Yang Tang on Arch Indices VOI Absolute Income ETF

Let’s talk a little bit more about that audience and who this is for and where it should be in your portfolio. I mean, Eric compared it to SPY in the AG. So it’s sort of straddles stocks and bonds. But how do you explain this to your potential investors? Hi, thank you so much for having me. So the way to think about this is it’s income exposure. So for anyone that has one income needs, so think of yourself as a retiree. When someone retires, they have two risks, how long they’re going to live and the cost of living in that period. So what this solves for is a portfolio that one rebalances with changing market conditions every quarter. It provides high income and has potential for capital appreciation. So the 79% dividend stocks gives you that. So over time, as we know, dividend stocks have, one, the ability to keep up or outpace inflation and payouts and growth and #2, they provide a bit of a defensive quality versus the rest of the stock market. Secondly, this is for people looking for more defensive income exposure. You know, the last six months we’ve seen a very frothy asset market, right? We’ve seen explosion in the momentum strategies. We’ve seen momentum, a lot of explosion in the growth strategies. You know over time factors change. So I’m curious to get your take then on where we are in terms of market conditions. They’re clearly changing right now. We talked about how the S&P 500 on a four day losing streak, the two year yield hit 5%. Are we at a shift here when it comes to the overall market conditions and where things go next and how that affects the balancing within your fund? Yeah. So I think we are the last six months, you know, the last two years eve have been a very liquidity driven rally. We had records amounts of fiscal stimulus. We had 10 trillion wealth effect and we probably have the strongest job market in some time which is creating consumer income velocity. So, yeah, when you think about how, you know, liquidity driven rallies go, they need more liquidity to keep going and it’s very natural for people to take a breather after such a run up. And just your background’s interesting to me. You worked at Morgan City, Deutsche Bank, You’re entering the ETF world. You’re used to selling to institutions who are are quick to understand all this. Advisors are a different breed though, right? What’s the advisor reaction been to a strategy like this? I think it’s been very interesting. As you pointed out earlier, we have two main problems. The 1st is we haven’t been around very long. This ETF was launched in October and when we started, a lot of people’s feedback was this is very interesting, but I want to watch it. I want to make sure this actually does what you say it’s going to do. Secondly is I think people are coming on to the idea that market cap and equal weight portfolios have a lot of flaws. You know, last year we saw a few things, right? We saw really seven companies drive the S&P 500 and then on top of that we actually saw an emergency rebalance in one of the largest exchange only indices out there. So a lot of people understanding the size bias of this and you had another point in your notes that isn’t about your ETF so much or maybe it is a way to promote it, but SPY and TLT are having decreasing correlation. Yep, this is probably good news for 6040 holders because in 2022 they both went down and that was a little bit of a shock. So talk about why this is developing and maybe how your strategy takes advantage of it. Yeah, so the way our optimization works is you’re looking for assets with high income and low volatility. That’s the performance ratio. So what you want is a portfolio is assets, what a lot of high performance ratios, but they’re not moving together. That’s where the correlation aspect comes in. So in a market where everything’s correlated, you don’t really feel the effect of a reduced volatility from correlation. But as we saw, correlation probably peaked out late Q4. It’s been declining all year long as when the correlation declines, it actually gives investors a huge benefit in these types of portfolios. You’re able to maintain the same exposure, but the correlation decrease gives you a tailwind in reducing portfolio volatility. So it’s a recent fund, you know, as you and Eric have mentioned, but you take a look at the return so far, I mean it’s between SPY and the AG, trailing SPY, but of course outperforming the AG. Is that generally where you want to be when it comes to performance? So it’s a little bit hard to talk about just a SPY because the SPY is a very different factor than us. This is an income factor. So all the equities you’re going to see have a very high dividend payout or some kind of dividend exposure, whereas a lot of companies spike do not have that. So probably the more interesting way to think about this is comparing versus a dividend strategy and the AG because again that’s kind of your same type of exposure. So if you compare us to say a high dividend index or you know an income focused type product, you’ll see that we have similar total returns, but we have through portfolio volatility.