A NEW ERA?
Leon was fortunate to establish his independent practice in the 1980s as a value investor, near the beginning of one of the greatest multi-decade bull markets the US will have seen. But fast forward to today, he increasingly finds himself in what feels like a new era. He’s participated in a bond market characterized only by falling rates in his entire investment career. Today, bonds are seemingly increasing risks for his clients rather than providing an adequate portfolio hedge as fixed-income had in the past. Adhering to his role as a fiduciary, Leon began searching for reasonable alternatives to help navigate the decades ahead.
MARKET TIMING & HEDGING INEFFICIENCIES
Leon sought alternative approaches to safeguard his client portfolios in all environments, aiming for judicious investment. Yet, he constantly grappled with a repeating dilemma, often reverting to the inherent challenges of market timing. Simply changing allocations, such as reducing equity exposure, was not a solution, as it was solely based on market timing. Leon saw pitfalls in other hedging strategies, such as utilizing inverse ETFs. It required him to not only free up capital in accounts, thereby reducing other exposures, but it alone as an investment was almost guaranteed long-term losses. If he was concerned for accounts but placed a hedge at the wrong time, how could he justify unwinding it if nothing else changed other than watching losses pile up?
Other alternatives simply seemed to swap his market timing issues for those of other managers. In the past, Leon sought to hold treasuries in volatile times, but that has proven difficult amid a rising interest rate environment and unstable inflation.
ADVISOR PAINS
In client meetings, Leon often presented charts illustrating how a mere handful of stocks significantly influenced overall market performance. Without these key players, the market’s true nature would be obscured. While clients grasped the concept during discussions, they invariably left pondering, “Why didn’t we hold these investments that performed so well?” Clients then say, “Well, what are you doing for me now?” Despite a longstanding relationship with Leon, clients became increasingly restless about short-term performance disparities, momentarily overlooking the enduring value Leon added to their long-term portfolio growth in the past.
DECISION FATIGUE, PARALYSIS
Leon grew tired. He felt the weight of his decisions. Any misstep could jeopardize his clients’ portfolios. If he ventured into high-performing stocks that seemed to have little valuation justification, how could he time these investments to avoid severe declines if he was wrong? Merely riding the tide with passive investors wasn’t the solution. For Leon, passive investing also experiences performance lulls, he would just most likely find himself in better company with such a large pool now utilizing this strategy. However, even if they were in the same predicament, his clients would inevitably lag behind the benchmark, factoring in his fees. Amid these challenges, Leon grappled with his innate value investing philosophy, finding it difficult to witness the widening chasm between many stocks and their underlying fundamentals, at least in the large public markets, time and time again.
LEON KNEW HIS CLIENTS NEEDED SOMETHING BETTER. BUT MORE HONESTLY, HE NEEDED SOMETHING BETTER.
POINT OF CONFLICTION
In introspection, Leon pondered just like his clients, “Why weren’t my clients invested in those major performers?” How could he offer them a piece of these top-tier stocks while also ensuring substantial safeguarding? If he opted for these high-flyers, what would be his exit strategy? Most importantly, how could he identify the next significant market players? Surely those will fluctuate over time. Leon yearned to incorporate these investments into his clients’ portfolios but grappled with overseeing them effectively. What he believed was the looming potential of market downturns only added to his apprehension.
THE SEARCH
Tired of being ruled by market timing and faced with the constant question of “what do we do now,” Leon was determined to find a better option. Motivated as always, Leon embarked on a quest for an optimal strategy. He sought a method immune to market timing that shielded portfolios, while simultaneously targeting market frontrunners. He longed for a core equity holding that would be viable in any market environment. Regrettably, most strategies he encountered were rooted in index-based approaches or, even less appealing, were strictly market-timing dependent with specific strategy tilts. In those cases, he’d be swapping his timing challenges for those of another manager. Leon’s preference leaned towards strategies that hinged on individual stocks, recognizing their potential for distinctive divergence from market indices. However, he knew it needed to be diversified, as his clients’ risk profiles demanded such.
EUREKA MOMENT
Leon began to wonder if this concept was too good to be true. Until, one serene evening, after an exhaustive day of back-to-back client reviews, Leon chanced upon a systematic ETF manager, Even Herd (EH). Their first ETF offering, the EH Long Short ETF (EHLS), appeared to be the precise solution he had been seeking. This fund, indifferent to market timing and leveraging a diversified basket of individual stocks both long and short, offered a versatile core equity holding that he trusted would be adaptable to any market climate and remain relatively diversified. Leon was attracted to the prospect of seeking to capitalize on top-performing stocks, which would aid in his client conversations during periods of significant outperformers, while simultaneously granting his clients a layer of defense against market downturns through the fund’s focus on shorting the laggards. For his portfolios, EHLS seemed to encompass the ideal blend of equity strategies that may be an attractive investment no matter the market environment. He had never seen such an alternative that could help remove or dampen market timing risks from his practice without some other manager bias, and he was extremely enthused at the opportunity.
Even Herd LONG SHORT ETF (EHLS)
The Fund seeks to capitalize on the leading bulls and shorts the trailing bears, providing Leon’s clients with a dual benefit: exposure to market leaders and a hedge via the underperformers. Short positions aim only to be 10-60% of the gross long positions to ease concerns of any use of excessive leverage. The fund’s indifference to market timing grants Leon the tranquility he craves with the ability to invest at any time. He understands that bull and bear markets can coexist and lurk in the shadows; the challenge lies in pinpointing them in time to benefit. Even Herd’s Long Short ETF (EHLS) adeptly tries to capture these trends, judiciously aiming to curtail downside risks by hedging against the market’s underachievers. Just as it identifies top-tier stocks, it also determines which stocks to short. Seamlessly, Leon incorporated the ETF into his clients’ portfolios as a foundational equity holding thanks to the simple-to-buy strategy wrapped in a liquid ETF.
BUILT OUT OF NECESSITY
EVEN HERD emerged to address a void in diversified, active portfolio management for advisors that was indifferent to market timing and focusing on the disparities of individual stock returns. The investment strategies were built to withstand any impending market environment, even if we find ourselves in a new era marked by rising rates and higher inflation, a period that US managers have not had to deal with in over forty years and, in some cases, their entire careers.
Even Herd has developed a proprietary system that guides its strategy, seeking to capture the cream of the bullish stocks and identifying shorting opportunities among the lagging bears seeking stable returns no matter the market environment.
WATCH THE HERD.
CATCH THE TRENDS.
