Corey Hoffstein, the Co-Founder and CIO of Newfound Research is among the investors expanding the financial product set available to the RIA community. A client segment that has long been fed a diet of 60/40 exposures, the high-net-worth community is finding the need to diversify beyond stock and bond exposure. Using their innovative approach to return stacking, Corey and team are making alternative sources of risk premium accessible and packaged in an ETF format.
Through our conversation, we first learn that from a behavioral standpoint, introducing entirely new securities with new exposures has been a challenging ask. With return stacking, the diversifying strategy is put on top of an existing stock or bond exposure, packaged in one security. We discuss Corey’s recent white paper, comparing the risk characteristics of corporate bonds to that of merger arbitrage and how each exposure interacts with stock and bond markets. He finds the correlation of risk arbitrage returns to those of the equity market are lower than corporate bond spreads to equities.
We also review a realm of trading strategies that Corey has focused on substantially over the years, trend following. He walks through the manner in which trend can be defensive and how it behaved specifically over this recent significant market drawdown. We finish by getting some of Corey’s thoughts on the broad topic of risk premiums and which like merger arb and vol selling ought to be persistent sources of compensation.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Corey Hoffstein.
