Corey Hoffstein 🏴‍☠️

My company, Newfound Research, turned 15 today. Coming up on this anniversary, I reflected quite a bit on my career.  I’m not sure why, but this milestone feels larger than I would've expected. So I decided to write something. 15 Ideas, Frameworks, and Lessons from 15 Years

@RedsGaurav That's a Van Eck real estate ETF...

Our quarterly commentary for the Return Stacked® suite of ETFs is now available. returnstackedetfs.com/quarterly-comm…

@PFOInvestor Then we can agree to disagree. I'm sorry we couldn't have had a more productive conversation and I am sure that my initial engagement here set the wrong tone for that ever being a possibility. I appreciate the well wishes. Back to you, who ever you are.

Above you use terms like "hypothetical," "assume," "let's say," you live in a world of theory and what ifs because you have no experience. We can have theoretical discussions all day, but I am not interested in engaging with you any further. We will never come to a point of agreement, and thus we can agree to disagree. I know all about you, and the fact that you licensed your models out which is why you founded the firm in 2008 while you were in school. You have not been managing live money since then, you have never held a risk management, or other position on Wall Street. You have also not managed live money through a crisis. Your only position has been at your own firm, where you have thus far had great success, I wish you continued success in the future.

1/5 A post on the dangers of bond portable alpha (PA) strategies. I've seen more HNW investors and their advisors claim plain old U.S. Treasury bonds are "dead" and that they need portable alpha (PA) to offset equity risks. There’s nothing wrong with PA, but using it in your bond sleeve is a mistake. Your bond sleeve is for safety, not for taking on more risk. Let's look at the hidden structural risks. 👇

1. The choice was to use a very well known meme with a very well established meaning: knowyourmeme.com/memes/major-he…. I'm sorry if the imagery insulted you, but I stand by the implication. 2. It's trivial to look up that my business, Newfound Research LLC, has been registered since August 2008. 3. It really doesn't. The strongest argument you make is your original point #3. The problem is you start of talking about stacking managed futures on bonds but end up really talking about a hypothetical scenario with a stocks + managed futures strategy. You try to invoke an argument about forced deleveraging due to regulatory constraints, but: (1) you're more likely to blow through 18f-4 limits in calm environments than volatile environments because you're getting 2x the 99%-ile VaR of your underlying benchmark (which either doesn't move, or goes up, in volatile environments depending on your model); and (2) you typically see managed futures naturally reduce margin pressure due to volatility targeting and reduced trend strength, which helps prevent "forced deleveraging." (See image #1) Later in your argument you say: "If a fund's cash buffer is drained too quickly during a violent intraday gap down, the managers are legally required by '40 Act regulations to maintain specific leverage thresholds." The cash buffer is, in most of these types of funds, in excess of 25%. For context, the biggest single-day drop in the SG Trend index is -7.3%; the biggest 3-day drop is -9.8%; and the biggest 5-day drop is -12.4%. But, let's say somehow the cash does get drained. You then say, "the managers are legally required by '40 Act regulations to maintain specific leverage thresholds." What regulations are you talking about here? The prospectus language (which gives quite a bit of leeway)? 18f-4 certainly doesn't apply. Regardless, let's say the fund does sell down their core asset to fund cash. I mean, the goal is to provide equal exposure to the core asset and the overlay, right? None of that precludes a rebalance at the portfolio level! And that's why this is all moot. Let's say managed futures keeps going down, causing a bonds + managed futures fund (rebalancing daily) to keep shrinking, causing the total bond exposure in the portfolio to go below target. You'd just rebalance at the portfolio level. In fact, it's trivial to run a simple example that shows just this. Consider a portfolio that wants to target a 60% S&P 500 / 40% US treasury / 20% managed futures portfolio. I create two hypothetical funds: Equities + Trend (EPT) and Bonds + Trend (BPT) and build said 60/40/20 using various blends of S&P 500, US Treasuries, EPT, and BPT. I assume a quarterly rebalance and then a rebalance any time there is a drift of >5% from target weights. What you'll see in the table below is that the results are statistically indistinguishable. What's most ironic here is that if you look at them in isolation, the very path dependent effects you discuss have historically caused a drag on equities + trend but a tailwind on bonds + trend from a return perspective. If you want to talk about leverage financing costs, regulatory constraints on bonds, margin requirements of the core asset, then we've got some really meaningful trade-offs to discuss about where you stack. 4. To explicitly quote you: "Other products like to stack bonds with futures yield (carry) [...]". We are the only firm – as far as I am aware – stacking bonds with something called "futures yield." Regardless, see point #3.

1. Let us be clear: the choice to utilize imagery of Nazi soldiers in a professional financial debate is an objectively unserious act. Regardless of your cited context, it is a desperate ad hominem tactic. I have no interest in debating your choice of memes, or your perception of my intent. 2. On the matter of experience, and the insult of how I 'reveal myself': you appear to mistake playing with models for market wisdom gained through years of experience on the street. You have zero real world Wall Street experience. So save me the sanctimonious insults about how I 'reveal myself.' There is a big difference between how these strategies should behave, in theory, and how they do behave in the real world. 3. On the technical issue of bonds: It absolutely matters within the context of how wealthy individuals and their advisors are using these products. It is objectively true, that adding alts on to your bond sleeve adds risk in a place there should be no risk. 4. Futures Yield, or Carry is what I wrote, and it is pursued by different investors using different products and strategies including pursuing it directly. How solipsistic of you to believe you are the only ones pursuing carry. My point remains; it has no business in a bond sleeve, whether thats your product or someone elses is immaterial to the general point being made.

Feel like I've been talking to @andrewdbeer1 about this one for at least a year now! Nice to see the filing is officially live. Frankly, this to me fits more in the MBXIX / MAFIX / BLNDX camp than the return stacking / portable alpha camp. You can, of course, call it 30% equity / 70% t-bills / 100% managed futures. Or you can just call it 30% equity / 70% higher-volatility managed futures. Regardless, equitizing alts is a trend that won't slow down!

@choffstein @HML_Compounder looks like iMGP/DBi is coming out with a portable alpha fund. 100% managed futures, 30% US equity target exposure. sec.gov/Archives/edgar…

I feel like there are two types of coffee shops. In the first, the people next to you are hacking away on Claude code. In the second, the people next to you are talking about taking their shoes off to get more grounded with the earth.

@KrisAbdelmessih @matt_levine @jeremygiffon @Jesse_Livermore @jam_croissant Happy birthday my friend

Moontower Sunday 🌙investing orbits...some thoughts on the modern market 🌙the present tense moontower.substack.com/p/present-tense refs: @matt_levine @jeremygiffon @Jesse_Livermore @choffstein @jam_croissant

1. I'm not sure what, in my reply, you'd consider to be an ad hominem. I think I was directly addressing your points. 2. My intention with the graphic had nothing to do with the Nazis pictured (in fact, the whole point is that the person in the picture isn't a Nazi); I was using a meme to point out that you reveal yourself with your critique. 3. Even in your reply now you continue to focus on whether the stack happens on equities or on bonds. The point is that this is a portfolio level concept; it doesn't matter. Putting something on top of the bond sleeve doesn't make the bond sleeve less available for whatever you deem its purpose to be. But, given your stress here, I presume you feel the same about credit? Mortgage backed? Those are all duration with a form of implicit overlay, after all. 4. You called it futures yield. We're pretty much the only people who call it that and we're absolutely the only people who stack it. Seemed pretty clear to me you were talking about us.

It would have been nice to engage in a productive conversation with you if you had substantive comments on this post, rather than reactionary ad hominem attacks. However, the image you sent me of a Nazi soldier makes it clear that you are not interested in a constructive discussion, and after that, neither am I. Nonetheless, I do want to address your points for the benefit of others. 1. I did not tag you because I did not mention your products, nor was I referring to them. I was making general comments on a trend. If I wanted to analyze your products specifically, I would have tagged you. 2. I am sorry that you were triggered by my comments and assumed I was referring to your products specifically. I have no issue with portable alpha or 'stacking' when done correctly, which I explicitly mentioned in the post. My comments applied to anything stacked on top of bonds, which I completely disagree with from an asset allocation standpoint. We can agree to disagree there. This applies to products with both active and passive bond strategies, both of which exist in the marketplace. 3. It is pretty clear you did not even read my thread; if you had, you would have seen that I was making a general point that bond sleeves should be for safety, not for adding more risk. I did not address the specifics of your futures yield strategy because, again, I was making general comments, not direct comments on your specific strategies.

@philbak1 Everyone taking a pay cut on a hard year, or is this one of those upside only things

Normalize salaries as a percentage of company earnings

@DeathStripMall @PFOInvestor Or, more succinctly

@DeathStripMall @PFOInvestor Here you go

@PFOInvestor Also, if you're specifically going to call out one of our stacks (futures yield), it would behoove you to actually understand our implementation. Our approach is anything but strictly long/short within an asset/sector.

First, you can just tag me next time. Second, none of what you said is particularly relevant to stacking on bonds. Return stacking / portable alpha is a portfolio level concept. I can have a 60/40/10 where I stack managed futures on stocks and I can have a 60/40/10 where I stack managed futures on bonds. If your issue is leverage, that's fine. Happy to engage in a productive conversation there. But the fact you focused on the bond base makes me think you may have missed the forest for the trees here.

huh

burn, baby, burn 🔥

@vixologist This is how must of the defined outcome products work so as to avoid taxable events in the roll of their option structures.

@choffstein Hmm. Hearing about this in other places as well. thx

New return stacking fund from kurv. Currently uses a mix of ETFs + synthetic exposure (via flex options) to get ~100% exposure to the S&P 500. Then uses freed up cash to get exposure to munis via ETFs. Back of the envelope, I'm seeing ~100% S&P 500 + 60% Munis. They've filed for the same idea with small-caps, international equity, european equity, japanese equities, and EM equities.

@vixologist Potential tax efficiency of heart beat trading the exposure in and out.

@choffstein Benefit of flex options versus ES futures??

@Critttr You've saved my family.

@choffstein Multiple seasons on Netflix

learning that PAW patrol is no longer free to stream on amazon prime and now $23/season

@rstancikas toddlers are famously flexible in their preferences

@choffstein Bluey is the way