay, why did this replication index dramatically outperform the broader category? And when we down into it, the answer really was threefold. One, this program had significantly less equity exposure. Instead of trading both The US and global equities using a limited subset of of the investable universe in the model. We only trade US equities and it had far less exposure than the other models.

It also had far less exposure to WTI crude and it had no exposure to silver, where the other models had much more crude, much more silver, and broadly much more equities, all of which were significantly sold off during the liberation day, sort of what I call the two week sell off that happened there. And so this short term, this model with a much more constrained universe dramatically outperformed. Again, would love to pat ourselves on the back and say, this is alpha. Unfortunately, it's good luck, but it's not alpha. There's no reason this couldn't have gone the exact opposite direction.

It could have been mispositioned. I think what this really highlights, particularly with replication, is what we believe are the benefits of process diversification. It would be easy to just use one of these models, but in doing so, we end up with a much higher degree of potential tracking error versus our target. And again, our target is that broad trend following beta. And so while again, we always wanna have good luck in terms of meeting our objective, we prefer to have no luck.

And so, you know, again, lucky than good in this occasion. But what we highlight with that spike is that the benefit here of not just using a single model, because that could have also been a spike down, the benefit of using a blend of multiple models to try to keep, again, close to that broad average. I wanna talk a little bit about what what's been driving returns and what we've seen from an actual position change over the period. We continue to see in fixed income just the degree of of whipsaw, frankly. Fixed income returns have been very difficult over the last eighteen months as rates go up and down in a range bound fashion.

Trend managers seem to be almost perfectly offsides here pretty frequently, and we're seeing positions go back and forth as to long and short. And this this is an area where trend frankly has struggled and where a lot of the the negative returns have come from. Equity indices largely bullish. Obviously, as you can expect, coming out, coming into the liberation date period, quite bullish. Those positions were trimmed down by the end of quarter, they were built back up.

By the way, should point out to read these charts, the black bars are where we were at end of quarter, the green dots are where we were at the beginning of the quarter. Commodities, we remain mixed to almost no positioning on the energy complex while maintaining pretty significant positioning on gold, silver and copper. The other thing I should mention, I apologize. These are what we call volatility adjusted weights. So this allows us to look at all the positions on an equal playing field.

If we were to just look at their notional targets, something like two year bonds might have a very, very large weight because two year bonds don't move that much. By looking at these on a volatility adjusted basis, you get a better sense of their relative importance of the portfolio. So again, we looking at the commodity space here, gold, silver, copper, we remain bullish. We're bullish pretty much all quarter. The big difference here is probably in the currency space.

We're we're short the US dollar, and we are now back to net one the US dollar particularly. Excuse me. We were long the US dollar. We are now short the US dollar particularly against the euro. From a performance perspective, what drove returns?

You can go through the performance level contribution here. We can see currencies were a net driver of positive returns, but pretty much everything else was a drag on returns. We've seen metals quarter to date even though we're just fourteen months, fourteen days into the quarter. Metals have turned around and been been a nice additive. But bonds in particular have been tough.

Fixed income here has been tough for the last twelve months, continues to be tough. And as the market sort of sorts out through the liberation day and post period tariff turmoil, we're seeing a lot of trends revert and sort of reestablish themselves. The big, big winner here was currencies and just about everything else was frankly a struggle from a trend following perspective. Adam, anything you want add?

We've got a couple of questions. One of the questions is on expected fee alpha. Maybe I'll take that. And then maybe you can comment on how the blended trend model has tracked the CTA trend since inception. And as you were talking, I wanted to remember to mention this because it's interesting to see the replication strategy generate a little bit of alpha while the underlying SoftGen trend index is lower.

Because typically, historically, we've accrued majority of our fee alpha when the trend index is at or near and then exceeding all time highs. And a big reason for that is that many of the trend funds in the index have performance fees, right? So as a fund's NAV rises above its high watermark, it goes on to new all time highs, then the fund managers participate in some proportion of the gains as you exceed those high watermarks. And by virtue of the fact that we've just got a flat fee model, we won't have that kind of drag. And if you go back and look at the value accretion over time, you do observe that that we get an outsized proportion of the historical outperformance, the fee alpha at those periods.

So it's nice to see that we're also able to keep up and or outperform a little bit, even when the index is down. Observing of course, then in the short term, lot of this is just gonna be noise, but it is gratifying to see how nicely the green line tracks a flat horizontal line, which is what it would look like if of course the replication was 100% perfect and exhibiting no error relative to the benchmark. Do you have any comments on the replication performance?

Yeah, just to add inspeccable numbers on the fee alpha. So this is, wrote a paper last year and actually went through all the managers and dug through what their stated fees are, at least you know, how they just put them in databases. When you look at something like the SocGen trend index, the average manager fee is about 1.25%. So that fee differential between us and our, and them is, you know, call it 30 basis points a year, compared to, you know, five to 600 basis points of expected tracking error. That is a sharp of point of war.

That is not particularly compelling, frankly. I'll take it. You know, if you're going to get the beta plus a little bit of edge, maybe that's that's not so bad. To your point, it's the 12.5% average performance kicker. That is really when you talk about fee alpha relative to a hedge fund benchmark, that is likely where you're gonna end up with all the returns.

So when you're talking about tracking an index and tracking it quite closely, tracking it on the way down, yes, you might be picking up an extra 30 bips of extra return. You know, again, that assumes there's no alpha leakage. That assumes there's your transaction costs are just as cheap as theirs. It's, you know, you might call that a wash, give these hedge fund teams some credit. It's really the performance fee that matters that you're gonna get the differential.

And, obviously, when the index is going down, most of these managers are not charging a performance fee.

Right. And, on the replication side.

Yeah. So on the replication side, so this this comes up. People ask us, why do we just show the last twelve months? Why not since inception? I used to show since inception, and I had enough people yell at me and say, please just show the last twelve months.

That's too much noise. So I will say, if you ever want to see since inception, please just email me or reach out to me on Twitter or whatever. You know, we'll we we will get you those numbers. We're not hiding them. This is just I had enough feedback that people wanted to see a shorter term period.

As I said before, this is not a perfect science. This isn't replicating the SDP. This is something where we don't have insight into the positions and we're using mathematical techniques. We expect there to be some tracking error for where we are. I wish we were on the positive two and a half percent side versus the negative two and a half percent side versus the stock index or a basket of managers, however you wanna manage, measure it, but it's well within sort of expected balance.

And happy, again, happy to share a graph of that for anyone who wants, please just reach out to me.

And in terms of tracking performance, I mean, objective is to minimize tracking error. You can proxy that with correlations to the index. And I think our daily, weekly, monthly correlations to the index are above kind of 0.8 ish, which is right in line with what we expected when we deployed it. So I think what we could say is that it's performing about as we would have expected when we engineered it and put it to work, which is nice to see.

Let me tackle some of these other comments. What is the year to date return of the trend model piece on its own? So this is excess return, I'm talking, so not including any cash component. This is just the return of the trading strategies. Our estimate of that is about right or almost exactly negative 7% year to date, which I believe is, you know, a 100 or 200 basis points better than the SocGen trend index's excess returns.

If you're gonna compare, you know, SocGen trend versus this, make sure you add in another, to us, you know, add in two fifty bips of T bill return. We're already stretching that. Is it unusual for USD to be short against every other currency? No, It's not. Adam, I I don't know if you wanna add any other comments, but what I tend to see is, right, we have a lot of regimes that are pro dollar or or negative dollar.

The dollar is a huge driver from an explanatory perspective. And so seeing these models, trend models flip flop between net long dollar, net short dollar isn't totally unusual. There are some times where you see the idiosyncrasies pop up and some trends might be divergent, but I do, in my experience, tend to see that there's a big driver that is just argue short along the dollar, US dollar.

Yeah, I think it's kind of about 50% of the time you see some idiosyncratic positions across the currency space. About a quarter of the time, pretty well all the positions are short the dollar and about a quarter of the time, pretty well all the positions are long the dollar. And it just depends on what's driving the current macro environment at the moment. We're clearly in an environment where currencies and trade flows and capital flows are in focus. So it's not surprising that we're seeing some homogeneity across the currency position.

Eric Mendelson asked, have you considered adding Bitcoin investment with these products to really return stock? Eric, wait until the end. We'll tell you about our new RSSX ETF. Alright. I'm not seeing any more questions on the trend components.

If you do, please feel free to throw them out there. We will try to get to them at the end. But with that, I'm going to kick it over to you, Adam, to talk about what we've seen in carry. Quickly sort of lay out what these two funds are, what they do, and we can dive into some quarterly commentary.

Yeah. So just like our return stack trend funds, we've got return stack carry funds that are built to provide $1 of exposure to a diversified carry strategy on top of a dollar of exposure to either US stocks with RSSY or US bonds with RSBY. And the carry strategy, as far as I know, I think we're still the only or if not the only, we're one of two or three funds that provide a diversified futures carry strategy to retail investors and a structure that anyone can buy, which we're really proud of. We feel that carry is one of the premier long term risk premia that ends up being largely uncorrelated with the types of allocations that most investors hold in portfolios over the long term, the long term equity allocation, long term bond allocation. For those who aren't familiar, a quick primer on carry.

Carry is the return you expect to get on an investment if the price doesn't change. We often liken it to owning an apartment building. You're not really buying an apartment building, hoping that the price of the building changes in the short or intermediate term, but you're hoping to collect rents from the people that live in the building. And it's those rent cash flows that are the carry in that case. In equity markets, you can think of carry as the dividend yield, even if the stock prices themselves don't change, you're still going to be collecting those dividends over time.

In bonds, you're collecting coupons. There are in currencies, you're typically investing in the cash markets of countries with high yielding government short term bonds, and you're borrowing in the currencies of countries with low yielding short term government bonds to fund that position and capturing that spread. And you can also earn carry in commodity markets by effectively lending to commodity producers at or providing facilities for those producers to get capital to build those long term projects. So we get this hard try to harvest this carry by observing, for example, the slope of the treasury yield curve term structure. So the idea being over the long term on average, if there are positive inflation expectations, we would expect longer term bonds to have a higher yield than shorter term bonds or T bills.

And indeed over the very long term, we do observe that. Although we've seen a lot more fluctuation in that over the last couple of years as inflation has been more volatile. But we just would typically invest in the long term bond, borrow at short term rates and expect to earn a spread on that. And it's the same thing in equity markets. When the dividend yield exceeds the yield on cash, then we would typically expect to earn a premium there.

And when the slope of the commodity term structure is negative, in other words, the back months in the term structure have lower prices than the front month, we would expect over time as those back months get closer and closer to maturity, they will rise in price to approach the price of the near term contract. And we would wanna be long those in order to capture that upward drift. And in contrast, if the back month contracts were trading at a higher price than the front month contracts, we want to be short those contracts in anticipation of them moving down in price towards the spot or the front month contract price, right? So that's in general how the carry strategy works. Again, we've got lots of academic literature and lots of our own internal research demonstrating the long term veracity of this strategy.

And we've written a white paper and lots of research about it for those who want to dig a little deeper. In the period, the carry strategy obviously exhibited a loss. We've exhibited a loss or experienced a loss in carry since inception. Just purely coincidentally, the loss and the carry strategy has been approximately the same as the loss in the trend indices over the same time period. But the correlation between the carry strategy and the trend strategy has been very close to zero.

Remember that the overall objective here is for us to launch products that provide diversified exposure or the opportunity to get exposure to diversified potential return streams, right? In other words, return streams where we expect structurally that they are gonna move at different speeds and different directions at different times for different reasons. And in fact, that's what we have observed live and what we observe also historically in research explorations. And so, you know, it's I think a little bit harder for people to gain an intuition for when caries might be expected to do well versus, you know, when it might be expected to do poorly. One way to think about it in some markets, in some markets, this is a bit more intuitive than in others, is, well, is there potential energy in the portfolio?

In other words, we've lost money by invest Let's just use bonds as kind of an easy case study. So over the period we lost money investing in bonds, we want to be long bonds because in fact, the longer term bond interest rates have been higher than the shorter term bond interest rates. So there is this positive sloping yield curve, this positive expected carry, but that difference has increased over time. And therefore, we've been taking losses as that trade has kind of gone against us. But as the trade has gone against us, the spread between the long term contract, the yield on the long term contract and the yield on the short term contracts or T bills has actually increased.

So from that perspective, while we've accrued losses, our expectancy going forward has actually increased. So we sometimes refer to this as the portfolio building potential energy. Now it's not always the case that this happens. It could be the case that long term rates rose inflicting losses on the portfolio, but short term rates rose even more. And therefore the potential energy, which is just the difference between the long term rates and the short term rates at any point in time has actually shrunk.

Now, fortunately, we haven't seen that. The potential energy in the quarter has increased leading to intuition about the fact that the prospect of returns may be a little bit higher, at least in bonds. We've seen similar types of dynamics in currencies, right? In fact, the currencies with low returning cash rates have underperforming, or sorry, have been outperforming the currencies with high returning cash rates over the last several months as investors have kind of been exiting their US dollar positions and buying positions in other currencies around the world, despite the fact that other currencies around the world actually have higher interest rates. They pay you more to borrow in dollars and invest in those foreign currencies.

But investors at the moment haven't really cared about that. And that happens from time to time. That's no big surprise. But as a result, the potential energy in our currency positions have also increased. Right?

So I think Corey did a really good job in the commentary helping to illustrate how sometimes when you accrue losses in the portfolio, it means that intuitively over the next little while, we might expect higher returns than all things equal, but that's not always the case. In the current case, we do. Corey, don't know if you want to comment on that or clarify anything before we move on to the-

no, I think you nailed it. Example we used in the commentary, which is of a dividend stock. I think sometimes people are much more familiar with stocks. You talk about a dividend stock, you can have a case where the price goes down and the dividend stays constant, so your dividend yield goes up. And we would think of that as a risk premium repricing.

Price went down because the market's demanding a higher expected return going forward for you to hold it. So that's really the potential energy case. What can also happen is the fundamentals can deteriorate. We would call this a fundamental re rating where the price can go down, but the dividend can also get cut, right? And so you take that loss, but the dividend yield stays flat or even potentially goes down.

So you don't actually expect a higher return going forward. It's the fundamentals eroded and you were simply on the wrong side of the trade. And so what we try to do with figure eight here is show using carry scores, what the sector level contribution was to our overall portfolio level carry scoring. And and the blue line at the bottom here is fixed income. And as Adam mentioned, fixed income is an area where we've taken losses, but we think it gets increasingly attractive.

I'll contrast that to the middle blue, green, teal, whatever you wanna call this, which is the energies, the third one up, where we saw it also increase from sort of late twenty twenty four to first quarter twenty twenty five, and energies were really attractive. And then you see it absolutely fall off a cliff during this liberation day period. And what so in contrast, what our models see with fixed income is there's been a a risk premium repricing. The trade has gone against us, but the slope has steepened. It's gotten more and more attractive.

With energies, we would consider that to be a fundamental repricing. We were frankly just on the wrong side of the trade for realized risk. The market repositioned. The expected return going forward despite the fact it took the loss isn't better. It's actually worse.

And so the portfolio will reposition around that. So these two very different types of trades that happen.

Yeah. That's fantastic clarity actually, Corey. And I think it's figure nine to scrolling down does a good job of illustrating how the holdings in the portfolio reflect these changes in the expected carry over time, right? The dark blue line at the top being the allocation to fixed income. You can see at the very beginning of that chart, there was a small short in fixed income as the yield curve was inverted.

And over time, as the yield curve has steepened around the world, the position in fixed income has increased, right? And for reasons we described that increase represents a true expected higher return on that carry going forward, right? And on the flip side, the green on the bottom is the short currency position representing a long US dollar position, short foreign currency position. Again, short foreign currencies interest rates have been rising relative to the dollar, representing a higher prospective returns on being long foreign currencies and short the dollar. But as those currencies have appreciated relative to the dollar in the short term, the trade has gone against us and we've just built potential energy there.

And you know, the positions reflect exactly what the prospective forward carry looks like. But in order to get here, we had to endure some losses as that expected carry has continued to increase over time.

So two questions here, Adam, I want to get to one. I'll answer the other. I'll let you take a stab at the more complex question. I'll let you jump on that one. One of the questions was, has there been any consideration of combining trend and carry into a single solution?

I will say we do have other solutions outside the ETF suite where we combine trend carry and some other systematic macro signals, including skewness and seasonality into a more wholesome program. And it goes beyond sort of just course at a liquid markets into a much more diverse set of markets. We haven't done it here because again, the point of this suite is to provide isolated building blocks. I will say though with maybe a little bit of humor that if we had done that, both equity curves would have been just a smoother straight line down because ironically, since launching the carry strategy, both trend and carry have had nearly an identical drawdown with zero correlation. And so you would have ended up with just a smoother half in your drawdown, which probably would have frustrated everyone.

So with with a little bit of humor, I'll say, glad I'm glad we didn't do but it's always on the discussion table. Right now it exists in other products that we manage, but not in the ETF suite. One of the questions that came up is, we talk a little bit more about Aerie in figure eight? You know, is it predictive of carry returns? How does it inform sort of the risk or the volatility we're willing to take?

I think that more specifically, when we see that the carry score level is down at 4%, are we doing anything different than when the carry score level is up 12%? Right.

I mean, the reality is the total positioning in the portfolio is going to reflect the strength or magnitude of the carry signal broadly over time. So, you know, when we've got a lot of markets that are exhibiting very strong prospective carry, we would expect to have more exposure in the portfolio. And so it sort of breeds in its aggregate exposure over time, depending on, you know, the total amount of available carry. As to whether the portfolio has historically delivered higher returns in periods subsequent to us observing a larger aggregate exposure in the portfolio, reflecting higher amplitude aggregate carry scores, There is a mild relationship in certain sectors, but it's not a relationship that you would want to fine tune beyond just allowing the portfolio to respond to the changes in carry for each of the individual markets that we track. So to the extent go ahead.

I'll just say that that final point is actually, when you think about it, somewhat tautological. If you believe that carry is predictive of forward returns, then the carry and aggregator at the sector level has to be largely predictive. But the point, you know, is that I'll predict with what degree of accuracy. Can you time it? And what we tend to find looking is that, yes, there is a relationship, hence why we built this product.

If there wasn't a relationship between sector aggregate level carry and forward returns, then carry signal wouldn't work. But there is such a huge degree of variance that you can't effectively market time with the aggregate score.

Yeah. I often say if we could time it, we would time it. You know? It's not hard to build that into the carry strategy or the trend strategy or what have you. If there were good ways, reliable ways to time exposure, then those would be built into the strategy itself.

I think it's worth pointing out that the GSAM index is not an ideal proxy for the methodology that we deploy. First of all, the sleeves in that index are all engineered slightly differently. Some of them are time series. Some of them are sector neutral. So we would actually expect that strategy in aggregate to have a fairly low correlation to our carry strategy over time.

The only thing I'll add to that, Adam, is if you dive into that GSAM cross asset carry index and you look at the sub indices, you see very different performance. Like FX carry has continued to work quite well. And again, it's not fully representative of what we do, but you do see certain sub strategies seem to have struggled, others seem to have done well. Often it's hard to answer whether a low sharp thing is broken or whether it's just going through a period regime change where it doesn't work.

Give Go me our own time ahead. The universe makes a big difference. If I'm not mistaken, the GSM currency carry strategy allocates quite a bit to emerging markets. We don't allocate to emerging market carry. It's a very different type of risk premia that tends to be a lot more pro cyclical.

In other words, when there's a shock in equity markets and it hurts to be hurt on your other dominant asset class holdings, then that FX carry that includes emerging markets tends to also have a really rough time at the same time. Whereas if you run a strategy using only developed markets, you get a lot less of that effect. But, you know, if you go as usual, this is almost an endless journey of nuance and detail that, you know, we'd be happy to address offline, but probably aren't well suited to a broad call like this. But if you have questions like that, totally legitimate, please feel free to reach out and we'll get back to you with some answers.

Don't know if have any time here. We gotta we gotta move forward because we're, almost fifty two minutes in, we got two more funds to go through. So so I wanna dive into the bonds and merger arb strategy. And for for the questions that remain on carry, we will come back to them at the end of this call, but trying to get everyone off the calls in an hour. We'll move forward here.

So the return stack bonds and merger ARB ETF, RSBA was a fund we launched last December. The idea behind this fund is that for every dollar you invest, you'll get a dollar of exposure to core US treasuries, plus a dollar of exposure to a merger arbitrage strategy. For those who are less familiar with merger arbitrage, the idea here is basically that when there is a announcement of a public acquisition or the company A is buying company B for a certain price, the publicly traded stock of company B tends to jump up towards the acquisition price, but doesn't tend to get fully there. And that spread that's left over is what merger arbitrage strategy seek to capture. That spread is going to represent both some timing risk of when the deal will get done, right?

Value, you know, cost of a dollar, value of dollar, net present value of dollar, and a spread of what is you can almost think of it as like credit risk. What is the risk of the deal actually coming to fruition? Are shareholders going to vote for it? Is there going to be regulatory intervention? All of that gets priced into the deal.

And so what merger arbitrage strategies try to do is they try to capture that remaining spread. And often it looks like a very stable set of returns. In this strategy, in RSBA, the merger arb strategy is implemented by a firm called Alpha Beta. We license the Alpha Beta Merger Arbitrage Index, and it takes a very active approach. What this index is going to do is it's going to look through all US listed and announced merger arbitrage deals, and it is going to screen only for those deals that exceed a certain expected return hurdle rate, 400 basis points.

And so when there is just a lack of deals that are interesting or available, the strategy will largely just sit on cash. And that is what happened in Q1. We launched this fund in December and Q1 was just an absolute drought. I think we had just a handful of deals in the portfolio. We were dramatically under allocated and the returns of the ETF looked just like the returns of a diversified US treasury strategy or fund.

What we saw in Q2 though was where a lot of, you know, friend and Carrie stumbled into Liberation Day. The after its Liberation Day represented an excellent opportunity for merger arbitrage because all of a sudden deals that were unattractive prior, the spreads of many of those deals blew out and became attractive. We also saw a number of deals get announced in Q2, but a combination of both those things led us to introduce a number of new positions over the quarter. So you could see at at sort of the lowest in figure 12 here, the lowest position level exposure we had was, you know, around 6% long in our merger arbitrage strategy going into q two. We got up to a peak level of about 80% long in all of our active positions.

And so obviously Q2, all the fireworks and global, you know, economic explosions that happened, all the push and pull of tariffs and jockeying and repositioning actually represented a real opportunity for this portfolio. And I think Q1 and Q2 really showcase in my opinion, what's really attractive about this strategy, which is that when the merger arbitrage deals don't surpass a certain threshold of attractiveness, we're not just going to take them for the sake of taking them. There's too much risk. What we're going to do is we're going to sit on cash and wait till they're more attractive and then deploy capital. And so in figure 13, what I've done is I've plotted the excess returns of the merger of the Alpha Beta Merger Arbitrage Index since RSPA was launched.

And I compare it to in this black line, the return of the credit risk premium. So this is basically taking investment grade credit as a broad index and subtracting out the return of US treasuries. Right? If you think of an investment grade corporate bond, you can decompose it into two sources of return. There's an underlying US treasury bond duration component plus credit risk.

This isolates the credit risk component. And this is a constant talking point for us, which is when people allocate to investment grade corporate bonds, again, they're taking an implicit return stacking approach. They're effectively getting treasury beta plus credit risk. And our argument with RSBA is that treasury beta plus merger arbitrage risk is potentially more attractive and more diversified. Correlation between the merger arbitrage, excess return stream, and the credit excess return stream is only about a 0.5.

It tends to sell off less, whether you look at our particular index implementation or just a broad diversified beta implementation tends to have less downside sensitivity to equity markets and has historically produced a very attractive risk premium depending on the index you look at. So we think this is a really compelling product as an alternative or diversifier to traditional investment grade corporate bonds, particularly in an environment where spreads have been so tight compared to historical levels, and you may just not be getting paid the same amount that you were historically for taking on credit risk.

Yeah, honestly, I can't believe this is not a billion dollar fund. I mean, this is just such an under harvested, but so intuitive long term risk premium that has effectively a very, very low correlation to most other assets. And I just think is a phenomenal diversifier for credit risk. So I'm looking forward to this product getting a lot more traction.

Yeah, mean, we can see it just in the And again, it's a short period. I won't harp on short period returns, but I think it's highlighted here in you know, RSPA's return since inception now is 5.11% and that's versus, you know, a 3% return for corporates, which, you know, corporates returning in line with treasuries after taking a significant knock during the liberation day period and then having to claw their way out. Know, did take a small knock, right? Those spreads did get wider but this portfolio wasn't fully deployed and then was the opportunity for us to start deploying cash into those deals where the spreads blew out. You again, know, I think highlighting the potential benefit of that act approach.

So this is one that I'm very, very passionate about. I'm very excited about this product, very different than trend, very different than carry, but I think equally compelling and one where the stacking doesn't take as much of a front seat, right? Actually, if you look at the breakdown of where a lot of the variance in this portfolio comes from, it's just the treasury component, just like investment grade bonds. But I think for anyone who has investment grade corporates in their portfolio, this is a great potential diversifier to that position.

Yeah, I wanna make sure we get to the most recent product launch RSSX, return stack US stocks and gold Bitcoin ETF. And this is just really in response to the observation that an increasing number of advisors that we've been talking to lately are starting to ask themselves a super simple question that could easily define the next leg of their careers. And that is, am I 100% certain that Bitcoin won't become a globally adopted reserve asset just like gold? And if I'm not 100% certain, then what are some courses of action in order to get off that 0% position? Advisors are not acting alone and they're not acting in isolation.

When we talk to them, many are acting on some demand and conversations with their clients and their clients themselves are just observing that, I guess Bitcoin is just becoming a lot more broadly adopted. We've got institutional adoption, we've got adoption by corporate treasuries. It, from a narrative standpoint, seems to have shared many qualities with other hard asset like securities or hard asset like investments. And quite fortuitously, it's had a very low or almost zero correlation with, for example, gold, right? So RSSX stacks a gold Bitcoin risk adjusted allocation on top of a US equity allocation.

A 100% US equities, 100% risk balanced gold and Bitcoin. The gold and Bitcoin sleeve really there to hedge against the diversification that we're observing in many global sovereign wealth funds and central banks and treasury departments away from the US dollar as its core or sometimes only reserve asset and into other assets. Yes, they're diversifying into other currencies, but they're also increasingly diversifying into gold. We observe that in the flow of funds reports for the various global central banks and the International Bank of Settlements. And we expect that this trend may very well continue.

And so investors have been asking themselves, how can we prudently position for this type of risk? The risk that, just politically there are no good solutions to the political gridlock that we're observing, to the ballooning of fiscal deficits around the world, and to a realignment of the global geopolitical landscape, maybe with countries outside The US looking to firm up greater partnerships with other countries outside The US and therefore diversify their country level investments commensurately. And so we think this arrangement of gold and Bitcoin is a really nice, prudent way to get exposure to this hard asset reserve diversification trade because gold has been with us for several thousand years. It is already a reserve asset in almost every major global reserve depository, and is unlikely to be completely diversified away from in our lifetime. At the same time, we do see a creeping interest in Bitcoin as a similar reserve asset.

And we should acknowledge that that potential or that percentage allocated to Bitcoin could grow over time. And we've also observed that as Bitcoin has increased in price and increase in market cap and increase in adoption, that its volatility has continued to decline. So by allocating in a risk adjusted way, as long as the volatility of Bitcoin continues to decline relative to the volatility of gold, then the allocation to Bitcoin will slowly creep up to eventually maybe become pari passu with gold. On the other hand, if Bitcoin adoption slows or reverses, the volatility of Bitcoin begins to creep up, then the allocation to Bitcoin relative to gold would decline. So it's kind of a natural homeostatic mechanism that we don't need to make any discretionary calls or tell ourselves stories about how much Bitcoin or gold to own.

We'll just let the evolution of the price and volatility characteristics of those two assets earn their way into the portfolio alongside that US equity position that everybody knows and loves. I don't know if you have any other comments, Corey?

Yeah. What I've really come to appreciate about this idea is that people come at it from different perceptions, right? We recently heard Paul Tudor Jones talk about the risk of a US debt trap and the idea of using gold and Bitcoin and equities together, risk parity waiting as sort of his preferred portfolio for navigating that sort of market risk and environment. One idea that's really resonated with me is, you know, gold's long term negative correlation to the US dollar. Actually, you can ignore all these ideas around debt traps and The US having to run negative real rates and and currency debasement.

One idea here is, you know, if you're overweight US equities versus international equities and you're concerned about relatively under performing international equities, huge proportion, 40% of international versus US returns comes from currency movement. Local equity markets tend to be positively correlated with their currency versus US dollar movement. And gold actually with its negative correlation to the US dollar can hedge that. So if you just take US equity and slap some gold on top, for lack of a better phrase, you get something that keeps your US equity exposure, but negates a meaningful portion of that potential international equity relative return. So, right, you have two totally different use cases here.

Someone who's incredibly concerned about the US dollar and wants to almost do a currency swap, wants to define their wealth in gold and Bitcoin. This is a way of getting US equity, but defining your wealth on a new basis. Or, you know, you could think of it a totally different way, which is I want to hedge against the US dollar underperformance, not because of debasement, just because I think international equities will outperform, but I want to keep my US growth engine. How do I get rid of that currency element? Gold and Bitcoin are an interesting overlay that can achieve that.

So this is, again, I think a powerful idea depending on where you land on the spectrum of sort of beliefs. It's again, a very flexible product for that implementation. It's one we're very excited about, just launched at the May, you know, very short term track record. We are, as Adam mentioned, not active in the allocation decisions. This is a very systematically implemented concept, but one we think has a tremendous staying power.

Yeah. So we're six minutes over. How do we wanna wrap this up?

Well, I'll just say anyone who stuck with us this long, thank you so much. I know that was a lot to get through. This is our first time doing the quarterly recap. We hope it's something that has been useful. We appreciate all the questions and comments along the way.

If we didn't get to your question, please or, Horrier, if you're watching this later and you have a question, please go to returnstacked.com or returnstackedetfs.com. You can go to the contact us page and you can submit your question there. We'll be sure to get back to you. We appreciate everyone's consideration. We can appreciate your ongoing business if you are an allocator, and we look forward to continuing to serve you in the months and years to come.

Remind another line, we're just at the tail end about the symposium. If you had thought about signing up, we would urge you to do that as soon as possible because there actually is a limited number of seats left. We have a limited space. It's gonna be a phenomenal event. We'd love to see you there.

So please get on signing up for that as soon as you can.

Beautiful. Alright. With that, thank you, everyone.

Thank you.

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