The Derivative - Attaining an Allocator's Edge with Phil Huber

Episode Date: November 4, 2021

This week is a cage match of a pod, going point/counterpoint on every Alt from private equity to fine art to digital assets with Phil Huber and the knowledge he’s about to drop in his upcoming new book ‘The Allocators Edge: A modern guide to alternative investments and the future of diversification’. Phil is the Chief Investment Officer at Savant Wealth Management. As a Chicago native, we talk with Phil about his start in investments with his interests in the family business from an RIA wealth management background and decided to sink his teeth in. We dive into his book talking about everything from how the actual writing of it went – to what’s being said in it – from the current issues with the 60/40 portfolio, his blog bps and pieces, why sometimes the juice isn’t worth the squeeze, the thin line between traditional and alternative portfolios, his periodic table of investments, reviewing a huge list of Alternative Investments, including private equity, real estate, fine art, digital assets, style premia, real assets, trend following, and more, the state of Indiana sports, 80’s-90’s pro wrestling,  and Chicago pizza. Join us on this interesting Alt-tastic ride as we dig into what really is an Alternative investment by cracking open that “Other” bucket on the client statements. Chapters: 00:00-02:37 = Intro 02:38-13:30 = Family Ties & the Modern RIA playbook 13:31-24:40 = Blogs, Muses, and the Allocator’s Edge 24:41-32:51 = The Problems with the 60/40 portfolio in today’s world 32:52-46:15 = The Periodic Table of Investments 46:16-01:08:14 = Walking through a dozen Alternative Investments ALT by ALT 01:08:15-01:20:42 = Digital Assets, and How a Portfolio of Alts might Look 01:20:43-01:26:05 = Favorites From the Episode: Get his book on Amazon, Barnes & Noble Read Phil's blog bps and pieces: https://bpsandpieces.com/ & Follow Phil on Twitter @bpsandpieces Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAltsand our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest. And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Thanks for listening to The Derivative. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits, and listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk

of substantial losses. As such, they are not suitable for all investors. Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. I kind of came across this dynamic where if you kind of think, just generally speaking, we were managing portfolios that had 20% or so on average allocated to the broadly speaking alternative investments, I found anecdotally that they accounted for typically about 80% of the questions that would come up from clients

and about 80% of the pain points that advisors were dealing. So I felt that there was a really telling opportunity where I think it's well documented some of the longer term challenges that traditional types of portfolios are gonna be facing in the kind of decades ahead. And so, you know, ways to address that involve incorporating other types of diversifying asset classes and investment strategies into a broadly diversified portfolio. And the challenges have been around the experience of doing so and the comfort level and confidence

that many advisors have in communicating, explaining these strategies to clients and getting them to actually stick with them over time was a challenge as well. Just inherently a bit more complex. All right. Happy November, everyone. I am not rocking the Movember mustache every year I want to and then chicken out. So maybe next year. But anyway, we have a cage match of a podcast today. We're getting into why that's apropos, but talking with Phil Huber, whose new book, The Allocator's Edge, caught our

eye, not so much for the title, but for the subtitle, which is A Modern Guide to Alternative Investments and the Future of Diversification. So that's right in our wheelhouse listeners, and happy to bring on Phil to talk it through. Phil's Chief Investment Officer for Savant Wealth Management. He's a CFA, a CFP, and lives sort of in Chicago up in the Northwest suburbs. So welcome, Phil. Thanks for coming on. Thanks so much for having me, Jeff. I really appreciate it. And thanks for squeezing the wrestling reference into the intro there. So Northwest suburbs, which one? Where are you at? So despite my midtown uniform that I'm wearing today, I'm actually located in the north Chicago suburbs. I live in Glenview, but I'm working out of our Lincolnshire office today.

Nice. And you were born and raised in this area? Yeah, funnily enough, the high school I attended is like a half mile down the street from the office here. So I grew up in this general area. I went to school at Indiana University in Bloomington. So I spent four years at IU and then came back to Chicago, lived in the city for well over a decade. Now we've lived in the Burbs for about three and a half years now. What happened to Indiana football this year? They were pretty good last year, right? And then just went back to reverted to the mean this year. They were pretty good last year, right? And then just went back to, reverted to the mean this year. I've always been used to the Indiana football program being mediocre to lackluster. So I try not to ever get my hopes up too high.

And Hoosier basketball, are they going to turn that thing around? Hopefully one of these days, yeah. I mean, such a storied history for the university. Unfortunately, my attendance there couldn't have come at the worst possible time. My first year was 2003, but that was the year after they went to the 2002 finals led by Mike Davis, but it was largely Bobby Knight's recruiting

team still. They lost to Maryland that year, but then it was a little bit of a steady decline for my four-year tenure there. It was a lot of fun going to games. We never quite had a real contender for a team. I hear you. So get into your background a little bit. To call you an author is a little bit unfair, right? I'd say you're a practitioner who's also an author. So give us a little bit of the non-author background, if you can, culminating in savant there. Absolutely. Yeah, definitely a first-time author. So I probably wouldn't put that as my primary occupation, but I'm happy to have that as an additional kind of feather in the cap today. I grew up my whole life around the RA, wealth management industry. My dad was and is a financial advisor. He founded an RA back in 1988 called

Huber Financial Advisors. I joined there a little bit about a year after graduating college. I spent a brief cup of coffee as an internal wholesaler for a mutual fund company out of school. But by and large, kind of generally knew at some point I'd enter the family business and always grew up knowing you know even if I didn't know necessarily the inner workings of what he did day-to-day I always knew that my dad loved his job and found a lot of fulfillment in it so it always seemed like an attractive career path to me but I you know I did want to spread my wings a little bit after college and so unfortunately myself, the timing of graduating in 2007 and about a year into work, we were kind of about to enter the teeth of the financial crisis and being in financial services at a fund company was probably not a great place

to be. So I found myself mid-08 looking for a new opportunity. And fortunately, my dad was willing to take a bet on me and give me an opportunity. And fast forward about 12 years later, I spent there until we merged with Savant in March of 2020. So about a year and a half ago. So if I think of my tenure at Huber Financial, I kind of came in as a utility player, so to speak. I can't even recall exactly what my initial title was. It was basically like, do everything that we need you to do. It was a very, very small organization at the time. I think I was the eighth employees. We had a handful of advisors, a couple of client service and operational people, but it was still a relatively small RA, especially by today's

standards. I think we had a few hundred million under assets when I joined in 08. And so we continued to grow that and build that over time. My role morphed over time to become very much more investment focused. And I realized a few years in that what I didn't want to do was be a full-time client facing advisor. I did that for a certain portion of my role, but I just was always fascinated and interested in the investment side of our business. We're very much a planning-centric organization. That's what we lead with. That's our value proposition is comprehensive wealth management for clients. But I saw an opportunity to add leadership in the investment area, which was largely at the time kind of decision by committee and everyone kind of pitching in, but nobody really taking ownership of that area.

And so I thought that that was something that I would probably do well. And so I adapted to that. And about five, six years ago, became the CIO of Huber and then have retained that title and role as we transitioned into Savant recently. So it sounds like your golf game just wasn't good enough to be client facing i don't golf i'm a complete rarity in the wealth management space and that i i literally never golf i get these i get invitations all the time to go out and play around and i

always feel weird declining but i just never caught the golf bug my dad's a huge golfer most of the other folks in the office golf to some degree, but never caught the bug. And then is your dad still in the biz? He's still there? He is, yeah, yeah. A big part of our, you know, joining forces with Savant was him staying on for at least an extended period of time. But, you know, like many founder RAs, you know, he's in his mid-60s now.

He's still got some juice left in the tank. But, you know, I was looking for that glide path of not necessarily a full-stop retirement at some point, but having to transition my career to go back to doing what I love, which is first love in this business. Why I got into it was managing relationships with clients and being around people. I think the size of our firm at Huber before we merged almost got it, not got away from him, but it became larger than he ever anticipated growing it to. It just sort of happened organically over time. And, and you know,

it was never his intention to be managing a 30 person billion and a half dollar operation. It was like, Hey, I really like working with clients and helping them with their financial planning and other financial needs. And so, but wearing the CEO hat, he had to deal with all the other operational burdens and aspects of running a business. And so I think he was very happy to partner with Savant much like we all were and kind of shed some of those responsibilities and get back to what he loved doing in the first place and kind of ride out the rest of his career doing that. Yeah, it seems like that's the RIA playbook these days, right?

Find an older, rated, you know, retirement is somewhere in the future, not necessarily right at the next step, but somewhere out there, merge, bring them in-house, seems to be the normal playbook. And let me ask you, sir, as an RIA, it seems like the old model used to be kind of stockbrokers, right? Of like the advisor has a relationship with the client. The advisor is also the one helping them pick the investments and doing all this stuff. And it sounds like, correct me if I'm wrong, you guys are more of a top-down approach of, hey, there's CIO, there's a process, we're looking at these investments, and then that's coming out to the clients instead of a single, you know, the good golfer guy is also

the guy who's really good at putting portfolios together. Exactly. Yeah. The way I would frame it is we have a centralized investment, you know, research department, as well as a broader investment committee that acts as a decision-making arm for the firm in terms of our asset allocations, our fund selection, and all of our due diligence, et cetera. And so our advisors across the firm, regardless of which state they're in, which office location they're in, they're tapping into that centralized resource for the portfolios they can offer their clients. And so it sort of takes that responsibility and burden off of their plate, which many of them, I think, are happy to relinquish. That's not what they want to be doing is picking funds and building asset allocation

models. Their focus, our advisors, I would say, are very much more the CFP-oriented as opposed to the CFA types, whereas we have plenty of CFA types within the investment team. And so it's good to have a centralized resource like that. So we've got, I think, 20-ish or so offices now spread across seven states. But the investment research team is also kind of spread out. We've got myself in the Chicago area. We've got a few analysts in Rockford, which is our headquarters, a couple in downtown Chicago, and then our director of research, Gina Beal. She's actually has worked remotely for many years out of San Diego, California.

Oh, she's the smart one. Yeah, she was doing remote work before it was cool. And do you think that's a new model for all RAs or it's already there? It's not even new. I think for larger RAs, that's kind of how the playbook runs these days is that you want people focused on their highest and best use. And so for those that we have managing client relationships and doing heavy financial planning work, you know, not everybody can be a jack of all trades. And so we have a number of specialists areas within the firm that we want our advisors to be able to tap into. It's not just investments. It's areas like tax planning and preparation and kind of estate planning and wealth strategy.

And so we've got resources across the various wealth disciplines within the firm. And our advisors are kind of more generalists, but they're a lot closer to the client situation and client experience. So they can kind of deliver that, you know, and deliverable. Got it. You ever, you ever get pushback on the name? Like, let me talk to the savant, which one of you is the savant? That's actually a hiring criteria. Everybody at the firm has to be an actual savant. All right. How do you test that? The Rubik's cube?

No, we're not. We've got plenty of really really sharp, intelligent people to name and just really indicative of what we're hoping to provide, which is our tagline being wise counsel. Ultimately, that's what we're here to do. So on to the book, and I want to talk briefly just about the process of writing it if you're willing i've got a book that's uh very similar to this one that's been 10 years in the making and never can get out of uh like second draft form but uh so just tell us like what was the impetus what's the reception been so far why did you want to write it? So my experience getting the book published might be a bit different from most in that I didn't really have a book sort of in draft that I was actively writing and then went and shopped it out to different publishers. I had been blogging for

probably a handful of years or so. I've got a blog called Bips and Pieces. And that was really just a way I've been doing a lot of the content and writing for Human Financial back when I started it. And that was, you know, there's a very much a difference, in my opinion, of writing from the firm, you know, voice and firm point of view, as opposed to the independent individual point of view. And I like the blog idea. There's a few other bloggers, I really liked and followed them and enjoyed what they were doing. So I wanted to kind of throw my hat in the ring there. So I just found that to be a really cool creative outlet. So I enjoyed doing that a lot. From doing that and from having sort of an active social media and Twitter presence, one or more of my posts got in the hands of Craig Pierce, who's the editor at Harriman House. And they do a lot of books within our industry. And he reached out, this is going back 2017 or something like that, and just was kind of curious, hey, like, you know, great to meet you. Would you ever be interested in doing a book? And I was, you know, very flattered and interested, but at the same time, like, had no idea what I would write a book about. I was like, oh, geez, I'm just a blogger here. I don't know the first thing about writing a book. And

he was like, that's okay. Like, let's work together. Let's, you know, let's, let's go back and forth on some concepts and ideas and see if anything sticks. And if something does, then we can, we can move forward. And so I love to be I didn't have any immediate plans at the time. But kind of like you, I've got a big bookshelf at home filled with investing and finance books. And so the idea of having my name on my own book one day was very much a bucket list item that I wanted to cross off. And so I was like, this is a great opportunity to have in front of me. I want to take advantage of it. So I proposed a couple early ideas and those actually didn't, they kind of fell flat with the publisher in terms of like, they just

didn't see a book coming out of those. And so it was sort of back to the drawing board and then things got busy kind of life and career wise. So stepped away from it for a bit. And then we just sort of circled back a year later and like, Hey, any, any interest still here? And so the more I thought about it, I was like, okay, like what, what can I, what topic can I write about that I, A, that I'm, you know, endlessly curious and fascinated by, an area that I think I can add value in, that I think there's a need for from an education standpoint. And then of course, from the publisher standpoint, something that they think has, you know, any sort of commercial viability to it. So the more I thought about, the more I just kind of looked inward to like, what are the conversations I'm having internally at our firm

with the advisors that I support, with the clients that we work with? And I kind of came across this dynamic where if you kind of think just generally speaking, we were managing portfolios that had 20% or so on average allocated to broadly speaking alternative investments, I found anecdotally that they accounted for typically about 80% of the questions that would come up from clients and about 80% of the pain points that advisors were realizing. So I felt that there was a really telling opportunity where I think it's well documented some of the longer term challenges that traditional types of portfolios are going to be facing in the decades ahead. And so ways to address that involve incorporating other types of diversifying asset classes and investment strategies into a broadly diversified portfolio.

And the challenges have been around the experience of doing so and the comfort level and confidence that many advisors have in communicating and explaining these strategies to clients and getting them to actually stick with them over time was a challenge as well. Just inherently a bit more complex, at least at the operational level, maybe not conceptually. Some alternatives are very intuitive and simple conceptually, but it's just the implementation that's quite complex at times. And I think it's just, again, it's areas that are generally a bit higher costs than the essentially free kind of beta that you can get for using index funds and ETFs these days. So I think the higher costs,

the maybe limited liquidity in certain areas, and just the general unfamiliarity of some of these alternatives has kind of, as much as people can recognize the math staring them in the face of low starting yields on bonds and high equity valuations, not necessarily being a recipe for great perspective, forward looking returns. Few have kind of stepped off that comfort level of, you know, that kind of canonical 60-40 type portfolio for a couple reasons. It's treated them very well. And so it's become a bit of a security blanket. Why mess with a good thing? Why fix it if it ain't broke sort of thing? So that's been one area.

And I think it's just, again, the era that we're in, it's very much the trends towards passive and low cost. Many alternatives are not very low cost. And so I think that's, you know, another key factor. And so I think, and I think the other challenge has been, I think, you know, liquid alts gained a lot of popularity after the global financial crisis of 08-09, very much akin to shutting the barn door after the horses have already, you know, gotten out of the stable. And so I think that, so I think it was very much an environment of, okay, we've just seen equity markets collapse and the financial system kind of blow up. Now when things are priced actually attractively for equities, let's go look for ways

to hedge tail risk and add uncorrelated assets. And so I think the timing was wrong that advisors that kind of dipped their toe in, but perhaps didn't know exactly what they were getting into. Maybe they had a bad experience. Maybe they either set improper expectations themselves or their clients had different interpretations of what to expect from alternatives and it just didn't deliver for whatever reason. And so I think some advisors were kind of like, fool me once, shame on me, fool me twice, shame on, or shame on you, fool me twice, shame on me, and have maybe just been a little bit more skeptical of the space based on a prior experience they might have had. So I think, and I think another element and

variable there too was just a lot of product development, just knowing there was a lot of demand for liquid alts. I think a lot of fund companies responded to that by providing the supply and perhaps some firms that had no prior experience offering alternatives to clients. It was just, hey, there's demand for this. Let's roll product out. There's just a lot of garbage out there early on. Not to say there isn't some garbage out there still today, but I think generally speaking, the universe of alternatives has gotten a little bit more, you know, skewed towards more higher quality, the ones that have delivered well have had staying power.

And so I think there's, there's less maybe noise out there than there was in those kind of mid 2010 type years. Love it. And we've, I've been living that the whole 10 years since, right? So managed futures was one of the huge proponents of that, right? The only thing that was up in 08 and all the liquid alts had Managed Futures on the cover. You know, our firm was always digging in of like, hold on, this is just on the cover, not necessarily inside the product.

And just quickly, like a bunch of people have been on this pod, a bunch of the names on here, you know, that I read through in the book of Corey Hopstein, Ben Hunt, uh, Med Faber, like, were they kind of your muses or you, that's some of the, what you mentioned, some of you reading their kind of stuff. Yeah. I mean, you could say, you know, muses in many ways are just people, you know, really smart people that I know and have followed and learned a ton from, like certainly wanted to incorporate some of those learnings into the book as well. Some of that was just reflected in the kind of editing and fine-tuning of the actual draft of the book. And it's nice to have friends like Corey and like Meb who are willing to take a look at earlier drafts and provide their, you know, comments and feedback. That was, you know, very,

I think, instrumental in getting the book to its ultimate final state and making it better along the way. Like Corey was fantastic. I said, he cracks me up. Like I sent him a, it was like end of the day Friday. I sent him a draft, like, Hey, like whenever you have a chance, if you don't mind taking a look at this, I'm like, okay, maybe I'll hear from him in a week or two. And I wake up that Saturday morning and I've got an email from him with, you know, just a volume of notes and comments. So he went, you know, he, like many others that helped along the way, just kind of went above and beyond. So I think it's, for me, it was awesome to have that kind of, you know, fin to it, roll the deck, so to speak. It's really thoughtful, smart people that were just very willing to lend a helping hand and just helped me make the output as best as it could be.

And how'd you get Cliff to write the prelude? So to quote Michael Scott, quoting Wayne Gretzky, you miss 100% of the shots you don't take. Yep, yep. So as I thought about whether there should or shouldn't be a foreword, I thought it'd be great to have one in there. And I kind of thought about, I could pick one person on this planet to write the foreword for this specific book.

100%, it would have been Cliff. And when I think about Cliff and maybe AQR more broadly, I kind of look at the genesis of my interest and fascination with alternatives can kind of be traced back to them. In the early 2010s, as they were kind of introducing some of their liquid back to them. You know, in the early 2010s, as they were kind of introducing some of their liquid strategies to financial advisors,

you know, they went a long ways in building out educational kind of curriculums and programs for advisors to tap into. And so they had an event called EQR University that they, you know, have done kind of on an annual basis since then. So I went to the first one, but at the time I was very,

very new in the industry still didn't know the first thing about all. So I was going in extremely kind of wet behind the ears and just like an open book, like, I just want to learn here. And, and so that I look back at those early AQR universities as kind of my initial introduction to kind of just broadly speaking alternatives and the role that they can play in a portfolio. And I've just been a great admirer of Cliff and his team over the years. And then he, you know, he sits on my kind of Mount Rushmore of, you know, investors and someone, he's just been kind of a investment hero of mine. So I knew it would be a long shot,

but I kind of threw it out there and, you know, for whatever reason he was, he was willing to do it. And I thought he did a terrific job on the forward. And so just to have, to have his name attached to this means the absolute world to me. So Cliff, if you're listening, I don't know, I don't know if I can thank him enough times, but yeah, thank you, Cliff, because it kind of, I think made the whole thing kind of come full circle for me. Right. It's like, he's forgotten more about all this than most of us will ever know. Right. So it's, it's good to have his footprints.

He's coming on the pot. Eventually we keep, we keep working that, but I want to get him on here. You talked a little bit about the problem. So I might skip over some of that. You know, and it's well-worn that there's this problem out here.

Equity is at all-time valuations. Rates at all-time lows. What I don't think, you had an interesting take that people are all talking about it, but nobody's really doing anything about it, right? The stats tell. Stats don't lie. So, like, here's where all the money is. Why, if they're everyone so worried about it, why isn't the the money shifted? So you touched briefly on that, but expand on that a

little more of what you think is happening there. Yeah. So, I mean, the whole first chapter of the book and the title of the chapter is hindsight is 60, 40. And all the things I discussed in there, like I'm not necessarily treading any new terrain there. This is all stuff that's been well-written about well-documented that's been well written about, well documented that, you know, as we know with stocks, you know, very high extreme valuations tend to be, you know, tend to forbear low expected returns over a long period of time. It doesn't really tell you much about the next year or two years, but, you know, you can kind of infer, you know, lower than average returns coming off of high valuations. Similarly for bonds, you know, low rates are indicative, you know. Your starting yield is likely a

good approximation of what you can expect to earn over the next 10 years. And so it's a rare occurrence to have both the really high equity valuations and probably speaking more specifically to kind of US centric or US dominated 60, 40 portfolios. I know other parts of the world, maybe not as obscenely valued today. But it's rare to have that extreme stock valuation alongside low starting bond yields like we had today. So I think when you blend a 60-40 portfolio together of those two asset classes, you're kind of in an extreme in terms of low perspective core looking returns. But if you look in the rear view mirror, it's been the opposite.

You've actually had a 10 plus year period of abnormally high returns relative to average and lower volatility relative to historical averages. So it kind of speaks to like, yeah, it's almost obvious like why people, why most allocators I should say haven't done much about it. Cause like, why bother?

Clients are happy, returns have been good. Like I'm not gonna introduce you know uh foreign or different things to the portfolio that that i gotta then you know spend extra time learning about and figure out how to you know weave that into my story about how i talk to clients and so it just kind of like when you're you know kind of if most advisors or allocators are benefiting or evaluating it through kind of the cost versus benefit lens, it just might seem like, hey, the juice isn't worth the squeeze on adding all these, you know, extra components in. Like, I just want to keep it simple. I can do this all at rock bottom fees.

And so it's easy to understand why there's been, you know, such an anchoring to this type of 60-40 type portfolio. And we use 60-40 as very much a simple example. It could be 50 or 70-30 or any kind of variation of a balance. I think that anchoring continues the cycle. And like, I almost think like they're all clever by half, right? Like all these people looking at alternatives and doing diversification, and they're the underperformers by a large margin.

So the other guys, you know, they could say the dumb and simple approach has outperformed last 5 10 15 20 years i mean if there's an investment lesson of the past like handful of years it's the dumber the investment the better off you've done um tesla needs sell 10,000 units on Mars this quarter to make their valuation good, but no, buy it, buy it. Yeah, it's even just within traditional portfolios, sort of evidence-based type of ways to sort of improve upon market calculating or embed factor tilts or employee geographic diversification. Like those have all been things that have been a little bit of a headwind for returns versus just own the US or own the largest stocks or these sorts. It is challenging in that sense and that the sort of less data-backed and less evidence-based

your approach has been, the better off you've probably done, at least in the past few years. So it's understandable why those challenges have been there. And I think it's good to understand too that things like starting low yields and things like high valuations, I think often people look to those as timing signals, like, oh, stocks are expensive. It's time to materially reduce my equity exposure or get out of the market completely, or I shouldn't own any bonds because yields are low. It's like, no, it's not necessarily the takeaway here because we could have looked back as early as the mid 2010s and seen stocks are looking fairly expensive based on pick your favorite valuation multiple or rates are already at or near historical low levels. But I think what we've

learned is valuations can go higher, yields can continue to grind lower. And so it's less about, hey, like completely abandon these core building blocks of a portfolio. It's more about just maybe open up some portfolio real estate for some other diversifying areas that offer the potential for uncorrelated return streams, or maybe things that can do well at times when traditional stocks or bonds might be suffering. So it's really just about expanding the opportunity set. And I love the one piece in there, which I don't hear that take very often of the 60-40 combined, the yield of that, which is both the yield of the bond component and the dividend. The yield of that is at an all-time

low as well, right? So I don't hear much of that. We hear a lot about everything's super expensive, but even if you look at it as a yield play, it's not very attractive. Yeah. I mean, you always want to look at things at the aggregate portfolio level and also recognize too, like relationships between asset classes that we maybe take for granted or that we assume are kind of written in stone or maybe not so. And so I think everyone's grown accustomed to the last 20, 30 years of bonds being a great diversifier and equity down markets. But that, you know, there's been historical precedence of that not being the case. And so I think, you know, inflation is a variable that we have to, you know, factor in if we continue to see, you know, materially high, you know, inflation that we've been accustomed to, that could be a negative for both stocks and bonds at the same time, and might not offer that that offset relationship that we've been used to.

And then I think it was Corey about a year ago was putting out how do you how does an RIA charge 1% fee when their right? If they have 80% of the portfolio in a bond yielding 50 bps or something, right? So there's a little weirdness in that math from an advisor standpoint as well. Yeah. I mean, I would say that, that, you know, it's always hard to lump all of the fees that RAs charge directly to the portfolio piece, because we offer a lot more services to clients beyond just, you know, building a portfolio and trading it and rebalancing it. There's a lot of separate from the portfolio financial planning work that goes

on and not just our organization, but many RAs that, you know, if you're charging an AUM based fee, it's not, you know, people aren't paying us just for that portfolio management. There's a lot of advice and coaching and all these other disciplines that are connected to people's financial lives that we're taking an active role in. So I think it's an interesting point

because yields are so low. But at the same time, it's not a direct apples to apples. And I didn't mean to call your out your fees, but like in general, right. Of like pensions endowments have costs. And so there's just at so low levels, you have to seek out other things just to, in order to pay the bills, so to speak. Yeah. Yeah. Yeah. And I think there's, there's plenty of, of, you know, people that go beyond like 60, 40 tends to be the word people kind of average into. But like, I see plenty of portfolios for really conservative and risk averse investors that are 70 to 80% fixed income. And that's, you know, unless they have, you know, very, you know, they've already kind of won the game. That's thing but you know that's just a recipe for negative real returns so alts let's talk alts um love the conversation of you know and i couldn't agree more with your dive into the issues around categorization It's never been done correctly since the get-go, but for some

reason we keep kind of pushing these labels on them. So digging that a little bit, what's an alternative investment for you? What do most people get wrong about that label? Yeah. And I don't have a perfect solution to the label you know either unfortunately the challenge is that a couple things number one it's open to interpretation um and two the definition is always changing uh you know history's seen plenty of examples of things once sort of viewed as alternative that become over time a little bit more mainstream and commonplace and so that's you know to be expected over time um seals i i'd like to highlight examples like you know, to be expected over time. So you'll see, I like to highlight examples like, you know, publicly traded REITs and commodities and high yield bonds and emerging markets is kind of, you know, more satellite

asset classes, but you tend to see them as fairly permanent fixtures of a lot of diversified multi-asset, you know, model portfolios that they tend not to be viewed through the lens of being an alternative. But in their earlier days, that was very much how they were kind of implemented and adopted was sort of this alternative bucket. So things do have a history of transitioning across kind of that chasm of alternative to traditional over time. The other point is sort of like, you know, being in the eye of the holder. I like to use the example of Bitcoin here. Depending on the demographic or age of the person you're talking to,

Bitcoin could be viewed as a highly speculative alternative or just like, oh, yeah, I trade crypto alongside stocks in my Robinhood account. So it's like the millennial Gen Z view of digital assets might be completely different than their parents or grandparents. And so they might think of it as it just sits alongside my stocks. And it might not be an alternative to them because they've kind of grown up with it and around it. Whereas other folks might absolutely bucket it as an alternative. So I think that's an interesting example, particularly given the nascency of Bitcoin and crypto being effectively a teenager relative to things like stocks and bonds and real estate that we have centuries of data on. I feel more of a toddler, but okay. Yeah. Yeah. Funny on the behavior at times. So I think the way I think of it is there's often a very thin line separating a traditional and alternative investment.

And so if we can kind of strip out, like, what is that one or more variables that make why is this alternative? But this is not. I find a few examples. One is is liquidity. So, you know, the easy one here to point to is public equity versus private equity. They're both equity asset classes, but private equity very much gets categorized as alternatives by many. And it's really just due to that illiquidity component. So that's certainly one variable that can make something move from traditional to alternatives if you just take away the liquidity component. I mentioned Bitcoin earlier, but this idea of like perceived novelty, just things that people aren't generally used to using inside of their portfolio, you know, makes it a bit of an alternative. Old wine and new bottles is another theme I come

across a lot where you might have things like we'll use catastrophe reinsurance. You know, firms like Swiss Re have been doing that for centuries yeah there's nothing new about you know reinsurance or insurance it's the ability to access it in a investor-friendly type of vehicle that makes it alternative because until that became an option this is not the type of risk that people can hold on their personal balance sheet you know so it's I think it's like things like that where you have a new fund structure or way to access something that's been around for a while, which just hasn't been democratized for most people. Unconventional implementation might be another way to think

about something like, again, the kind of like long, short equity. If I buy a bunch of cheap stocks, no one's going to tell me that I'm an alternative investor. If I go long, cheap stocks and short, expensive ones in a long, short kind of way and use derivatives or shorting or anything or leverage or what have you, you know, if I'm using these unconventional implementation tools, that suddenly takes something that was traditional and makes it alternative. And I guess the last thing I would mention to kind of look at as a potential alternative variable would just be unfamiliar terrain. So not so much the case today, but like things within existing asset classes that are maybe less trafficked,

like emerging markets at one point, maybe frontier markets today, you know, still stock, but maybe just in countries that are less developed and so less people allocated there. And so a lot of different ways you can sort of look at a particular, you know, one or more things that might make something alternative, but there's no cut and dry definition. It's a very, you know, sort of gray line. But there's also like part of the problem, right? So in the advisor world, I think believes everything you just said. And there's right, because they do these different methods or liquidity, but in the kind of quant world, right, fund to funds allocated, well, they're saying no, like if it has different return drivers than stocks and bonds,

it's alternative, right? So private equity, no, it's not alternative. It's still in the equity sleeve. Private debt, even no, it's still in the bond sleeve because it has the same return drivers, a little different flavor of it, but still the same return drivers. So just curious, like, did you go down that path at all with the book or how you have like, right? There's a kind of a quant answer. There's a mathematical answer. And then there's also just the practical answer that advisors don't understand it. And it's different, right? It's vanilla with caramel swirl. So they want to call that alternative, even though in my mind, hey, it's still 90% vanilla.

Yeah. I mean, one potential solution would just be, I think there's a habit of like, from a reporting standpoint with clients is just saying, here's the alternative allocation. And you may be showing the different subcategories and holdings underneath, but it could be a hodgepodge of different asset classes and strategies, which probably doesn't do a lot of justice to the role that each plays inside of the portfolio. A potential solution to that would be to just get a little bit more granular. So instead of having an alternatives bucket, maybe you've got a credit sleeve and a real asset sleeve

and a insurance-linked security sleeve and a diversifying strategy sleeve that might include things like trend following and style premium and other kind of multi-asset, long-short type approaches. So getting more granular could be an option to get around that

and maybe having different benchmarks for each category. But yeah, there's no right answer. I think advisors have to do what works well for them and for their clients. But at the end of the day, it all becomes semantics at some point, but those things can matter when it comes to communication. So I think as long as you're clearly conveying to clients what they own, why they own it, what the role is in the portfolio, when you should expect it to do well, when you should expect it to do not so well, like those sorts of things all need to come with the education. It sounds like you're saying as a

practical matter, the clients understand the stock and bond world. There's not going to be a lot of questions there. Everything else is kind of in their mind already segmented as other, as alternatives. So why not kind of leave it be and help explain and educate to them of like okay there's this main bucket you know and then there's this secondary bucket that you don't know so well yeah well we'll keep we'll keep dually on my side and your side trying to solve that crack that nut yeah one day we'll get there right uh and so love the one piece in the book the periodic table of investments um you kind of walk through and have a little system for what its return drivers are kind of back to what we were saying uh and then kind of tying them together. So cash is near credit is near debt securities. So

it seems like a useful framework. How did you come up with that framework? And how do you kind of use it in practice for clients? Well, the framework I came up with, probably going back like five or six years, I had one of our summer interns at the time helped me like kind of build the table in Excel, not knowing what we would do with it. I had one of our summer interns at the time helped me like kind of build the table in Excel, not knowing what we would do with it. I just thought this would be a really cool visual if we had kind of the full spectrum of asset classes and sub-asset classes all in kind of one periodic table looking visual. And then this idea of like within each square in the periodic table, identify for each asset what the primary and secondary sort of objectives are there.

So things like capital appreciation or income generation or inflation sensitivity or tax efficiency or diversification or some sort of liquidity premium. I think those are the six that I use. And granted, this is not a perfect science, and I'm sure some would take a little bit of objection to how I maybe categorize things or what the actual objective should be. But by and large, it was really just meant to illustrate this idea of portfolios are a combination of underlying components, much like a chemical compound is a combination of individual chemical elements. And if you combine different elements together, you get different compounds. And similarly, if you combine different assets together, you get different portfolios. And so this idea that ultimately the recipe that we're trying to make with the ingredients that we have

should be designed to fulfill one or more objectives at the investor level. So I thought sort of that analogy of like, you thinking of building a portfolio through the lens of like combining different elements together to achieve an objective or an outcome, you know, seemed appropriate. The other idea I liked about the table was that, you know, if I think back to like when I was in, you know, grade school or high school, and they would show us the periodic table from chemistry class, like, by and large, it's the full table, all the elements that we know and are used to today, I think there's 118 documented chemical elements that sit on the periodic table. But that wasn't always the case. You know, if you go back to, I think I looked and did some Googling around this for the book, but

in 17, 18, there was only 13 discovered elements. In 1860, there were 63. So it's like, what I like is that it conveys this idea that things aren't static, things evolve over time. In the chemical world, similarly, when it comes to investments and portfolio management, we know a lot more today about building diversified portfolios than we did 10 years ago and 20 years ago and 50 years ago. Our understanding of different return drivers and the discovery or implementation of new asset classes or the use of new tools has only continued to expand the investable universe that we have. So I thought that was a really good visual way to depict that. So long story short, I kind of built the periodic table for a brochure we ended up doing in my old firm,

like an investment brochure. But as I was writing the book, I was like, oh, I kind of want to bring that concept into the book. So I think it'll help illustrate this idea that I'm discussing in one of the chapters on just the evolution of asset allocation and the democratization of alternatives over time. So if I was your marketing consultant, I would have said, put a, put a link in there, download this table or, or order the poster, right? Like that would look cool in a lot of offices. There may or may not be a poster one day. I had a few people reach out to me about that idea.

So definitely put it up on the website, say, click here, fill out this form, give us $2 for postage and we'll send you a poster i might need to edit it a bit just to get i need some uh some input and approval from volatility twitter on i know so i was gonna mention i was finishing up reading the book last night and i posted on my personal twitter um love this table love this periodic chart and uh Chris Sidial, who we know and love said, Hey, what the heck? Where's long ball? So was that a conscious omission? Or I would say no, just a subconscious omission. At the end of the day, I couldn't include every single thing on there. And it probably does deserve a square of its own. So I promise Chris

and others out there if I if we do a second edition of the book, I'll be sure to update the table to be more reflective of the more diverse nature of volatility types of strategies. Got it. As you do have VRP in there, so you kind of have the, what you call variance risk premium, which we call vol risk, but same idea of you're selling vol. So yeah, there's a, there's a whole world of guys out there buying that, taking the other side of that trade. I think I had a relative value square, which is a bit vague, but you could probably interpret that as like a volatility arbitrage or some sort of relative value strategy. But yeah,

I'll make sure to add long vault for the next next iteration um yeah and the the right we could go off on a whole tangent i'll send you a good piece by ben eifert on the uh right like adding this thing that goes down over time the rebalancing premium and the when it pops when the other things don't adds a lot of value let's talk through some of the specific alts so you know good two-thirds of the book or half the book is going through all by all um what they do how you should think about them uh we mentioned private equity i just wanted to mention like if you you're kind of saying in the book you think that's going to become more and more mainstream, more available to individual investors, vanguards getting into the game. And so my question for you, do you think that'll be like vanguards actually going out and buying

private companies? Probably in that scenario. But also, I know AXS has a venture capital replication mutual fund. It seems like the easier way and probably you're not going to get that much tracking or would be sort of these replication strategies. Yeah, I would say it depends on the investor's objectives. And, you know, the world in 10 years in terms of access to private investments could look a lot different than it is today. So it's hard to paint with too broad a brush. I would say like, you know, I think there's going to be more opportunities for accredited investors to have access points to actual true private equity. We're seeing a handful of those today, either through vintage type, annual vintage type programs, or even registered 40X funds, typically tender offer funds that offer private market exposure. So it's a growing area like Vanguard's involvement.

I think they're, they're partnering with Harbor vest, I believe is, is the actual manager of their strategies and they're the distribution of that, at least today. But yeah, again, like just to have Vanguard sort of stamp on any asset class is a bit of a recognition of its adoption into the mainstream. And so I think, you know, there's been folks like Dan Rasmussen at Burdette has written about, hey, you can kind of replicate, you know, albeit with more volatility, you can kind of replicate private equity historical returns by just buying, you know, cheap, small, illiquid, you know, public stocks,

and sort of gets a similar type of return profile over time. That might not be for everybody, but for those that place a premium on liquidity and they want to deal with the operational headaches of true private equity, that could be a solution. Do you think those worlds blend? The more money that comes into it, the less private it's going to be. And it'll, right, it feels like it'll be more, it'll look more like public equity markets than private equity. You're already seeing that sort of overlap and just the proliferation of crossover investors that play in both public and private markets. I think it was just Sequoia, like maybe this past week that is kind of rethinking their whole strategy as a VC firm, where instead of having a bunch of the fundraising cycle of a new fund every three, four years, and then having a

closed finite life where they have to figure out exits for their portfolio companies, they're just kind of shifting to one pool of capital that will effectively be like sort of an evergreen type of structure where they don't have to exit their portfolio investments just because they've IPO and trade publicly because they think there'd be some significant material upside in public markets as well. And so I think, again, just the growth of crossover investors, not to take a public stance on SPAC, but just, again, the interest in growth of SPACs is another just, you know, kind of sign of increased interest from retail investors to participate in some capacity and kind of private to public markets. And so I think you'll find more

and more avenues. And I think it's going to get a little bit more, you know, again, there could be some negative externalities of that broadened access, but by and large, I think it's going to get a little bit more, you know, again, there could be some negative externalities of that broadened access. But by and large, I think it's a bit unfair as it's structured today that only the, you know, the ultra rich can go into private equity and venture. And most investors, it's a bit off limits still. So I think that'll continue to move the other direction. Cool. I'm rightful through these. So real estate, you sort of list as an alternative, but sort of also say like, not that alternative. Didn't talk at all about how it may be super high valuations, right? Especially for Canadian counterparts. But just talk to me that quickly of like, don't most investors already have real estate? Is it really an alternative? Yeah, I think, um, I mean, yeah, most investors have real estate.

Like, are you referring to like their, their residence, like their home? Uh, yeah. Or owning REITs or owning, I mean, maybe I'm in a weird spot of the people I know of, like I own these buildings and this and they know. Yeah. I mean, I mean, I think it's one of those, those i mean real estate's probably is older than stocks and bonds so for for some it's like the original asset class yeah i think for most people they're they're you know uh access point to uh real estate is through publicly traded REITs um and so that by and large i think if you just own like a total stock market index one you're getting some allocation to reach there. So again, that's a very kind of, depending on who you ask, it may

or may not be an alternative. I would say private real estate would definitely be more in that alternative bucket, just given the liquidity involved in it. And I think what you see, and I've mentioned this in the book, is the growth of alternative property types has grown significantly. And actually more so, I would say, in the public space than in the private space. So things like cell towers and data centers that are more critical to kind of digital infrastructure are a huge component of publicly traded REITs today. And then you've got just a lot more breadth of other types of property sectors outside of the core four of multifamily and office and industrial and retail. There's self-storage and medical office and life sciences buildings and just a handful of other categories. So depending on what sectors within real estate you might be

trying to access, it might nudge you one direction or the other, whether you focus on public markets or private markets. And I think for a lot of folks, there could be an opportunity to blend the two together. You don't have to be in one camp or the other. There could be, you know, complimentary benefits to having a public and a private market, you know, real estate allocation. So I would say like the, you know,

for clients that own a handful of buildings, maybe it's apartments that they rent out and that's kind of something that they can manage more day-to-day operationally. Yeah, that could certainly serve as a real estate allocation, but not many individuals are operating data centers. So just because somebody has significant real estate holdings doesn't mean they shouldn't have some allocation to publicly traded REITs because there's might not be as much overlap as they think there in terms of the underlying asset exposure. And when I hear publicly traded REIT, I think shopping mall, I think death, right? So it's like those got crushed, but you're saying they've kind of

morphed and now they're diversified. Yeah. I think if you looked at just like the broad REIT indices today, like they're half or more in what most would deem to be alternative like property types. So if you just start looking under the hood at like the top holdings of like the cap weighted, you know, REIT ETFs, like you'll be surprised how little there is in things like malls and retail and office and things like that. Next up, sorry, I'm going fast. Style premium. So quickly explain what that is. I usually think of it more in terms of the banks giving access, but I guess you're saying a lot of individual investors can get some access. Yeah. I mean, there's plenty of asset managers, whether it be AQR or some of the other quant shops or even BlackRock or Vanguard might surprise people. They've got kind of style

premium oriented type funds. To me, that's just multi-asset, multi-factor, long-short type strategies that try to capture in a very sort of pure way, very commonly known factors and investment styles, things like value, momentum, quality, carry, low volatility, those sorts of things. And not, you know, in doing so, not just in equities, but depending on the factor you're looking at, it might be applicable in interest rate markets, credit and currencies, commodities, et cetera. And so, you know, trying to do so in a very diversified fashion, understand that there's, you know, plenty of history supporting both, you know, data supporting their results, but also kind of economic intuitions to why these styles should work over time.

And then the ability to implement it in a long, short way would just be kind of stripping out and hedging out that market data and being left with kind of that pure style exposure as a diversifying asset. So that's what's meant by style. Yeah, I think the tide went out a little bit on those in March 2020, right? A lot got smacked. A lot of investors I know are like, oh, well, someone basically needed to be managing that instead of just putting a couple of chips down on each of these things. When it all went down at the same time, it was an issue. Yeah, I think the lesson learned there would be that these types of strategies, and this goes for a lot of other alternatives too, they're not a panace they should be long-term investments in that short-term trades. Because if you're just viewing

them in the short run, you're going to inevitably just be disappointed at some point. So I think there's some validity to that. A lot of these discovered factors kind of post-academic publication and as they become more widely known and adopted, like you see some decay in that premium. But I think the handful that do have staying power, you'll see some degradation in the future returns, but not enough to make them totally disappear. Provided that they're supported by some sort of risk premium or behavioral anomaly or structural imped that that would make it unlikely for it to go away entirely. I think what happens is you, you see, you know, you can see some pretty bad years, but I think that is almost a necessary evil when it comes to these types of

strategies, because if they didn't, if they never had a poor run, even more money would rush in and they would get arbitrazed away a lot quicker. So I think you have to, you know, know going in that you're going to have some challenging times, but depending on your confidence level and the diversifying nature and future expected return potential of some of these, like, you know, there could be a strong case there, especially now after they've come off a little bit of a tough stretch. I love it. Yeah. I think, and you mentioned in the book, the resolve paper that was kind of pointing out like once a factor becomes

known, it becomes, I don't want to say useless, but less useful as all the money floods in and kind of takes away the premium of that factor. Yeah. But then eventually sort of finds a new equilibrium that sort of settles around. So, you know, I think we're probably seeing some of that, you know, today, like, you know, those products became pretty popular for a number around. So, you know, I think we're probably seeing some of that, you know, today, like, you know, those products became pretty popular for a number of years and, you know, last year was a tough one. The year prior was a tough one, but you know,

if you look at most of those in 2021, it's actually been a pretty strong, strong rebound. So again, again, you kind of have to stick with it to benefit from the eventual recovery. Love it. cat bonds so i'm not sure if you listen to my pod with chris mccown on vantage risk no i haven't yet but i saw that on there so that's that's added to my queue i want to check that yeah i've always been super interested i'm friends with someone in that space and i'm just like did did you pay out did this hurricane pay out no did this one no so i was, you guys got the best job in the world. You sell this stuff and you never have to pay out.

But he set me straight on how that all works. But just from an allocator standpoint, how do you view those? Yeah, we view, broadly speaking, like ILS, insurance and securities, is one of the few truly structurally uncorrelated diversifiers that exist. There's not many asset classes out there like that, like that, that have very unique return drivers that are, you know, wholly unrelated to financial markets. And so, you know, we're advocates of incorporating a portion of the portfolio to ILS based strategies. There's a handful that are available in 40 act format that, you know, advisors and their clients can access depending on the liquidity preferences. There's a handful that are available in 40-act format that advisors and their clients can access.

Depending on the liquidity preferences, there's a number of different types of ILS out there. There's cap bonds, which represent the more liquid part of the spectrum. So you can offer that in a daily liquid mutual fund. And then there's things like quota shares that are illiquid, annual contracts that obviously you can't really just own a ton of inside of a daily liquid. So interval funds are generally a better vehicle for that type of strategy. So depending on whether you wanted to emphasize cap bonds or quota shares or a blend of the two, that might influence your product selection there. But regardless, we think there's merit to the category inside of a portfolio. It's just, again, it's not a hedge.

It's a diversifier. There's environments where you can have negative returns in stocks and negative returns in reinsurance, depending on whether a big catastrophic event coincides with an equity market drawdown. But generally speaking, it tends to be pretty diversifying in that a spike in rates or a recession is not going to trigger an earthquake or a hurricane or something like that. And the scary thing for investors, right, is it's binary. You either make a yield or you lose the whole investment, right? For the most part, it depends if they have different pieces.

Yeah, it depends on the underlying portfolio construction. But yeah, it's certainly an area you want to be highly diversified in within the category as well. And then you handle that from your side by just portfolio sizing, right? Like, yeah, we're not going to... How do we size in the portfolio and then making sure that the funds that we're going to use are properly diversified internally as well. Love it. And then next, real assets. So always a line item on all the endowments and pensions.

But sell me if you could on why I should use real assets instead of just a healthy dose of commodities, trend following commodities. Yeah, I mean, you could do both. I think it boils down to investor objectives. So things like farmland and timberland and infrastructure, you can access those private asset classes through interval funds today. And so that's going to be a much more kind of stable, lower volatility return profile

and a higher income component. Whereas like you mentioned, something like trend following commodities might be a nice inflation sensitive type of asset class. I think there's room for both in a portfolio. I think the mix of those and the preference maybe would depend on the investor and whether they can tolerate more volatility

or more focused on stability and income. So I don't think they're mutually exclusive by any stretch, but I think just both may be components of a larger real asset program that aims to deliver positive real returns and have a higher degree of inflation sensitivity in the stocks and balance. Yeah. My issue with them, I view kind of some of those real assets, especially infrastructure, as like pro-cyclical, right, needing a strong economy where the other side will usually do well

if there's a weakening economy, a recession, et cetera. So it's a little bit like, yeah, it's kind of a pro-cyclical inflation hedge. Sure. Yeah. And adding it just, again, speaks to the benefits of it. It doesn't have to be either or. There's maybe a way to put it together that maybe kind of insulates you a little bit there. And now you had so many of these, we're trying to go through them. So I got five more, if you just do a quick sentence or two and not. Sure. Yeah. I won't go too long with it. Yeah, no, I love it. There were so many good ones I wanted to touch on most. So private credit, we touched on it briefly, used to be peer-to-peer lending. Like just how do you view it in general? Yeah, there's a few different areas within private credit. It could be middle market direct lending.

So we think of that as just a private version of non-investment grade credit. So in our view, a better alternative to credit than high yield bonds or syndicated loans, more of a yield premium and less mark-to-market volatility with stock markets. But beyond middle market direct funding, there is like what you mentioned, peer-to-peer marketplace lending. It's more consumer, small business focused. And then even areas like niche credit that looks to areas like litigation finance and intellectual property royalties.

So there's a wide gamut within private debt, but there could be some interesting opportunities for investors there. The general idea is higher yields than you're going to get with corporate bonds or government bonds, right? Collectibles. So is this include, we'll talk about NFTs separately, but collectibles, we're talking comic books, gold coins, or is that under gold? It's anything these days these days i mean there's so many it's crazy the types of assets that are becoming popular within collectibles like things like you know sealed video games is becoming a popular category and trading trading cards has always been a big one uh but you like apps like rally and others like there's a pretty wide spectrum of collectibles

out there now so this is not an area that we allocate to for clients at the moment i just think to me it's an interesting like this is part of a chapter I had in the book on what I view to be kind of, you know, the future, the potential future, future investable universe, you know, things that are a bit novel today that might become a bit more mainstream as time progresses. But there are two early stage for us to consider out for clients. But there are some cool, you know, platforms and apps out there that, you know if i do this a little bit personally it's kind of like i have a rally account it's fun to go on there and kind of pick different assets um whether it's the dispersion could be yeah the returns are all over the place depending on the assets so yeah you know i try not to

get too concentrated or it's a pretty small part of my overall portfolio but i think it's a pretty small part of my overall portfolio, but I think it's kind of a fun hobby area. Fine art? Yeah, fine art. Maybe you could kind of put that side by side with collectibles, like not for most people, but you are starting to see the emergence of some kind of fintech platforms offering, again, not the ability to house the art inside of your home. You're not owning the full piece. You're kind of owning a fractional share of an expensive piece of artwork.

But there's some history of art being a pretty good diversifier and strong returns for kind of blue chip art. So kind of a similar area. More fintech today and more for the individual if they're interested, but a lot less a part of our portfolios. Two more. Shared home equity contracts. Yeah, just kind of this idea that a lot of people are sort of house rich and maybe cash poor at times or just find a better use if they unlock some of the liquidity in their home equity. And so there's a few companies out there trying to facilitate this where you're selling off a portion of the upside participation in your house's appreciation and you get some immediate liquidity. And that can just potentially, you know, deal, you know, deconcentrate your balance sheet a little bit, maybe use that liquidity for other purposes.

And so this idea that, you know, we finance pretty much everything else in life with the option of equity and or debt. But with homes, it's always been debt. So I think this is an interesting new area, but pretty early stages. And lastly, income share agreements. Yeah, kind of similarly, like as opposed to somebody financing their education through debt, it's almost financing it through equity in themselves. And so I think particularly in some areas like nursing or coding and coding schools, it's an interesting area that could see some growth as an alternative to the borrower to, to taking out student debt. And then from an investment standpoint, it could be a potentially

diversifying type of exposure as well. And then the infamous or famous, right, uh, it could be a potentially, uh, diversifying type of exposure as well. Uh, and then the infamous or famous, right. Of with athletes that this has done, but that has a little bit of a politically charged of, you know, this is indentured servitude and all this stuff. So I think there's a, there's a moral hurdle to get over there as well. Sure. Yeah. Maybe not for everybody. Um, and just talk through like, so all of these things, the goal is we can't get yield anywhere, right?

We need yield. So all these new avenues, and some of them aren't new, like you said, old wine in a new bottle, but all of them are there to generate the yield that's not there in normal stuff. Yeah. You know, people are looking for yield, return potential, diversification, all the things that they've always looked for that are just harder to come by in traditional markets today. You know, what I hope, what I aim to do in that middle section part of the book, where you get the different chapters in all different categories, was really kind of take readers through a past, present, and future of alternatives progression and try to make it as comprehensive as possible. So, yeah, by no means

was it meant to be a blanket endorsement of every single category that I wrote about. It was more just kind of give the reader the information they need to at least make them more informed, evaluate the pros and the cons, make it somewhat balanced. But I think hopefully that kind of came full circle, this idea of here's where alternatives were, here's where they are today, here's where they may be going in the future. Yeah, just it stuck in my brain of like, would we have gotten from here to there if rates were 7%? Maybe not, right? Maybe some of these platforms never get funded, they never get off the ground because I don't need it.

I'm getting an actual savings rate at my bank. Exactly. So maybe that was the Fed's unintended consequences in a good way of like, hey, we've created all these jobs and platforms for people reaching for you. So I guess I'll have the Fed to thank if my book's a success. Exactly. Digital assets, we could spend a whole nother pot on that. But just from your standpoint, like personally and as a firm, are you guys recommending them? Do you put investors into them or are you just on top of it because it's being talked about? Yeah, I personally invest in crypto.

To date, we have yet to recommend it for clients. I think there's still a bit of a gray area where we're actively having conversations and exploring it with clients. You know, there is, you know, obviously, as you would expect when prices are doing what they're doing, you know, we get a lot of inbound questions and inquiries from clients about the space. I think the challenges come from an implementation standpoint. I think there's some features that we don't really particularly care for. And some of the kind of 40X products that are out there are the ones that traded the major custodians. You know, obviously, the SEC has yet to approve a spot Bitcoin or a spot Ether ETF.

And so I think for, you know, depending on whether it's tax related or slippage related to the underlying spot performance, I think the futures based products have some flaws there that might not make them appropriate vehicles for clients. The, you know, sort of gray scales of the world with premiums and discounts that have impacted performance materially, and maybe the higher management fees like that, that can be a bit of a challenge. So I think, you know, by and large, the thinking is that, you know, if their clients want to go into this category, like we need to properly arm them with education and have them better understand what they're getting into other than my neighbor's getting rich off this, that seems to just do nothing but go up. And at the same time, I think we want to make sure that we're not just like sending them off.

Like, you know, it's one thing to say, hey, well, if you're interested, go open a Coinbase account or Gemini account because that's the most efficient way to get exposure because then they might go on that account and buy some Bitcoin and then they might say, oh, this Shiba Inu coin is doing really well. Maybe I should own some of that. And they can go down a rabbit hole pretty quickly. So I think we're actively interested in offering an on-ramp to clients that are interested and potentially having more visibility internally on what's going on there, maybe providing more guidance around allocation within the digital asset space. But we're not at a point yet where we've kind of drawn a line in the sand that we do or do not

advocate this in client portfolios, but I same thing it is not quite at the level that other strategies are at within our alternatives sleeve where we think we're comfortable making a blanket yes or no endorsement on behalf of all of our clients. I think it can be very client specific still, not for everybody. And I think we're just, we've yet to find comfort level

and the most efficient way to get access. So I, you know, it's a hot topic of conversation internally within our investment committee. We're spending a fair amount of time there, but you know, time will tell what we end up doing there. And I, you know, in the book is just the latest I've seen a lot of these of like, Oh, if you put two and a half percent or 2% or five percent or whatever and rebalance like it's always awesome you know i'm like well and if it had gone if it goes completely to zero all you lose is the two percent so i can see that logic but i'm also like what if you did that with this biotech stock or right like i think back to my sports gambling days of right if you always do

10 team parlays. Yeah. If you hit one, the return's great. If you don't, you've just keep wasting 2%, you know, yeah. Like you certainly wouldn't want to have half your portfolio in these sort

of asymmetric type bets that have sort of, you know, more binary type outcomes. But my point is, yeah, I don't even know if you want 2% because it adds up, right? Like over time.

Yeah, but again, it depends on your strength and conviction of the underlying investment thesis of crypto or Bitcoin more specifically, depending on how you're looking at it. So, yeah, you know, not for everybody, but it does, you know, again, it's a limited data set. It's still a very nascent asset class. And, you know, there's no, you can't just extrapolate what's happened over the last 10 years into the next 10. Like it's largely going to not look the same if we can be honest with ourselves. So, you know, the future is still uncertain there, that there could be a lot of opportunities still. But we just don't have the same type of historical evidence that we can examine with other asset classes. Agreed. So along those standpoints, end the book with some portfolio construction

ideas. The one I latched onto is the 10-10, was it? Or it was really 10-10-10-10-10-10-10. Yeah, I borrowed that from Ross Stevens. He's the CEO of Stone Ridge Asset Management. And that's really just kind of a simple framework. It's not necessarily like what we do or what someone has to do. It's just like if you're kind of new to alternatives and you're trying to figure out like, okay, like we've now reviewed like 20 different, however many alternative investments throughout this book. Like, how do I make sense of all this?

Right. And that's my problem of like, I like it all. How do I do it all? And that's where the challenges collide in that you can get really too cute too quickly in terms of trying to like optimize. But at the end of the day, if you're saying I'm going to introduce 10%

or 15% or 20% portfolio to alternatives broadly, you know, at the end of the day, like whether you do 2 percent here or three percent to this one like it's going to matter less if you're trying if you're trying to incorporate a pretty broad swath of alternatives it's hard to argue with something simple like an equal weighted approach um not say that's the right answer it's just at least from a from a framework way of thinking like hey i want to i want to find ways to improve the diversification of my portfolio, whether I do 10%, 20%, or 30%.

Let me just think about the alternative separately for a minute and just think of this idea of like, there's power to having diversifying components in there. So let's just try to collect 10 different risk premiums, each sort of intuitive, each that can deliver different types of return streams. And let me just, you know, equal weight them. So that's one way to do it. It's not necessarily the right way. I just kind of want to.

50 of them at 2%, right? Is there some lower bound where like, okay, this, it's not a meaningful exposure. Well, that's kind of the idea is like start to go beyond 10 and maybe you're starting to get, you know, a little too thin and not not material enough um you know maybe it's sort of a such as idea like maybe not putting all your eggs in one or two different categories but spreading it out a little bit more um so i think it's a helpful framework to get somebody started that maybe isn't in the weeds quite yet but um you know there's certainly other approaches you could adopt as well. And what, say I'm like, I want to invest in everything in the book. What's my account size got to be?

Like some of these, even though they're available to individual investors, it might be at a million dollar minimum. Right. So do you have any thoughts on what that account size would look like? It's tough because, I mean, I wouldn't necessarily recommend that, you know, someone do everything in the book. I think, you know, depending on whether you're a qualified purchaser or an accredited investor that, you know, if you're under those requirement levels, that might limit your universe of opportunities, at least today. So things like hedge funds and private real estate and private equity might be off the table for you. There's, I would say for the kind of bulk of the chapters in section two of the book, things like alternative risk premia, alternative credit, real assets, insurance and securities, you know, by and large, you can implement that today with

40X, you know, mutual funds and interval funds. And so those don't have accredited investor requirements. So you don't have, you know, portfolios of most sizes could accommodate most or all of those kind of core alternatives there. Yeah. And then I have to mention on behalf of all my long ball friends that they probably have a view, especially that pie of 10% in each was in my mind, like 90% offense, 10% defense with the 10% defense being managed futures, which isn't even necessarily always defense. I think I've seen from Chris Cole at Artemis, he's got that just basically like everything's like, instead of there being like dozens of asset classes, everything's either short ball or long ball. Yes, exactly. Yeah.

I think that would make for a pretty boring periodic table. Short ball, long ball, but. But the investors like I'm right at the end of the day, they might need some of that long ball. They need something that's going to do well when all those other, no matter, you know, because it's vanilla caramel swirl, vanilla with chocolate chips, vanilla with this, right there. If they all melt at the same time, you need that defensive piece. Yeah. I think trend following can be a good component there. I think something like insurance and securities, like it's not a hedge. It's not something you're going to like bank on. It's going to do well when equities are doing poorly. I think because it's uncorrelated enough that, you know, it could be doing quite well. And I think, too, what we're advocating in the book is not this idea of just get rid of the 40 altogether from a 60-40. It's sort of just like let's de-emphasize it. But at the end of the day, if there's a depression type scenario or a huge inflationary type environment,

that could still be in an area where high quality fixed income and treasuries do quite well. So we still want to own some, maybe not perhaps as much as we're used to owning in prior decades. I love it. And then last bit, the last chapter, you talk a bit about the advisor's struggles with all this, right? And what you mentioned before, I had the wrong numbers, but you're saying 80% of his time on 20% of the allocation. Yeah, it's just my, you know. No, but I've run into that before. And we've actually sold alts before.

Like, hey, let us, RCM, help you, right? You don't need to spend 80% of your time on this. We'll help educate the clients for that 20, you know, 10, 20%. But just doesn't that part need to come first? Like before you start investing all this, you need to fix the advisor part where they can educate it it definitely has to come first which is funny because it's the last chapter in the book but i think i didn't mean that kind of first but just yeah and i think the reason i placed it there i thought it was like a an appropriate closing note for the book to talk about communication techniques for clients because

at the end of the day regardless you've read the entire book up to that point, and you buy into everything that I've said, it's kind of all for nothing if you're not equipped with the confidence to be conversant in these strategies and to get your clients comfortable with them and able to stick with them for the long run. Otherwise, it's all for nothing. So I think it's the only way really to close out because that's the final necessary step to make you an effective allocator using alternatives is you've got to have this ability to, you know, simplify the complex to make the unfamiliar familiar, and to sort of translate these concepts and ideas in a way that

your end client can understand and interpret and get on board with. So I think, you know, that was really the focus of trying to tie a bow on things there was, you know, we understand why 6040 has been a security blanket for investors and for advisors. And we know why it's been so difficult to get off of that. Let's evaluate some different ways you can try to communicate uh these strategies so you can you know get out there and feel comfortable making that move um and lastly where where can they get the book where can they find you sure yeah so the release date for the book is uh november 30th so just under a month from now uh you know amazon is

primarily where most people, I assume, are going to order from. It's on Barnes and Noble, too, if you happen to shop there. I'm happy to entertain. If there's an interest in a bulk order for any reason, we can talk directly and work with my publisher there.

You can find me online on Twitter at Bips and Pieces. BPS and Pieces is my handle. It's also the name of my blog, BipsandPieces.com. Our firm is Savant Wealth Management and our website is SavantWealth.com. So generally that's, that's where you can find me. If you're interested in learning more, I keep my, my DMs open if you have any questions, but yeah, just very much look forward to the book coming out here soon and hope you all

enjoy it. Awesome. And we'll put all that in the show notes of where they can get all that good stuff too. So we finished up all the pods with some personal favorites, quick, rapid fire. You ready? All right, let's do it. Favorite professional wrestler. Favorite all time, Shawn Michaels. Favorite currently, Bryan Danielson.

Whoa, I know neither of those guys. What were their screen names or their stage names? So Shawn Michaels was the heartbreak kid, Shawn Michaels. That was his screen name. Bryan Danielson, you might have known him as Daniel Bryan. He was the yes guy. Oh the yes chance but anyway so he's a different company now so he's got to go by his real name instead of the wwe name so his real name happens to be brian danielson yeah you're too young to probably remember uh i think his name was terry taylor the rooster oh no i know i remember the red rooster he went to vera beach high school in my hometown

my favorite um and then of course hulk hogan you gotta like hulk and superfly suka was one of my favorites and i i grew up you know kind of in the 80s era early 90s area for wrestling so that always holds a soft spot for me um favorite quote in the book you have all these every chapter begins with some great quotes it was it like a labor of love to pull all those or you had those in a notebook your whole life oh the intro uh um quotes man i don't know if i have a favorite but i will say that was one of the more fun aspects of the book was like trying to find quotes that were relevant like each chapter starts with two or three quotes. And my goal was to make them sort of implicitly about investing and the topic of the

chapter, but not explicitly. And so it was kind of fun to search around and dig for those. And I thought there was a few good clever ones in there. So without spoiling it much, hopefully that's a nice Easter egg for the potential readers for sure so you don't have a favorite you have a favorite that didn't make it in the book um i maybe my favorite was um for chapter two which is about this whole chapter is about alternatives being a loaded word um it was that that that quote from the princess bride which is uh that word it doesn't mean what i think you think it means. Danigo Montoya. Yeah, exactly. Favorite investing book that's not your own now?

I've actually written a blog post on this. My favorite investing book, and it's not necessarily a book for novices, but it's Expected Returns by Antti Omenen, who now works at AQR. He was previously at Brevin Howard, I think, when he wrote it. Just a very thick, dense textbook on asset allocation and portfolio structure and alternatives. It was very much a deep dive to me on a lot of the things that I just found very interesting. And so I think more than any other book, it kind of changed my thinking about what goes into building thoughtful, well-diversified portfolios that are built for the long term.

So that book has very much influenced me and not necessarily something I would call beach reading or something I would share with end clients or retail investors. But for professional allocators, it's hard to think of something better than that. Favorite Chicago pizza place? We've been on the verge for a few years now and so our pizza selection is not as great. But back to my city days, I would say

whether it's Pocanopoli and Peace and Pequod's. Those are all a few that I liked over the years. But in terms of what we're getting now for just getting delivery of the house, hard to go wrong with thin crust Lou Mounds. Lou Monadix, got it. Yeah, Pequod's is the only right answer, although I think they've changed owners.

Someone said it's not as good these days. And lastly, favorite Star Wars character? Oh, man, you're going to kill me here. So as much of a nerd i am with uh professional wrestling i have to admit i've actually never seen a star wars never won but surely you know some of the characters yeah so i guess i can just i'll go han solo because i don't know anything he's cool he gets the job done um i used i used my entire nerd a lot when I'm wrestling I didn't have any nerd left over for any other hobbies

and then did it morph into MMA or are you sticking with it? pretty disciplined well thanks Phil it's been fun we'll look you up next time we're on North Shore there and grab a coffee or something and looking forward to seeing the book come out

thanks a lot Jeff I appreciate you having me on it's been a lot of fun awesome and grab a coffee or something. And looking forward to seeing the book come out. Thanks a lot, Jeff. I appreciate you having me on. It's been a lot of fun. Thank you. Awesome. The Derivative is brought to you by CME Group. CME Group is the world's leading and most diverse futures and options exchange.

For more information and educational resources about futures and options, visit cmegroup.com. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel. Visit cmegroup.com.