Investors can realize upside while protecting their principal
This is a transcript of a recent interview with Darren Schuringa of Asymmetric ETFs. Darren manages a unique ETF that can actually short the S&P 500 when its price and volatility metrics dictate. This ETF offering allows investors to realize the market’s upside while protecting their principal when the market declines substantially. We also have this interview in a podcast and video on this site.
[Kirk Kinder] Oh, hey, Darren, welcome to the Saving Yourself from Wall Street. I really appreciate your time.
[Darren Schuringa] Kirk it’s a pleasure to be here. Thank you for having me on.
[Kirk Kinder] Yeah, you guys have a great story to tell, and I think it kind of aligns with what we’re trying to do with Saving Yourself from Wall Street. What’s your mission or your calling with ASYM?
[Darren Schuringa] So we wanted to be the anti-Wall Street firm with asymmetric ETFs and do our small part to level the investment playing field because we looked around and my background is as an institutional hedge fund manager. And so Sovereign Wall Funds, family offices, ERISA plans. They’ve had access to funds that produce asymmetric returns; hence our name for decades, and by having access to these types of strategies that are uncorrelated to the broader markets, have a focus on capital preservation, but still producing market like returns. It has led, it’s played its part to lead to wealth inequality. Now looking at the marketplace today with interest rates near record lows and equities near record highs. Where are retail investors to turn to? Something that doesn’t increase the risk in their portfolio but mitigates it. And that’s where asymmetric ETFs come in. And that’s our vision. We want to empower the little guy. And Kirk, one quick analogy, here. I, I love it because it’s so true. It’s like Uber through technology, brought black car service to the masses and revolutionized the way people commute. Asymmetric ETFs through technologies bringing the benefits of hedge funds, which are asymmetric returns, to Main Street and should revolutionize the way retail investors and advisors manage their portfolios.
[Kirk Kinder] Awesome. You already alluded to it, but what can you give us sort of an overview of you know, asymmetrical ETFs, and kind of sort of how they function, in where you see them fitting in the whole landscape for an investor?
[Darren Schuringa] Sure, so when I, when I look at asymmetric ETF’s is where they fit into a portfolio. I’m going to pull up a couple of screens here just to kind of help our conversation along. Number one, they are designed to optimize a portfolio. Okay, so when we talk about optimization, what do we mean by that? And that is: optimization is lowering the risk and improving the performance. Correct? That’s modern portfolio theory, correct?
[Kirk Kinder] Sure.
[Darren Schuringa] You look for uncorrelated assets that you want to bring together into a portfolio so that by bringing these different assets that zig and zag at different times. What you do is you reduce overall portfolio risk and you improve overall portfolio performance. But, the key is you need assets that are uncorrelated to each other. And when you look back in the market, ’08 and ‘09, ’00 and ‘02. that risk assets correlated became highly correlated to each other. The common comment was the correlation became one, which means it moves exactly like the market. Now not all assets became one and correlated, but all equities went down now; and they went down in tandem with the market. Whether they dropped as much as the market or not, they went down. And so, if you have that from a diversification standpoint that’s terrible, right, there’s no diversification in your portfolio’s – a false sense of security. ASPY comes in and fills that gap. It’s why ASPY was created, which is our initial fund, the asymmetric version of the S&P 500. It zigs when the market zags. So when the market drops off, ASPY was engineered to actually produce positive returns and bear markets when you need it most. So the rest of your portfolio is dropping. And if ASPY’s doing its job and and doing what it was designed to do, it should be going up in value, which is what you want. That’s a negative correlation.And that’s historically what bonds used to do. A role they played in the portfolio that buffer effect in down markets.
[Kirk Kinder] Obviously, this is going to entice a lot of folks. So how does it actually function?
[Darren Schuringa] Okay,
[Kirk Kinder] Okay, I’m going to get upside of the market, but I also have a negative correlation to it when I need it the most. So how? how does that happen?
[Darren Schuringa] Sure, well, we don’t use derivatives. That’s really important to us because derivatives are too complex. Again being the anti-Wall Street firm we want to share a lot of Wall Street’s secrets, and make them public. An old Wall Street adage is if you don’t understand an investment, don’t invest right number one, because the probability of losing money just increases exponentially. So with derivatives, most retail investors certainly don’t understand the risks that are inherent by options-based strategy. So ours is not an option-based strategy Throughout its core Is this slide. It’s driven by asymmetric risk management technology. A little backstory of the technology is asymmetric Management Technology comes from an institutional mandate. It was behind one of the largest hedge fund seeds of 2015. It was a quarter of a billion dollar hedge fund seed based on this technology, and what we’ve done is brought it in its pure form down to Main Street. So that’s why we were bring institutional solutions to Main Street. The technology’s right here, here’s your overview. It’s two price-based signals, price based, and we can talk about that more in detail. Two price-based signals are designed to accurately measure the current market risk environment. And, it buckets it into three risk environments – risk off being a bear market, risk on being a bull market, and risk elevated as an uncertain market. So two price-based signals are designed to accurately measure market risk. And when you have that, then how do we position the portfolio to profit from either a bull or bear market by systematically changing net exposure so you can see that here on the right-hand side of this slide, you’re getting into your portfolio exposure, so price-based signals accurately identify market risk. When we know what market risk looks like, then the technology systematically changes net exposure in a bull market, where net long we would expect to capture seventy-five percent of the upside in this case of the S &P 500 in a bear market, we go net short, and by being that sure, we expect to capture on a negative basis twenty-five percent of whatever the market loses. So if the market loses fifty percent like the S&P 500 did, in ’00 ’02 and again in ’08 and ’09, then we’d expect the portfolio to be up twelve and a half percent in that environment. So with asymmetric ETFs and ASPY our first fund, You have the prospect of always being invested, but your money again is positioned to always profit, regardless of marketing environments, And this is how the technology works.
[Kirk Kinder] Okay, and you kind mention there’s two price inputs that you use. Y’know a lot of people just that are trying to mitigate with a purely negative correlation. They look at the VIX. The Volatility Index Fund. So how does your price inputs kind of differ from which the common commonly known VIX index?
[Darren Schuringa] Yeah, well, I. I’m glad you asked that question because our second input is looking at volatility, and so it’s called a price volatility indicator. It’s a proprietary measure of volatility, so as most people will know, VIX measures, implied volatility. And it is looking at a select group of institutional investors that are trading options based on the market, and in this case again, the S&P contract to the next, And that’s how it prices implied volatility. And so it’s smart money. a small segment of market it’s smart money. Smart money is not always right, and so smart money can be a misnomer. What we look at is price fall, and the reason we had to create a new measure of volatility was the original application for asymmetric risk management technology was actually in a U S. energy infrastructure application. So had we used VIX to measure risk in an energy-related sector, we would have had a mismatch. We would have been measuring risk in one market, and, and then managing risk in another, and that’s a terrible solution. Right and then it becomes random. So we created price fall, which again, price. We’re looking at the price movements of the underlying securities that comprise the index or the market where we’re managing risk. In this case, the S&P 500, so price fall, looks at the price movements of all of the securities of the S&P 500, and by doing that, what we’re getting is a much more granular measure of market risk, because we’re capturing all market participants. Anyone who’s buying and selling a
security in the S&P 500, we’re capturing that in in this
measurement of volatility And so it’s a more granular measure market risking. We argue it’s more accurate as well. So if you look at price fall here in this chart, what it needs to do from Asymmetric Risk Management Technology
standpoint needs to spike when we’re in bear markets, ’cause that’s risk-off signal force, and look at this. Oh, too, price vol goes above its threshold here, which is the Red Line, and remains elevated. Pretty much the entirety of the Dot Com bust, and again, the great housing crisis, or the great recession. Again, the price of all spikes, that even captured Covid last year and spiked. And, and unlike VIX, this is my last comment on price fall versus VIX. If you looked at, it remained elevated for from March, 2020 through March of 2021, and a whole year remained elevated. Well, if you’re using VIX as a risk measurement or metric. you would have been on the wrong side of the trade because the market’s ripped back after 2020. right, The smart money remained on the sideline. Thinking this isn’t going to last. but new players
came in. right new stock investors? Other things, more leverage was getting added to the market in terms of margin debt, So lots of buying and our measure of risk price fall spiked. It was up. it was elevated, in March, elevated in April, May was already back down, so it spiked for two months and then and compressed again, saying Hey, we’re back into another bull market run from a volatility perspective,
So a lot on price fall, But it’s an amazing measurement for
for market volatility and risk.
[Kirk Kinder] Okay, So that’s one of the price metrics and then you focus. The other is just on sort of moving averages. Or how does that work?
Yes. So the second one is moving averages. And that’s by price momentum indicator here and again, what is it meant to do effectively identify market trends? And we’re using the two hundred-day moving average as the primary driver of our price momentum indicator For a good reason, asymmetric risk management technology. It, rules base strategy. It rebalances on a monthly basis, so we’re trying to identify long-term market trends. Then what we want to do is we want to be positioned not long in a bull market for the entirety of a bull market, And we don’t want to get shaken in and out, rebalancing daily rebalancing in a month. We do that by looking at long-term averages. We want to be on the right side of a market movement. So it, it has characteristics of momentum investing and profit from it, and then the flip side. When we move into a bear market, we don’t want to get shaken up. We don’t want to catch a falling knife, or the market starts to go back up. It’s a buying opportunity. We’re going to be looking for the market again to establish long-term trends, so we’re looking at the two-hundred-day moving average that primarily drives our price momentum indicator, and does it work to identify bear markets? Look at this too. The market breaks down beneath the two or day moving average or remains beneath it ’08, ‘09. The Great Recession breaks down and remains beneath the entirety. That’s a risk-off signal for us. So, so you look at our risk environments to the market. The market breaks down, technically, and you have a spike in volatility. Those two things only come together in a bear market in a bear market Where we’re at risk-off. When we’re risk-off, we’re not short market volatility spikes market breaks down. Technically, VAL spikes. Okay, We’re in a bear market in a bear market. The technology says, this is what our exposure looks like, and I and Kirk look at this. There’s two lines of defense here. The first line of defense is look at, look at gross exposure. That overall exposure just gets reduced. What’s the most amount of money that you can lose anyone is we have invested right at risk, capital at risk, so we reduced the amount of capital at risk. It’s the same thing Goldman Sachs Does they tell their prop traders? As market risk starts to rise, pulling your horns, lower your gross exposure, lower your net exposure. We’re bringing that type of an institutional discipline to Main Street, so we lower our exposure. Number one – don’t be a hero. So keep your capital intact so you can make money in the next bear market. Let the benefits of compounding work for you right. Don’t fight them by losing fifty percent. Like compounding the most powerful tools that we have as investors work in your favor. And then the second one is okay. First, reduce the overall exposure. Don’t lose a lot. Don’t put a lot of capital risk. And two, since we’re going to be in a bear market, we had nineteen, twenty to through thirty two, four down years. ’00 to ’02, three down years. You know, almost two down years. So when we’ve identify that we’re in a bear market, the market’s going down. Let’s be short, right. let’s be short the market to to profit from it versus most of our competitor strategies. They’re just going on to the sidelining cast or providing first loss. That’s great – better than losing a lot of capital. That’s our first goal, but the second goal isn’t better if you can make some money. And that’s the way we do it by not using derivatives, but by shorting the market and then we’re short. We go short the actual market right.
[Kirk Kinder] Okay, so you’re not using derivatives. You are shorting like, just like a SPY, Or how? how do you do that?
[Darren Schuringa] Yeah, that that’s exactly what we’re doing here. You can see we’re actually shorting SPY. We’re shorting the actual market because it’s difficult to not think of it. It’s difficult enough to get the market risk environment right. Say we’re in a bear market with a high degree of confidence. And if we get that signal right, Well, well then you, you watch the flow. Okay, then we’re going to reduce our exposure. Go in that short. You could still make a mistake. You could. Now your algorithm could say well, we’re going to be short high beta stocks. Well, high beta stocks may not go down. But when you’re short, the market and that’s where you’re managing risk Well. If the market’s going down and you’re short at your book’s going to be going up in the opposite direction.
[Kirk Kinder] Okay, yeah, so you know you, as you look at whether you’re talking to financial planners or just individual investors. How are most people kind of plugging ASYM in? is it replacing their large-cap exposure in a portfolio? Is it complementing the large-cap? Is it? Are you pulling money from bonds into this? Since you have downside protection? What, what do you typically find people are doing
[Darren Schuringa] all of the above
[Kirk Kinder] Okay? All right?
[Darren Schuringa] Honestly, I mean that that’s the answer. I mean, we were speaking yesterday with a billion-dollar RIA. And at the end of it, the question was what. So how will you use ASPY within your portfolios and this individual that we’re speaking to said initially it’ll be a bond substitute because I, I’m looking at low-interest rates right now, the prospect of rising inflation, interest rate risk, and my, my bond portfolio. I’m not making any money. I have principal at risk. Now in the portfolio, there’s going to be a drag on performance and I don’t want to increase risk by moving into these other equity income-producing equities that are going to correlate highly or potentially correlate highly with the market when it goes down, he said, This is a beautiful solution for me. I get the upside potential if the market continues to move up the consistency of returns or the potential of the consistency of returns. But when things really go bad, I’m getting that other characteristic of bonds. I don’t believe we’re going to have in the portfolio now, which is the buffer effect right to mitigate the losses versus jumping into some of these equities which are are are just going to give you equity-like risk across more of your portfolio, which means you’re going to hurt your clients more in the next bear market. So we’re seeing that is a really big trade right now that advisers are making, and then the second one is, you’re just looking at taking and locking in some of the gains in the portfolio. Like where we believe ASPY belongs in the portfolio. Long term, it is a core equity holding. The fact that we’re using hedging in it. I look at the risk profile again. Uh, the maximum exposures are a hundred percent net long so we’re never trying to goose returns by using our ability to hedge. Where We’re using hedging only for one purpose to mitigate return. So, if you look at the index that that ASPY tracks, you can see the historical returns low volatility, low correlation, and low drawdown. That’s what we’re looking to do if you have something in your portfolio that can consistently produce equity returns at seven to nine percent across Bear or bull markets. Uh, make that your core holding and then build around it build your satellite positions around that, so that’s a long-term where we see it fit in the portfolio.
[Kirk Kinder] Okay, Great, so it’ll be the core of the core and explore strategy?
[Darren Schuringa] Sure,
[Kirk Kinder] Okay, And you mention returns to correlation? Do you have data as far as how it’s done in those areas relative to the S&P 500.
[Darren Schuringa] We sure do. So, I’m not I, I’d love to pull up in front of me right now.
[Kirk Kinder] Okay
[Darren Schuringa] I, I can’t do it, so let me just say, say where you can find it. It’s asymsolutions.com, which is the index website. And so let me touch on a. a couple of factors that are really important when I look at risk in portfolios number one Asymmetric. The way we measure risk is absolute on an absolute level, so we look at drawdowns And and when I say, if you look at any manager or any strategy and you want to understand the risk profile, don’t worry about standard deviation, it’s another measure of risk but look a drawdown number one. What’s your maximum drawdown? Ask a manager that when you’re considering a strategy, look at an ETF. So what’s the maximum drawn on the ETF You have a great idea of the type of risk that this, this financial product or solution is taken on by viewing risk on an absolute basis, looking at maximum drawdown. So historically the index that that again, ASPY tracks, the historical drawdown, maximum drawdown is ten percent. You compare that to again to the S&P 500. It lost fifty-five percent in 2008, uh, you know, with the great the Great, the Great Recession of ‘ So uh, very low, drawdown, and then the second part. Although the, the S&P 500 is the building block of the asymmetric version of the S&P 500,. We integrate asymmetric risk management technology into it, measuring the risk of the S&P 500 When we know at the risk of the S&P 500 looks like we. we change our portfolio exposures to manage and mitigate that risk within the portfolio. So, we take this S&P 500, integrate technology transformed to something completely new, and you look at the correlation. Although ASPY comes from the S&P 500. Historically its correlation is point three. So, you start to get those type of correlations I mean those are. Those are uncorrelated asset classes. That’s bond, like correlation to equities. And so, when you add that, that’s why you say this ASPY when you think of it and our suite of asymmetric ETFs. This is the first they. They’re powerful portfolio optimization tools. Uh, because of the low correlation because of the low drawdown because of the inverse correlation in in in bear markets, there’s just so many different benefits baked in. But all behind that simple premise, the overview I showed you two risk-based signals are designed to accurately identify market risk When we know what market risk is, then then we position the portfolio to profit from either a bull or a bear market.
[Kirk Kinder] okay, you know you brought up your website. I was going to talk about how you guys have a lot of information there for individual investors, including sort of where we’re at right now on your price volatility metric, So I mean, you guys are really offering a lot of information. Can you give that information at one more time as well as if there’s any, you know, Twitter feed or Facebook page or some other place that people could find you?
[Darren Schuringa] Super, Absolutely, so we’re big on transparency. If we’re going to be the anti-Wall Street firm we have to put our mouth, you know, Show what is that? What? The
[Kirk Kinder] put your money where the mouth is.
[Darren Schuringa] expression I, I can’t right I can’t hear what you say ’cause your actions speak too loud. right, So we have to show. We have to show different. We have to be different and part of being different is transparency. So if you look on asymshares.com, which is the ETF website, you go under the ASPY, our initial website at the at the end of every month, When we rebalance it, we let advisers and investors know exactly where we are. Here’s the current risk environment of the of the market. Here’s the way the portfolio’s position from an exposure standpoint, Here’s what our price momentum indicator shows here that our price volatility indicator shows so at a snapshot you know right away how the portfolio’s position that’s asymshares.com. We also publish a monthly report card.
[Kirk Kinder] Okay
[Darren Schuringa] Are we doing what we said we would do and we’re not always going to be right. Nothing’s perfect,
[Kirk Kinder] Sure.
[Darren Schuringa] but we’re accountable. We want you as an advisor to know, and is a retail investor to know what’s going on in your portfolio, so you feel comfortable about why the decisions were made. So again, A ton of transparency into what we’re doing. It’s all published on our website asymshares.com and then, and the other place is asymsolutions, which is our index website, which is where you’ll get the historical results of of the technology integrated into the S&P 500. So those are two great sites. Uh, LinkedIn. We’re publishing information there on a consistent basis. We have a Twitter, which is, asymmetricetf’s linked in Twitter. Um, uh, at asymetfs there so you can find its a lot of places. We just actually opened up a Youtube channel. We’re starting to produce educational and market videos as well. So again, it’s asymmetric ETF’s. And then our website. Everything will end up. you know, getting posted there at some point as well.
[Kirk Kinder] okay, Okay, and you eventually see, Maybe also adding other ETF’s that focus on other benchmarks outside just the S&P 500.
[Darren Schuringa] Absolutely! The technology is extremely scalable.
[Kirk Kinder] Okay,
[Darren Schuringa] We have forty different tickers reserved with the New York Stock Exchange right now To Yeah, open a suite of asymmetric ETFs
[Kirk Kinder] Wow, okay, wow.
[Darren Schuringa] We also have some really cool ideas on some income-producing ideas. Uh, on advisers are looking for income right now. How can we help advisers to get income in a fashion that’s safer. You know, That’s our objective safer than what they’re getting right now again By having this downside protection.
[Kirk Kinder] okay,
[Darren Schuringa] you clip the coupon when it’s good, But when it’s when things and risk starts to rise, get out of that position and uh, don’t lose your principle. I’ve experienced that too much income-producing assets classroom. It doesn’t matter how much income you make if you lose fifty percent of your mind.
[Kirk Kinder] yeah. Absolutely that Warren buffet, right rule number one, don’t lose money. Rule number two. Refer to rule number one. Yeah,
[Darren Schuringa] Well, number one, that’s our philosophy, Brother, at our core right, do not lose money. The path to wealth creation is capital preservation, and you’re not hearing people say that today it’s all about Alpha generation. Let’s compare ourselves to the market. How did you do relative to the market? Like, don’t worry about that. What investors care about is, Am I on target to have enough money to live off of when I enter retirement? And when I’m in retirement, do I have enough money that I’m not going to outlive my money or the purchasing power of my money? Who cares what the market does? You’re your own market. What matters most is where you are relative to where you need to be at a certain point in time.
[Kirk Kinder] yeah, absolutely absolutey. you’re preaching you’re preaching. Yeah, no. I. I agree. uh, well, well, Darren, so I’ll put in the show notes all the places that they can find, where you guys are at and I, I really appreciate your time. I think what you’re doing is much needed, for folks, especially concerning the market conditions right now. So really appreciate what you’re doing.
[Darren Schuringa] Or thank you for having me on. I, I hope there’s an opportunity in the future to come back on and get caught up again to see how things are going on.
[Kirk Kinder] Absolutely well. take care.
[Darren Schuringa] Thank you, you, too.