In this special interview, Mike Philbrick explores the principles of systematic macro investing and the behavioral challenges investors face when attempting to diversify traditional portfolios. He explains how Return Stacking addresses the common funding dilemma by layering alternative strategies on top of a core stock-and-bond portfolio rather than replacing existing allocations. Using the Return Stacked® Global Balanced & Macro ETF (RGBM) as a framework, the discussion illustrates how this institutional-grade approach aims to improve portfolio construction—seeking true diversification and potentially higher risk-adjusted returns without requiring investors to abandon their core holdings.

Topics Discussed

1. Defining systematic macro as a data-driven, rules-based strategy across global assets.
2. The vulnerability of traditional 60/40 stock-bond portfolios to inflationary shocks.
3. The funding dilemma and behavioral challenges when adding alternatives by selling core assets.
4. Introducing Return Stacking to layer diversifying strategies on top of core holdings.
5. Applying the institutional concept of portable alpha to individual investor portfolios.
6. The mechanics of using a capital-efficient ETF to achieve greater than 100% exposure.
7. Reducing behavioral tracking error by preserving an investor's familiar core allocations.
8. The goal of outperforming underlying betas by having the stacked strategy beat its cost of financing.

Return Stacked® Global Balanced & Macro ETF (“RGBM” or the “ETF”) is an alternative mutual fund, as such, RGBM is permitted to invest in asset classes or use investment strategies that are not permitted for other types of mutual funds. RGBM uses leverage and derivative instruments to stack the returns of a global balanced strategy with those of a systematic macro strategy which can magnify gains and losses.

Past Performance is not a guarantee of future results.

Commissions, management fees, performance fees and operating expenses may all be associated with an investment in RGBM. The ETF is not guaranteed, its value changes frequently and past performance may not be repeated. The ETF Facts and prospectus contain important detailed information about the ETF. Please read the relevant documents before investing.

LongPoint Asset Management Inc. (“LongPoint”) is the Investment Fund Manager of RGBM.

ReSolve Asset Management Inc. (“ReSolve Canada”) is the Portfolio Manager of RGBM.

ReSolve Asset Management SEZC (Cayman) (“ReSolve Global”) is the Portfolio Sub-Advisor of RGBM.

Newfound Research LLC (“Newfound”) is a Co-Promotor of RGBM.

Interviewer: Stacking Systematic Macro with Mike Philbrick, CEO, Resolve Asset Management.

What are systematic macro strategies?

Mike Philbrick: Systematic macro strategies are about data-driven, rules-based investing across many global markets. So these strategies tend to scan, you know, sometimes hundreds of assets from various, um, categories of assets from things like equities. Bonds, currencies and commodities, and they use a quantitative signal generation to identify various trends, value dislocations, carry opportunities, uh, volatility opportunities, and more.

A systematic macro portfolio often gives you both long and short exposures to multi-asset with systematic discipline, and I think the key really is it adapts to changing market environments. Pretty actively. And when you're across sort of four broad sectors like equities, bonds, currencies, and commodities, it gives you sort of a broad horizon to be looking across and to be looking at markets as to whether maybe you should be long or short those markets based on whatever factor you're trying to harness.

The factors that you might be harnessing. And in our, um, systematic approaches, uh, the factors are things that you may be familiar with, like, uh, trend, um, volatility and some others that are, are less familiar. Uh, mean reversion carry, uh, those types of. Factor exposures, but less known, but also just give you a different way to look at the assets in order to think about, well, what is the statistical opportunity for price movement in the future?

Is the price more likely to go up, go down? How volatile is that position in the intervening period, and then building a portfolio of, of those assets, which then again, brings in that, uh, systematic quantitative database methodology because it, it's actually quite hard for, you know, a human brain to think across all of those assets and preparing a portfolio and building portfolio.

Interviewer: What is the diversification benefit of systematic macro?

So the bonds didn't provide that typical buffer that we've seen, uh, in decades past. What's also interesting is that negative sto bond correlation that we've seen sort of pretty, uh, effectively since, you know, 1982, is also a function of the direction of interest rates in the direction of inflation. So we're in a, a new period obviously with tariffs and inflation threats and things like that where, you know, the growth shock may not always lead to, you know, bonds going up or an inflation shock, which then gets into a growth shock, will leave a stock bond portfolio vulnerable.

Where a systematic macro portfolio or systematic macro strategy comes in is they have historically low correlation to stocks of bonds. So providing that third wheel, if you will, in a scenario where the shock is more inflationary, uh, combining with growth, giving you that stagflation. And in those scenarios, um, macro, um, uh, systematic macro strategies have tended deliver positive returns.

Um. Again, that's a function of the system itself, being able to be either long or short, those asset class, those asset classes we, uh, we talked about. So it's not just diversification on paper, it's diversification that's worked during the moments when investors have cared about it most.

Interviewer: What is the traditional diversification dilemma?

Mike Philbrick: Typically what's happened in the past, if we look at retail investors, uh, investors, you know, will add a systematic macro fund, and they'll have to reduce their core exposure to the assets that they, you know, often know, love and trust, like those various stocks and bonds we just talked about. So you end up taking dollars away from your stocks and bonds to make room for these alts, the alternatives and, uh, that, that exposure that clients are most familiar with and comfortable with, it diversifying from that as good an idea as that is can often cause real behavioral pain when those al alternatives underperform or do something that's a little bit different than, you know, maybe the investor had intuition for.

So you end up with a portfolio that's more diversified, but behaviorally it's much harder to hold. And if clients abandon it at the wrong time, it really defeats the purpose of the diversification. And so if you have a portfolio, let's say you've taken, you know, you've gone from 60 40 to the, the classic 50, 30, 20, where you've taken 10% away from your equities, 10% away from your.

I don't know, somewhere in the neighborhood of six to 8%, but up 24 versus up six to eight is a bit of a behavioral gap for investors. Now it was positive returns. Right. Great. So sometimes people can get through, the investors can get through that. Um, but when, about when they're kind of negative returns where they really Oh, I, I, I, I've got a negative five from my alternatives and my, you know, my stock and bonds were up 24.

Uh, that's where. Investors will tend to give up on that alternative when it's in drawdown. Basically crystallizing and locking in those losses with no opportunity for the, the system and strategy regress to the mean. So traditionally investors on the retail side have had to allocate sort of 50, 30, 20 on the institutional side.

There's this thing in the past in called today portable alpha. Where you use some of your, the collateral from your stocks and bonds, you know, pension fund knows that it's gonna own its s and p 500 exposure forever. It's never gonna be sold. So that, that's a bit like lazy collateral. And so what they do in the institutional world is they use that collateral to build trading strategies.

Some of them systematic macro that are very complimentary, that often do well when traditional markets are struggling and they layer them on top.

Interviewer: How does return stacking work?

Mike Philbrick: This is exactly why we came up with the concept of return stacking and return stacked portfolios. So bringing this institutional, portable alpha strategy to individual investors and advisors to allocate in their portfolios. So return stacking solves the funding dilemma, right? Instead of replacing those core AL allocations.

We stat the global macro strategy on top. You know, with with capital efficient instruments like futures, we're able to deliver a dollar of exposure to, you know, generally a balanced portfolio when we've got the systematic macro portfolio in, in, uh, in, in, um, in the stack. And that's roughly 50%. Equities in 50% bonds, and then you get a dollar of exposure of the diversified systematic macro strategy stacked on top.

And so this way, investors don't give up what they know, love and trust, and they add something very powerful on top of that portfolio. This helps reduce the tracking error that, um, that often comes with that behavioral ugliness we talked about. Earlier, it preserves that familiar core that they know love and trust, and introduces true diversification stacked on top of what they're gonna hold anyway.

Interviewer: How does the Return Stacked Global Balanced and Macro ETF (RGBM) work?

Mike Philbrick: The, the RGBM is the ticker of the Canadian ETF, and that's the return stack, global, balanced, and macro ETF. Now this combines a balanced allocation of 50%, uh, global equities and 50% Canadian bonds. And on top of that, you stack the systematic macro strategy, and so you're getting $2 of exposure. Now, how, how would we implement this in the portfolio?

Let's just go back to the example of the 60 40, moving to the 50, 30, 20. Let's not move to a 50, 30, 20 where we're sacrificing our core exposures in order to add the diversifying alternative. Rather, let's stack them on top. So in the 50, 30, 20 case. What you would do is say, okay, well let's do the same thing.

Let's sell 10% of the equities. Let's sell 10% of the bonds, and by adding the return stack, global balanced macro, ETF into the portfolio, what happens is the 10% in uh, global stocks is replaced. Put back in the portfolio, the 10% that's in Canadian bonds is also put back in the portfolio. And on top of that, you have a 20% allocation to a systematic macro strategy.

So now you have 120% exposure in the portfolio, right? So you are using a little bit of leverage, but what's happening is underneath the surface you have your full 60 40. You're tracking errors reduced. You have you continued allocation to the stocks and bonds, you know, love and trust, and have done so well and have treated investors so well and that they're so comfortable with.

And on top of that, you're putting your diversifier. So now that diversifier doesn't have to beat the balanced allocation, it only really has to beat the cost of financing, which is, you know how much you're paying to finance the trading of this systematic macro strategy. That being a future strategy. Has very, very low costs for margin.

These are institutional interbank rates that you're, um, getting the margin rate on. Now we've written extensively on that and you can go check that out at Return Stack Portfolio Solutions on how that leverage works and how, um, the costing is so effective a little bit beyond the scope of this conversation.

Circling back, basically you end with a 60 40 portfolio and you've got your 20% allocation to alternatives stacked on top. And this allows for the investor to reduce those behavioral layer, uh, errors that they make, solves that funding problem. It allows 'em to keep those, those assets that they know love and trust while they're, uh, stacking that, um, systematic P portfolio on top.

Interviewer: What's the advantage of capital efficiency in return stacking?

Mike Philbrick: There's two things that, um, applying a return stacked approach to your portfolio does one, by adding diversification, it does reduce the risk in the portfolio, so you do get a better risk adjusted return. It also at the same time. Has the ability to help you outperform those underlying stock and bond betas.

So you've got those stock and bond betas, and, and, and let's say you've, you know, your global stocks, you're matching that perfectly. That's, you know, uh, uh, an easy thing to buy. Um, from an ETF perspective, you've got the bonds. That's also very easy to replicate those performances. And, um, so now what you have the cost of finance that has to be paid in order, uh, for the trading strategy to be, um, executed.

So all that, that systematic macro strategy has to do is simply beat the cost of financing in order to add excess returns. Now, typically, those a longer term, so in the short term. In a one three month, one year period, all kinds of funny stuff can happen. But over three, five, in 10 years, what you have is a consistent, um, factor that's just that, that return that's built on top.

But, you know, as we talked about the 2024 context, if we, you know, just go through, okay, let's think about the 50, 30, 20. So you know, your socks did 24, Yvonnes did one or two, and your systematic macro did eight. Well, why not have both the stocks and bonds at their full exposure, doing those returns and then stacking that excess return on top rather than having it instead of, and so that, again, bring, it, brings it back to helping attenuate the behavioral tracking error, um, and adding the opportunity to outperform in a different way than, let's say, stock picking.

So, you know, there's stock picking going on. That's, that's a tough business as well. So you may have a portion of your portfolio that's trying to harness other value factors and picking stocks and doing those types of things. Uh, but that's great. But why not take the indexes that you're gonna track almost perfectly and then stack on top of that and excess return that's known, correlated to the best of the portfolio.

So you get your beta return, your systematic macro trading return minus the cost of financing. If anyone wants to look up the cost of financing and do a little bit more digging into that. We've got lots of, um, information on the Return Stack portfolio strategies website. So it helps people work through those types of things.

There's going to be periods of time where, you know, the alternatives are doing, uh, poorly and your equities are doing well, and you know, the, your, your, your. Equities are doing poorly and your, you know, macro strategy is doing well when they both simultaneously do poorly together, which can happen from time to time.

Again, it works over time, not all the time. Um, that's, you know, a, an opportunity to probably allocate and build into your portfolio, uh, some protection on the downside as well as the opportunity to add excess returns in the long run.