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Return stacking involves layering new returns on top of an existing portfolio to diversify and enhance long-term performance. By adding a second diversifying source of returns, investors aim to increase diversification and reduce drawdowns. Strategies like those offered by Newfound Research and WisdomTree seek to implement return stacking by combining equities, bonds, and managed futures.
Return stacking strategies, like the ones discussed in the podcast, require careful consideration when implementing in a portfolio. It is crucial to assess the risk profile and diversification benefits offered by each strategy, ensuring that the additional returns align with an investor's risk capacity and tolerance. By blending traditional assets with diversifying alternatives, investors can enhance their portfolio resilience and potentially navigate market challenges like inflationary environments.
When incorporating return stacking strategies, investors should pay attention to managing risks effectively. It is essential to understand the potential impact on overall portfolio risk and to avoid over-concentration in similar risk factors. By diversifying with assets that have non-correlated returns, investors can better navigate market fluctuations and potential downturns, ensuring a more balanced risk-return profile.
In response to changing economic environments, like potential waves of inflation, tailoring investment strategies becomes crucial. Strategies such as leveraging managed futures can offer resiliency in inflationary scenarios, providing flexibility to adapt to different market conditions. Understanding how different asset classes react to inflationary impulses can guide investors in constructing more robust portfolios.
Grounding investment decisions in core principles, such as taking risks to earn rewards and the benefits of diversification, can guide investors towards sound decision-making. Initial research and alignment with fundamental investment principles ensure a solid foundation for building and managing investment portfolios. By focusing on key investment tenets, investors can navigate market uncertainties more effectively.
Rebecca Hotsko chats with Corey Hoffstein, and together they discuss the concept of return stacking, its mechanics, leverage determination, fund selection, and a whole lot more!
Corey Hoffstein is the co-founder and Chief Investment Officer at Newfound Research, which is a quantitative investment and research firm managing strategies that implement Return Stacking concepts.
IN THIS EPISODE, YOU’LL LEARN:
00:00 - Intro.
06:08 - The different types of funds that are available to investors to implement return stacking.
06:19 - What return stacking is and how this strategy works?
10:36 - The different ways this strategy can be implemented and the portfolio solutions it provides.
22:31 - How to decide how much leverage to take, and how much return stacking strategies should make up of the total portfolio allocation?
40:03 - The factors that contributed to the poor performance of certain return stacking ETFs since 2021.
42:55 - The common mistakes investors make when implementing this strategy.
46:01- What factors impact the effectiveness of this strategy?
52:49 - How to mitigate risk when this strategy breaks down?
*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.
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Email: Rebecca@theinvestorspodcast.com
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