YouSaid · the spoken record

Corey Hoffstein

lines on the record: 156
first: 2024-11-21
most recent: 2024-11-21
sittings or episodes: 1
sources: podcast

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“It is. It is absolutely leverage. I think the idea here is, again, leverage is a tool that accentuates the good and the bad. We want to be very thoughtful. About what we're stacking on top. So if you're a 6040 investor, I certainly would not say use this concept to stack more equities. You're probably just going to get in trouble. But if you can use this concept to stack diversifiers like commodities and gold, historically, that hasn't been an issue. And in fact, I would point to the Bridgewater All-Weather Fund, right? Who takes this?”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So I had to get rid of that one. So, yeah, so that was the birth of the NTSX fund. And I was super happy to see Wisdom Tree do that because I really do believe that this is a whole category of products that has not existed really before. There's a couple of select examples, but really should be a whole part of the industry because again, institutions have used this concept for 40 years and used it very effectively to be able to say to an investor, Hey, I think a strategy like Manage Futures trend following adds a lot of value to your portfolio and no longer do I have to sell some stocks and bonds to make room. I can let you keep your stocks and bonds, and I'm going to add a 10% allocation on top. When managed features go through a lost decade like they did in the 2010s, the investor will barely notice it.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“And finally, I said, it's seven years later. I'm officially catfishing people with this photo. I don't look anything like this anymore.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So I didn't realize this is like a Pulitzer Prize winning photographer who took our photos. They're the best headshots I've ever had. Same.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Jeremy Schwartz, who's a good friend of both of ours, showed that article around internally. We had a whole bunch of Twitter conversations about it. Next thing you know, he says, hey, Corey, I'm launching a product on this, and the Wisdom Tree NTSX Fund was born.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I said, I think what's next for ETF are capital efficient ETFs. And the example I gave was instead of having a stock and bond fund, this fund could buy the S&P and overlay with Treasury futures. And so if you give it a dollar, it's going to give you, say, 90 cents of the S&P and 60 cents of Treasury futures, giving you a 90-60, a 1.5 times leverage 60-40. And the idea there is, okay, you can put two-thirds of your money in that fund, get a 640 exposure, and then you can take that one-third of your cash and do whatever. You could leave it in cash if you just like sitting on cash, or you can invest it in alternatives implementing portable alpha.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So, back in 2017, you and I don't know if you remember this, you and I were on a barrens roundtable. Called What's Next For ETFs? And at that roundtable, I said”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“How do I get an industry that disagrees on everything except for diversification is good to add more diversification to their portfolio? You talk to anyone and they'll say, yeah, all else held equal, we want more diversification. Then you go look at their portfolio. It's basically the S&P 500 in bonds. And there's nothing necessarily wrong with that, but the question is, can we go further to introduce diversifiers that can improve both the consistency with which we can achieve our outcomes and the return potential? And so return stacking at its core is trying to take the institutional concept of portable alpha Bring it downstream because institutions to implement that concept have to buy futures and swaps and manage all these separate accounts. What we've tried to do is prepackage that concept into a suite of ETFs.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So, all credit goes to my colleague Rodrigo Gordillo for coming up with the phrase return stacking because I think it's It's a more generalized form, but I think it's much more approachable than portable alpha, right? Portable alpha. You need to understand what alpha is, what is porting do. If I say I'm stacking returns, I'm stacking the returns of gold on top of the S&P. You can probably guess that one plus one equals two. It sort of sounds like math, and that's effectively what we're trying to do. It goes back to the problem we were talking about earlier of trying to solve this addition through subtraction issue with diversification.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Sometimes to look at and say, no, I need to teach you to do a better way. Let me educate you as to why you're wrong instead of saying, no, that actually has really good product market fit for what the end buyer wants. And so I think I had made some poor product design decisions.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“And what he meant by that is when people buy an investment product, a fund, yes, they're often talking about the investment strategy and the returns, but there's also a utility that often we don't talk about in this industry. So why are high dividend yield products so popular? All the math tells us we should not buy high dividend yield stocks. They are typically an underperforming style of value, and yet there are billions, tens of billions, if not hundreds of billions of dollars in high dividend yield ETFs. Because people are expressing a utility that they just like getting that dividend paid to them every month. Could they synthetically create their own dividend? Absolutely. But they're lazy, for lack of a letter, and they like the consistency. And there's utility in that even though it's from a return perspective suboptimal. And that's hard for people like me.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely, absolutely. Yeah, I ultimately said I think there are decisions I made wrong from a structure perspective, and I think there are decisions I made wrong from an actual product perspective. And this is where I think things can sometimes get a little weird in this industry where a guy like me who's a quant wants to always talk about investment strategy. I was listening to a podcast the other day, an old podcast from Patrick O'Shaughnessy, actually, and he said this quote that was basically, an investment product is more than the sum of its returns.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I am in the wrong product wrapper. And so I ultimately made the decision to shut down every fund and restart the whole company.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“A whole different conversation, but I ultimately said you look at the flows. You can just look at a map of the flows and say, I am selling into a dying industry.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I absolutely knew from day one ETFs were a more efficient model. I think it probably took me two or three years to say I've chosen the wrong vehicle. Not just from a tax efficiency perspective, but from an appetite perspective twenty thirteen people really started to go, I don't even want to talk about mutual funds anymore. If it's not in an ETF, don't talk to me by 2017, 2018, we were having conversations with firms that said we only invest in ETFs. ETF model portfolios only. And by the way, I've got a whole spiel on this that I think that's just as misguided. Strategy and structure need to be aligned, and there are some strategies for which the ETF, I think, is definitively the wrong structure.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is a little simpler, a little cleaner, and there was a well-trodden path of bringing mutual funds to market. So that was 2013. And again, I just didn't feel like being the one who was going bushwhacking to figure out how to do this. I should have.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Friend Wes Gray or title that were helping with the administration. My concern of setting up my own ETF was that I was going to have to handle all the intraday trading of the creation and redemption baskets. It was going to require me to hire a whole ops staff that I candidly didn't have the experience or know-how to manage. And I said versus the mutual fund.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I will say to my discredit, I originally launched a suite of mutual funds. Which was for someone who grew up in the world of ETFs and was helping run ETF model portfolios, talk about a dumb business move.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“The shift from pure research to managing assets, I think, is one that a lot of people ultimately make. When you're just providing research, you really don't have any control over distribution, messaging. Often you don't have control over how your research is being used. And if you're the one doing the research, you often have the best idea of how it should be implemented, or at least you believe you do. It's not quite like selling data or raw data. You're selling a manipulated form of data that you think potentially has some edge or some utility. And you want to make sure that gets expressed correctly. And then frankly, there's probably a little bit of ego in there going, okay, I want to get closer to the action. I actually want to implement the portfolios that I want to implement. I think I've got some good ideas for bringing some strategies to market. And so over time, we went from, we'll provide research to we'll be an index provider to be a sub-advisor to we'll launch our own.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm not sure we've ever figured it out, but again, I think a lot of this does get priced in. The whole idea of markets are there supposed to be efficient information discovery machines, and they have proven to be tremendously powerful and efficient allocators of capital. Over the long run, it's the best machine we've got. And so I certainly wouldn't bet against that machine.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Markets would not respond the same way. They would probably do everything in an accelerated fashion, but you wouldn't get the same result because people's behavior would adapt to that previous sample. And so it's very complex of how these things work.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“To your point on behavior, I think something we talked about earlier where the sample size here is small. I think if you took the market to where it was a decade ago and said Feds bringing rates back down, the world's bringing rates back down, people would look backwards with the playbook and say, we're going to just do all that again”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't know what the end game of any of this is, candidly, but I know you've had folks like Mike Green on, I think he was on even recently, who have strong views about what passive is doing. I don't have particularly strong views in any direction. I just like asking the questions. Maybe I lob out a little grenade and let other people fight over it. But I think they're fascinating and worthwhile questions because I think in... Many cases we just accept we have some of the most wonderfully functioning liquid markets in the world. We are truly privileged in the US to have what we have. I don't think it hurts us to ask are we overlooking anything? Is there any way in which we are? Unintentionally designing ourselves into a state of fragility.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Guess what happens to prices? And that'll drive prices up and it causes many fundamental people to say markets are overvalued, missing the fact that you had another market structure change things like a 401k that was almost non-existent in the early 2000s that several trillion dollars now, you just have a stampede of buying every single month and people being forced into markets as retirement vehicle, right? That is their savings account, particularly when cash is returning nothing and you have a dramatic shift in supply and demand. And by the way, over the same cycle, you saw fewer IPOs. Your increasing demand into public equities with fewer, less supply.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, and what's interesting to me there is you and Jim are discussing. I love your analogy with the blind men and the elephant. Jim is discussing a supply and demand concept, and you're discussing a fundamental view, right? I see”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Me rephrase that things like that don't happen except within a crisis. Okay. And they represent opportunity in a crisis because it is definitively mispriced. And if markets are efficient, there shouldn't be mispricings like that. You shouldn't have two things that are literally the exact same basket, attached to the same underlying trading 6% apart. Unless there's true limits to arbitrage. And here you could argue you can't short the mutual fund and buy the ETF. It's hard to arp that spread. Again, anyone trading any bond mutual fund could have jumped to Vanguard's ETF, waited for the price appreciation, and benefited. And again, in a crisis, there's so much information coming at you. You might not have seen the opportunity. Right. But I look at a lot of little things like that, and I go”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So, because you can't short a mutual fund, the way it would work is you would just always hold the mutual fund, wait for a crisis to come around, and then jump from the mutual fund to the ETF. And you basically pick up this free spread based on the fact that the mutual fund is priced incorrectly Stuff like that shouldn't happen.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“The bond market froze up. So when the mutual fund struck NAB at the end of the day, the NAB was based on illiquid Was basically saying we don't believe those quotes. We think the quotes should be much lower, and we're going to price much lower.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely, yep. Their bond fund during March 2020, there was a two-day period where the ETF traded, I believe it was up to a 6% or 7% discount to the mutual fund.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't think they're irrational. I think ergodicity economics would argue you have to protect your capital to survive. So, I'll give an example here of where I think it's a very specific example, sort of like the market maker's example, but it's something that happened in March 2020 that is obviously wrong So Vanguard has their mutual funds and they offer ETFs as a share class of their mutual funds. So if you buy the mutual fund or the ETF, you are in theory getting the exact same return because it's the same underlying pool of capital.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“You are right that there is absolutely panic in Lizard Brain, and I don't mean that in any sort of derogatory way. There are survival instincts.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Waterfall, and then it magically climbs back up, and each part of this, it was the Fed sort of is at the bottom of the waterfall. Flight to passive alternative sort of investment strategies and the role of derivatives is at the top. And then some exogenous effect causes the market to crash. The crash becomes more violent. Fed steps in and the cycle kicks off again.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“And then, sort of, you go full circle to the Fed stepping back in, lowering interest rates and kicking the whole cycle off. And so what I painted a picture of at the end, the reason I called it a liquidity cascade, was I painted, it was this MC Escher painting of...”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's a little struck things like that. And again, I don't think any of them are the cause, but you start to see some of this fragility creep up. And then as people are moving up the risk curve, they're trying to find ways to also protect themselves so they're taking on more derivative strategies. We saw this massive boom in derivatives. We saw an adoption of things, leverage strategies, risk parity and trend following and alternatives. And again, I don't look at the boogeyman and say the market sells off and it's risk parity's fault. But I look and I say, well, if risk parity and managed futures are selling off, and at the same time, you have all these massively levered positions via puts that market makers are having to hedge. All that can act in coordination to make a sell-off more violent.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I've never heard anyone talk about it. Right? But if you need them there and there's only three or four key market makers left, right? We need to make sure that they have healthy balance sheets. They're systematically important institutions.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they're going to widen them out and they're going to thin the order book volume. What I thought was interesting is that people don't often talk about is they're actually capacity constrained. They have a balance sheet, and there was, I think it was Virtu during March 2020 that actually was trying to raise $350 million just so they could keep making markets. Because they had run out of balance sheet. And you go, well, actually, if these institutions are so important to the way our markets function, should they have a line to the Fed?”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“So, with those three factors, what I ultimately argued was that they operate in somewhat of a cycle, right? Fed zero interest rate policy is in many ways as explicitly stated by the Fed trying to move people up the risk curve. And as people moved up the risk curve, they were trying to find ways to harvest yield or save money, a move into things like passive vehicles like ETFs that were having a profound impact on the way things are traded in the market. You're having a consolidation of market makers that leads to potentially increasing fragility or lack of liquidity. One of the things I thought was really interesting in March 2020 is people always talk about market makers pull the plug. Markets go crazy. They're not running a charity. They're going to pull the plug when things aren't going well.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“The narrative fallacy. They All of these things interact. And so, what I came out of the research piece with was not my view. Actually, the intro of the research piece, I said, I'm not going to tell you what my view is. I'm going to walk through this objectively as I can, and I'm going to paint a picture at the end. It's up to you as the reader to determine, for lack of a better phrase, how full of I am.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“To your point, I think people look into a world of incredibly complex nonlinear relationships and they want a single linear explanation. And it's just not possible.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“All these sort of uses of leverage among institutions, have we gotten again to a point of fragility? And what liquidity cascades ultimately argued was anyone who thinks it was just their one thesis was probably wrong.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Not just active versus passive in the type of price discovery that was happening, but truly how we trade indexed products at a market microstructural level. Was that changing? Stocks aren't traded individually anymore. They're traded as big baskets, the way market makers are, there's now really just a handful of big market makers rather than a large cohort. Is that making markets more fragile? And then the impact of derivatives, right? And I think we saw this as an example for people with GameStop, where you had what I would call social gamma, this acceleration through Reddit of people buying out of the money call options to drive through leverage the price higher because market makers were forced to hedge, right? Do you see that less specifically at GameStop, but do you see that at a grander scale when you have a huge amount of structured products being issued in Asia and Europe?”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“There was, and then obviously the concept of a Fed put being tied in there. Then there was the rise of passive investing.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Big three as I saw them were Fed intervention in a decade of zero interest rate policy causing people to take on too much risk, forcing them up the risk curve.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“To be kind to the people that believe them. And so the idea of the paper was I was going to explore them as objectively as I could.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't understand that there are some of these maybe lurking risks that we've implemented. And so there were three I'm going to call them conspiracy theories, for lack of a better word that hang out there as to what has broken the market.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“This was research I wrote in 2020 after coming out of the 2020 crisis. And it was born from the view that while there was a very real exogenous economic event that caused the market to sell off, the day-to-day of what I was seeing happening in markets seemed to be endogenous. In other words, there was so much volatility and there was so much mispricing that didn't seem to be a reaction to fundamental changes in the world. It just seemed to be, oh, there's someone got liquidated and had to sell immediately sell down a large levered position. And oh, there's someone who couldn't meet a collateral call. And so it made me take a step back and say, Is there something about the market structure, the way market microstructure has evolved over time?”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Now, the public pensions, it's in all their public filings. You can go find this. A lot of them don't want to talk about it because either hey, this is what's working for us and we need to beat our competitors, right? Or again, it just Portable Alpha has this bad label to it from 2008. People don't want to see it. And so they're sort of finding ways to hide it.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Delta, there are a large number of public pensions as well that have used this. IPRS, Ohio Police, and Fire, Mosers. I mean, this is, I want to say like one of those, and what's interesting is they don't want to talk about it.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Can try to beat the SP by saying, well, let me just get the SP, and I think gold is just going to be positive over my 30-year horizon. Let me just stack some gold on top. That's a win. Where's the risk? Well, again, I'm using leverage. Leverage isn't inherently bad, but there are risks that I've now introduced for making this trade-off. And so, yes, I get some diversification benefit, but there's some liquidity risks and operational risks I really need to be aware of. And so, to me, it's trade-offs all the way down.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source
“Package it, price it, and transfer it to someone who's willing to hold it. That is what we do when we raise a round of equity financing, right? You're transferring some risk to someone else. So that risk is never really destroyed. Everything you do, whether it's in your portfolio or investment decisions you make, has a trade-off. And sometimes that trade-off is just an opportunity cost. Sometimes it's very explicitly higher volatility or lower downside. But everything we do has a trade-off. There's really no free launch, right? So when I look at something like Portable Alpha, I say, okay, the opportunity is I don't have to try to beat the S&P 500 by picking stocks better, which has historically proven to be largely a fool's errand.”
2024-11-21 · Masters in Business · The Concept of Return Stacking with Corey Hoffstein · IDENTIFIED FROM THE TRANSCRIPT · source