Protecting Your Portfolio From Black Swans

In fact, we had Nick Majulian member and he said he actually wrote his whole book, um, just Keep Buying, and he got a lot of people saying, yeah, but you didn't include anything on inflation. And that's how he was saying, I that's how big of a black swan kind of risk that was, and that he didn't even sort of write about it in that book. And now it's all anybody can think about. And so that's how I interpret a black swan um event. And I think

we had it because that inflation. What it did was it forced the FED to do a one eight and stop being a commendative and now it's antagonistic towards the markets, and now the sixty and the forty are both going down. So it's a mess, a mess, and and yet black swan strategies have been known to pay off. And what's interesting was we did this story in the pages of Bloomberg Business Week, which as you know I'm the editor of, called black Swan Hedge funds are growing business and scary times.

That really caught my attention. We learned also in the process of doing that, there there's et F strategies out there that are touching this space, and that made me want to do this. Uh. And we're gonna have two guests. One is Danitza Sakova, who's a cross asset reporter with Bloomberg News. She wrote that article with our colleague Eric Shotzker and Meb Faber. Who's Meb Eric Oh. Meb's a e t F legend. He's been He's been around the business for a long time. He runs Cambria ea TS,

which have a couple of billion in assets. Meb is Uh wrote one of a famous paper that a lot of people in quantitative people really look a look to. Is one of the best thinkers in the et F space. But he also has products, and one of his products it's called tail for tail risk, and that's why he was sort of including the article and in he's here today this time on Trillians black Swan investing. Danitza meb Welcome to trillions. Thanks for having great to be here, y'all. Okay, Danitza,

can you tell us about your article? What did you learn in the process of of of doing this and what's new? Yeah, we learned a couple of things. So from institutional to small investors, there seems to be a big interest in those products. Uh, when we define those products, we have to go to the basic idea of this.

So the very basic purity R risk or black Swan insurance is buying deep out of the money puts and protecting against the huge laws like thirty like something we saw uh during COVID, and then we're getting a huge payoff, which depending on what you've read, depending on the hedge fund or or the et F, where you're gonna see a huge return. But what we saw during the process is the biggest issue with those strategies is that they have negative carry, so for a very long time you

may be in for big losses. This could be for a couple of years, maybe even a decade, but then eventually you promise the big payoff that is hopefully bigger than the losses. But what we're seeing is people are trying to diversify their moving into different assets. Uh, they're

targeting a small market crash. So if it's not like thirty percent, say, you can be hedging against to any percent and all this is um in the purpose of making it cheaper and more, I suppose, But then it's kind of moving away from this huge three or four digit pay out um that is promised. But these are especially profitable and popular in now as in March they had some breaking news headlines about how huge the returns are.

So it kind of makes sense that this year, with so much going on, investors are choosing them as an option. So so, in almost like uh greatly simplified terms, for a few pennies, I get an insurance policy effectively that might pay out should something really bad happen, and I find myself with a winning strategy in the event of something going completely catastrophic about right, No, those really? I mean, yeah, that's that would be that sounds great, right, Yeah, I

would be great. But I'll correct, you onto a few pennies. It's more than a few pennies, okay, But this has long been something that institutional investors could do, right, And what's interesting in your story, what's stood out to me is that there's now this retail ability to do it exactly. Yeah,

so what's happening there. So for institutional investors it makes a lot of sense because like a long term policy and then you held it for a very long time, and then when the big hit comes in and you lose on your equity part of your portfolio, here is the great terrorist insurance to protect you. But then for e t S it's a bit different because obviously, like people don't need two quarters to decide to implement it.

They can use it in a lot of different ways, and there has been a lot of demand, uh for that type of protection. The biggest e t F is Cambria, and it's grown significantly in the last two years and even more so uh this year, even though it's down over the years. So there is an interest, maybe a strong belief that this potential market crash is coming in, but there is an interest even as the price continues to fall. Yeah, and um, let me bring meb in

here because he is the maker of tail. There are a couple issuers and a couple of products that are people have been using this year to hedge. There's some stuff in the alternative space that's up doing well. People. Sometimes we'll use an inverse fund, but MEB and also I think simplify and innovator use options, right, and I want to just go into that that idea and and

just let's just break down tail um. Sometimes when I think of these hedged e t f s, I think of, okay, you take the SMP five hundred and you add in put options or the VIX. But then what happened over the past decade is a lot of times you would give up so much of the upside that they didn't get a lot of love. So I guess knowing that was the sort of history of these hedge gtfs. But now we're in an error where people want some protection. Um,

you know, how does tail fit into that? So um, there's really two questions that comes to this is you know, to someone need tail risk and then do they need it right now? And those and those are sort of two different questions. And we can talk about the ladder in a medics. I think it's particularly insightful. But a number of years ago, let's call it six years ago.

You know, Cambria is both an issuer of ETFs we have twelve, but also a consumer user of ETFs, and so for a lot of our allocation and strategies, we want certain exposures. And despite there being tens of thousands of funds out there available to purchase, often we look around and we just kind of say huh or yuck

in the case of the inverse category. So we were looking for some inverse style funds to use, and the challenge with most of the category was that it was either a really complicated be really confusing, like it was hard to even read the perspectives, or lastly, really expensive. You know, many of these were very expensive products make you know, kind of two and twenty blush and so um, we said, can we come up with something that is

more palatable? That's common sense I got explained to you know, my nieces or nephews or someone, um, just on on a basic level. And so we wrote a white paper, as we are usually want to do. It was called worried about the market. Maybe it's time for the strategy in which we outlined the theory behind tail and we said, okay, what does well when US stock market pukes? Well, the things you would not expect to do well don't historically, So foreign stocks don't help. Um, real estate doesn't help.

Commodities usually don't help. Gold like crazy cousin Eddie like shows up. You don't know who you're gonna get. Sometimes it helps, sometimes it doesn't. Can't count on it. Bonds have often helped, but they've helped more in the latter half of the twentieth century, not in the beginning, but usually they help, right, so um. And then obviously there's things act of strategies like trend following that usually does a great job, but you can't say guaranteed in our

world almost guaranteed. The one thing that really is almost guaranteed to do well when stocks have a really terrible outcome is buying puts. Of course, what's the problem with buying puts that was mentioned earlier. They're expensive, right, it's a big cost. And so we said, how can we come up with a strategy that puts A and B together and come up with something is palatable. So the vast majority of the fund hangs out in tenure government bonds.

UH so generates some income a little more than it was a year or two ago, but historically you know that's four or five. You also get a potential capital gains when things hit the fan and bonds perform okay or great, and then you buy a ladder of puts on the stock market and that has the effect we believe of uh not costing as much in the good times when stocks are going up. That's what you want

to be. You want to be an owner. Remember, like the whole part of do you need tail risk because you want to remain mostly invested most of the time, but also do a good job hedging when it hits the fan. And so has mentioned earlier as a great example, because all the inverse funds did great in Q one, but then many am ended up down on the year like or something and eventually use like nine percent any money,

and clients hate that. They hate that bleed. So hopefully we think and by the way, we have to to tail rest funds tail and fail failed doing much better this year. It's on it's on the foreign stocks. But it's also not surprising our smallest fund those are amazing tickers. By the way props on those. You said something there I just want to ask about, which is a ladder

of puts? What what does that mean? As most people know, puts kind of fall off a cliff, lose a lot of value time decay in the last month or two till expiration. Uh So we like to hang out and sort of that three to fifteen month time horizon. So we're sort of consistently rolling that sort of expiration and target maturity for these options we just want and they're slightly out of the money. You know, we're targeting when

things go bad. So if we wake up tomorrow stock markets downten, we would expect this fund to be up around um. But the hope is if the markets up ten percent or is up ten percent over the next year, that this fund doesn't lose a ton of money. It's more of like an insurance premium you're paying, and so we hope it's a little more palatable in the in

the good times. We had a conversation about this and you said a lot of people use it tactically as a short term trait, but me diving deep into terrorists, like the whole philosophy of it is holding it for a very long time and hoping, not hoping, but eventually it pays off. How do those two work together? Is Tales supposed to be this long term hedge or is it at timing the right time to buy it. I'm gonna make a comment that is almost like sacrilege from

a money manager. I'm not speaking my book. Here is if you were to ask me, most people ask me, do I need a tail risk fund or strategy? The answer is probably no. Now most people don't have a diversified portfolio. So I'm talking if if your foundation is U S stocks and bonds, global stocks and bonds, a bunch of real assets, tilt towards value and momentum, and even some trend following sprinkled in. You do all those things you have written investing plan, low cost, low taxes, boom,

do you probably need tail risks? Probably not. However, let me give you a good example of why right now matters. Um. There was an author that wrote a great book recently about Jack Bogel, and I can't remember who the author was, but it was a fantastic book. I know, I know, I know it talked about Bogel, and you know he's the goat I love him to death. Um he built

Vanguard on this buyinghole mentality. But but even you know Bogel's disclosed many times and talking about markets, you know, um they go easy sometimes and and trying to use some common sense and thinking about valuations and expectations. And he famously talked in late nineties about how stocks were crazy expensive and and trimming and rebouncing or even hey, it's not crazy to move from sixty forty to forty sixty, for example. Well, right now is another one of those times.

So U S stocks hit a tenure cape ratio peak in ninety nine, December ninety nine of almost forty five. You know historically that they're down around eighteen to twenty two, low inflationy times around twenty two. We just hit a peak recently in this last UM upthrust of forty. You know, we're down since then because the markets down. But you combine this scenario where U stocks are a expensive and B now in a downtrend, and historically that's a terrible

place to be. Now the problem is for a lot of people that had this sixty forty or whatever their allocation was. U S stocks are romped for the last decade and so that's sixty forty. You may now be seventy, right, and they don't want to sell those because of capital gains or taxes or other reasons. And so a tail is fund. For example, Um, let's say you're up to eight D twenty. Well, you can do a bond replacement, so you can take out the bonds because this fund

gives you the bonds back. Um, and then you get this overlay of inverse exposure to stocks. If you want to balance it out, you can take an outright bears view on or non so to to us, there's a lot of people that use it as an altar bucket or as a bond replacement, and there's some people that uses it all the time insurance just as something to talk to the clients when it really hits the fan, at least something is probably up. So there's all the time, and there's right now. Um. But I think that's a

here in. That's a good example of why you might want to use it tactically. Well, how is this most effective? Is it sort of a buy and hold when I think things might get spicy, or because you know the other thing about black swan events and and we wrote about this in the article is sort of they're they're well known for sharp drops rather than sort of prolong

fall offs. Right. So, um, if you were to ask, if you were to pull investors and say do you have a written invest written investment plan, there's about five percent to say yes, okay, And so most people are flying by the sea of their pants anyway. And so this is a problem for everything. It's a problem for what happens when inflations at nine percent, What happens if gold goes to four thousand or four hundred, what happens if bitcoin goes to a million or zero? You know,

people struggle with not having a plan. So this applies equally well to everything as well as uh this tail of strategy. So when you make an investment or a trade and no one does this, but you should, you should write down or establish the criteria. Why would I sell this position? When would I sell this position? Because you know what, you can hit pause on this recording, go out and look in your garage and see all the junk in there. No one you buy all these stuff?

Is like when am I gonna get rid of it? No? You just accumulate and you get an emotional attachment, right, the endowment effect. And so you look at this tail risk position, say okay, when am I gonna let this go? Or when am I gonna add to it? And a totally reasonable response would be something like, look, I'm going

to sell this position. And we have half of Cambria are our company's balance sheet in this fund, by the way, our cash account half as in Trinity strategy, half as in tail risk, and so but we have a set up say look, we're gonna sell this as valuations come back down to reasonable levels. Okay, so's cape ratio, let's call it thirty. Let's say we're gonna sell someone when it hits twenty. Hopefully it doesn't go eighteen six, ten five, right, Um, But it's happened in the past. And by the way,

you mentioned inflation in the beginning. The two periods most similar to where we are nineteen seventies and particularly the nineteen forties. Guess what valuations hit single digit levels, So not without not out of the realm of possibility. So

established the criteria ahead of time. Someone else could say, you know what, I'm a trend guy, trend GAO, I'm going to invest in have full exposure stocks in an up trend, but when it rolls over to a downtrend, I'm gonna buy tail risk fund or something similar, but I'm gonna exit when it goes back up because most people don't have that criteria. How many people who have you guys talked to, friends, family, sold in two thousand nine,

can't take anymore March two thousand nine. But the problem is they never got back in right like that, there's no the next book, like, just keep buying like that. You need to have the criteria ahead of time. Otherwise, guess what, We're all emotional and that that usually doesn't work out. Um. Okay, so this this fund has the bond exposure, so I see, so you're to date. Um, I think it's down a four point eight. But that's obviously better than stocks and better than bonds. Um, but

that bond exposure, the bonds went down. Now you said at the beginning, obviously hindsight, but typically bonds do provide a hedge. They aren't this year because the Fed is obviously raising rates rate in their face. What are your thoughts on that? Like, you make this product and is it frustrating when the bonds aren't like giving you a

little more of a hedge because the puts are obviously working. Um, and have you ever thought about just taking the bond side out or moving out of bonds or something like that? Given the new you know, the bond issue is that the FED is again purposely decreasing their value because they're raising rates. We have twelve funds, so something is always disappointing me. Like it's it's like having a bunch of children. It's like one of you is always going to be

a disappointment. But the good news is something is usually doing well too. So um, a couple of things. So uh, it's funny what's going on in the cycle. Because back when bond yields were bumping down near zero in the US negative in the rest of the world, the question wasn't meb why aren't why are you using tenure bonds? The question was why aren't you using thirty year bonds and zero coupon bonds because those would do much better when interest rates are going down. And of course now

people say, um, why aren't using T bills? Or uh? If gold was doing better, people would probably say why didn't you include gold in this allocation? And so the challenge with designing a product is there's limitless permutations of a way to build it. And if you had said and if you look at the fail ETF, it actually has a diversified bond exposure, including foreign bonds, emerging market bonds tips, because it's hedging a different sort of risk and it's up on the ear but it's hedging foreign

stocks with a different bond component. But if you're saying, MEB, does this sound reasonable quarter each in tips, tenure t bills, and gold as that's that sounds totally reasonable, MEB, would you should you do a two x exposure too? And by the way, one additional feat or this fund is that when it rebounces, it's buying one percent of a U M and premium per month. So that has the feature that when VIX is up at sixty or something, it's not loading up on on puts because you don't

want to buy it after the tail events happened. But when VIX is down at eight or twelve or fifteen, as it's been over the past few years, you're loading up on a lot more so as a natural mean reversion. But but on the collateral component, this applies actually to a lot of things applies to managed futures, That applies to any strategy using drivatives for exposure. UM, I think for me, at the end of the day, it's like, what is the balance, what do you want to invest in?

And for us, like I said, we're I personally invest a lot in this fund or firm invest what do I think the best exposure is if I could magically come up with a I said this on Twitter the other day, said, who's got the cojones to be buying zero coupon bonds? Here? They're down fifty percent. We're reaching near all time levels on bond draw downs right now. Now the optist optimist and me would say, well, the good news is you now have some income in this

fun because bonds are much higher yield they've reset. So when we have the crisis this fall, I hope not. I just want six months of quiet, by the way, just nice piece and quiet markets. But if you have a crisis bond, the good news is the bond yields are much higher, so they have the room for the capital gains. So, UM, it's a question that I think you could design it ten different ways and I'd probably be okay with and this is where we sort of

settled on as a finale. But you guys want to give me a hundred million dollars, we'll talk, we'll do We'll do a gold gold bitcoin variant for you. Well, we'll see on that. But I kind of want to go back to that question, like it's we've we've seen a bear market. We've seen so many events that people say, this could be a terrorist event, this could be you know, inflation that the recession worries. And yet obviously it's over outperforming this and p but the performance is still negative.

And there are there are some strategies not to name names, but like c t as for example, that are still doing quite well. There are a lot of other defensis strategies that are doing quite well. Do you think that this performance is making the case for tertiariance stale risk insurance weaker because this is not much twenty, We're not seeing any big games. Yeah. I think I'm gonna make two comments. One is um I think our firm has the highest percentage of ETF that are up on the

year of anyone. So there's a handful of funds that are doing well. But the good news about any t F you can always short it too. And I love to say this to like the people who come you know, are talking to me me on Twitter or something. I say, Well, the good news is if you don't like this fun free alpha baby, go short it, and then you get the inverse exposure you get instead of buying puts, you get selling options and then you get inverse bonds too,

And so it's a tradable um. But but to be serious for a second, you know, um, the vast majority of what people consider to be tail risks or even disappointments and markets are neither. Um. It's it's I would I would say it's like not having a full appreciation of the arc of history and so looking at what's happened the past. Because normal market returns are extreme. You know, almost never does the stock market return ten percent a year. It's up twenty, flat, down, up for up fifty. You know,

it's all over the place. And this applies to days, months, years as well. Um, But it also applies to correlations. You know, there's so many people that assume things like stock bond correlation and bonds will always do well when stocks don't, and that's not the case. It's particularly not the case when bond yields were at zero, right, And so I think this all comes down to an expectations

and alignment. The beginning of last year, you at you poll investors what they expect stocks to do, and most of the most fifteen to sev and that has no foundation in reality whatsoever. So I don't expect bonds to always help. In fact, as you see this year, they somewhat, uh, they somewhat have hurt. Now do you want to know the saddest thing. I'm gonna tell you the saddest thing. We have a suite of tail risk funds, a few that are not filed, and now one that probably will

never get filed. But the third in this series was Bail, which was bond tail risk, which was going to be buying a ton of puts on the thirty year bond. And so as interest rates have screamed up, this fund would probably be like a ten billion dollar fund at this point. So that's so sad. But Bail never made it the light, um, but talk about doing well in this environment, that would have been the king. Um. So uh,

the long winded answered your question. You know it fits my expectations, Like this is fully within the realm um what I wish it would be up thirty this year. Sure, but um I think uh sadly Morning Star has done away with the ratings in this category. But um tail, I'm not you guys have to check me on this. It used to be the cheapest fund in the entire category. I think it's still in the top two or three. Um. But and this is like not a badge of honor because um it it for a long time was one

of the very best performers. But that is simply because it loses less. It's not because it particularly makes any money. It's because it loses less than all the all the other funds. Um. And at the beginning of the conversation, you mentioned in for CTFs, and you do speak very fondly of them, but I want to get them back in the conversation, how do you think, um, this product is better than two times leverage bed against. I don't

know what the people why? Why? Why this product is so much better we we have I think currently a little over investors. And you chat with investors of any stripe and almost always you know what they hate is they hate positions that consistently lose money and and tailors in that category, which is a good thing, right for most insurance vehicles. Your house didn't burn down, are you complaining about the insurance on your house now? But they

don't like to see the red every month. Now the question becomes is is that read half a percent or is it five? And the problem with a lot of the inverse funds you get these volatility grimlin's, particularly when they're leveraged, and you look pull up an equity curve and after a few years they're down, and that's really hard to keep reupping. You talk to a client say, hey, good news is portfolio is doing all right, but we're gonna double down in Martin Gale and buy more of

this losing fund. I think I think it's really hard from a behavioral standpoint, And again going back to the completing the circle in this entire discussion, I don't think most investors need tail risks, but one of the biggest benefits is the behavioral side. You know, most advisors that have been around long enough they look at a client's portfolio and say, look, I'm not optimizing on that sharp ratio to the second decimal point. I'm not optimizing on

this perfect fit. I just want them to survive and not do something really dumb, like I want to get them to the finish line. So if there's this fund that may not be optimal, but it helps them get there and survives sort of the path, UM, perhaps it's worth an allocation. And so you know, I think you mentioned C T A S by the way, one of my favorites. We have a higher allocation to trend than I think any investor that I know of professional in

this country which are default is UM. So that is also having a great year, but was been a period of fallow for a very long time before this. You talk about struggling through tail risk, my goodness, trying to be a trend follower. I think it's even harder. I want to shift to one of your other products. It's really the fun that I know you for and I want you to go into this concept because I like it. UM. It just makes sense, like it's one of those things

you read about and you're like, yeah, I get it. UM. And this is actually your best inflowing fund this year, even more than tail, which is s y l D, which is sort of the it's your flagship fund, right, your shareholder yield. I mean, if you had a flagship, this would be it. I'm guessing it just explained what shareholder yield is. And I do notice this thing is down seven point six percent, which is way better than the market. And what's what's going on in there that's

helped that's helping it. Sure, So if you were to try and to find something that's diametrically opposed to tail risk, uh, it's long U S stocks. And if you go to first principles, which was sort of the phrase of and say, hey, I want to build an investment portfolio, what are the criteria should use help out? We want to invest in CEOs that treat the shareholders fairly and with respect. They're not paying themselves some egregious you know, compensation and options. Um,

they're returning cash to shareholders. They the stock trades at a discount to intrinsic value. They're not um paying out these payments through massive leverage and taking on a ton of debt. All these metrics. It's it's basically like a Berkshire buffet one oh one style strategy. And we wrote a book on this topic. It's free to download online called Shareholder Yield and the theory goes back a hundred years.

You know you can you can simulate this concept, which is at its core combining the philosophy of dividends and at stock buy backs. So really starting the eighties but amping up and increasing the nineties, companies started buying back a lot more stock in any given year. Over the past twenty companies actually buy back more stock than they patent dividends. Now, this is a rabbit hole of disinformation

and investors really struggle with this topic. UM, but buy backs at their core when a stocks trading and intrinsic value are the exact same thing as dividends, and people lose their mind about this, their brains start to misfire. I don't know why, UM, and I think buy backs just simply have bad marketing. You could call them cash or tax efficient dividends, and people may change their mind

about it. So looking holistically, because you have companies that say we're not going to pay any dividends, but we're gonna do eight percent per year buy back program. Now, it's important to use net buy backs because uh, a lot of companies do share issuance. We mentioned options for executives. Uh, so you have to be careful on the total shares outstanding UM. Some companies will do no dividends, eight percent buy backs. Some companies will do five percent dividends, no

buy backs. Companies like Apple, which is a great case study because we owned Apple from this e t f S launch in the year all the way to the beginning of you know what is that eight plus years owning this company UM. But they're a great case study because they do both. And so usually if you say have a three percent of it in yield three percent buy back yield, it may not show up on either screen. So doing buy backs alone is just as crazy as

just doing dividends two sides of the same coin. So what you're looking for is is high payout and then of course you want the stocks to be cheap. Buffet says, there's no better use of cash when a stock is trading low and strinsic value than buying back their own chairs, and you don't want them to do with a ton of debt. So S y l D is the U S version of that. We actually have a foreign and emerging F y l D and E y l D. There's a slight cultural difference between the US and abroad

based on how they appro its buy box. It's changing. Traditionally foreign markets are more dividend focused, but you can see this in Japan and other countries as well. That's starting to move as well. But this philosophy, I think, is one that if you find me any dividend strategy modeling, historically, it beats all of them, whether it's high yield or whether it's dividend growth. Because if I think this focus on treating shareholders fairly, this makes a lot of sense

to me. I think anybody listening probably like, yeah, you know, this is pretty logical. Um, the performance I didn't realize this. I've just pulled this up and I was like, my guess is it's probably lagging the S and P since inception, so it's almost ten years, because well you go for companies that have a lower pe and that trade was really rough for a decade. Yes, it's working now, but

I thought, but it's still outperforming. It looks like this recent the the recent year or in a half has elevated it past the SMP for lifetime, not a lot, only six percentage points. But um, that's not easy to do. Almost nothing beats the SMP. So um when growth was crazy. This thing got burned a little bit, but then when it went out of vogue, you made up for it. Me um, let me give you a fun listeners, a

fun homework project. You can go and type any symbol and deer Bloomberg terminal in the Morning Star for a lot of the ETFs out there and get an X ray of the valuation metrics of these underlying funds. And often investors are shocked and surprised when they type in a big dived in e t F for other funds um spy for an example, and how expensive the underlying metrics of their holdings are and have been. They're less expensive now, but but the beginning of year even more expensive.

And part of that is what you're talking about. This really peaked the craziness in February March of last year. But value has struggled, and you've seen this out performance of value. The inflection I think really started in but but gained force over the past year. But it hasn't even begun to have its moment yet. If you look at most you talked to most of the quants, most of the people in my world, and you look at a lot of the value spreads both within the US

but also international. Uh, a lot of foreign developed and particularly emerging markets. You know, some of these funds out there on just the divn in yield a loan or yielding north of six seven. The valuations are often screaming cheap spread versus the expensive stuff. So to despite the performance of value as a strategy, I think it's got

its best days ahead of it. And you remember, you know, back in two thousand, two thousand three, small cap value outperformed the SMP by a hundred and fifty percentage points over three years, just absolutely monster out performance. And so, uh, you haven't got me started on broad market valuations because we need other hour for that. But that's my least

popular probably topic is. So let's say I'm a person and I'm looking through here, and I'm like, I get it that the numbers are good, the yield is pretty good, returns obviously it's beating the SMP lifetime. But then I look at some of the stocks and I'm like Dillard's, um, you know, uh, looks like there's some oil companies in here. Um. And then you've got like Whirlpool, um, Macy's. You could see someone going at you know, are these really good stocks?

I would I would frame it even worse. I would say they're often nausea inducing, you know. Um, that's the beauty of being a quant is you pick up that nausea premium by saying I don't even know what I own looking at the names. Uh, and then I never would buy these? Are you crazy on my own? But um, but it's interesting, Like you mentioned, there's a lot of materials and energy, which in a higher inflationary world is

pretty beneficial. But it's but it's curious because if you actually look at the foreign and tech is a small allocation in this fund, but if you look at the foreign and particularly emerging market versions of this, you end up with a different, different sectoral composition. Now, materials and energy are still high because they've we see the headlines, they're printing money in this environment, but you see tech being a big allocation and emerging markets, which is not

in the US. So it's curious to see how this changes over time. Their cap agnostics, so they could be big cap, they could be small cap. Um and and the sectors is allowed to sort of wax and wane. But it's always curious to me because I mean think back two years ago, no one in the world want an energy. Energy as a sector went from a peak of thirty in the SMP five to a bottom I think of two at the bottom, and now it's up

a little bit, but still nowhere near historical averages. And you look at tech over time has is oscillated as well. So what becomes a favor what seems uh totally nausea inducing. But the nausea inducing the good news is also it's that for a reason, it's super cheap and generating lots and lots and and bags of cash flow. So uh yeah, just so to do me a favor, go shopping at dealers this weekend and buy some pleaded Khakis and you'll help our your help our share price pleaded for sure.

I think they're coming back, by the way, they are not coming years. They're not coming back. Somehow we've managed to go from black swan investing to pleaded khakis. Um, but I want to ask, um and fascinating stuff all in between. But but no, but I want to ask, is there anything else that investors aren't talking enough of about right now that that you think they should be thinking about more? I have a threat on Twitter. That's called something like what do I believe that the vast

majority of my professional peers meaning don't believe. And that's it. That's its seventeen items and counting um. This again goes back to the author we're talking about earlier. You know, investors in general don't um don't focus on fees and expenses enough. So all twelve of our funds are cheaper than the category average, and a couple of cheapest in the entire category. That's usually because Vanguard is not in the category by the way, but um, but but still

a nice badge of honor. I think fees and expenses really matter. But but what what investors the big mistakes they're making right now? Almost always US investors put way too much in their home market, so U s stocks and bonds. And that's fine normally, and it's fine over long time horizons twenty years plus. It's not fine right now. And it's not fine right now. You're seeing this is one of the worst starts ever for sixty And we did a pull on Twitter. We said at the time

was down or something. I said, what do you think the biggest draw down in sixty was? Historically? And most people assume it was like, it's over fifty, right, And so investors really struggle with this concept of how bad can it get? And so what do you do again? They're not diversified enough, they don't own enough foreign stocks, they don't own enough emerging market stocks. Almost no one with the accept exception of Canadians and Australians own any

natural resources. So commodity real assets like real estate, reads, tips, that should be a big percentage of the portfolio. And then as you go down this sort of investing pyramid of what matters. You know, we also think valuations always matter. Now, the good news is most of the rest of the world is totally reasonable to cheap to screaming cheap. It's just not the US. And lastly, we love trend following,

but that's the that's the topic for a whole another show. Okay, last question, favorite e g F ticker other than your own. You know, I actually tweeted this the other day. I have a fondness for certain tickers that have hit the ticker graveyard, and um, there was a couple where I said, well, I wish these still existed. Should I just relaunched them

with the exact same ticker is that bad form? And as my buddy yawn over at Van Neck, they closed the coal et F and I said k O L And I was like, should we just relaunched this as Cambria? Cole now is there? That's gonna email John and be like, yo, man, what are you doing? Because here's what's missed, you know, the coal. We talked about this earlier with tail, but in E t F, regardless of the longside ownership, it

gives you the opportunity to x that out. Like if you got a portfolio and you want to get rid of the coal companies, you can short it. There's a lot of been a lot of discussion and Cliff and others about E s G and thinking about how to net out you know, long versus short, and so ko L was up there. Um barn would be another one. I think that was global X. That was a great ticker that also in the grave hard F. That's deep Cole.

By the way, Cole is one of those classic stories of whe the E t F tries to hang around for it hanks out for eight nine years and it just throws in the towel like six months before its moment of Yeah, it's to see it. Yeah, alright, Danitza MeV thanks so much for joining us on Trillions Blast. Thanks guys, thanks for having us, Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wherever

else you like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show. He's at Eric Faltriness. This episode of Trillions was produced by Stacey Wong Bye Ter