August 27, 2024 • 42 mins
One of the fastest-growing parts of the ETF market are for lower-risk products, including “buffer ETFs” that give a defined outcome, increasingly being favored by baby boomers. In this episode of Inside Active, Calamos Advisors’ Head of ETFs Matt Kaufman and Co-Head of Alternative Strategies David O’Donohue discuss how structured-protection ETFs work with host David Cohne, Bloomberg Intelligence’s mutual fund and active analyst, and co-host James Seyffart, BI ETF analyst. They also discussed how the ETF industry has changed and what the future of active ETFs could have in store.
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Speaker 1 (00:12):
Welcome to Inside Active, a podcast about active managers that
goes beyond sound bites and headlines and looks steeper into
their processes, challenges, and philosophies and security selection. I'm David Cohne,
i lead Mutual fund and Active Research at Bloomberg Intelligence. Today.
My cost is James Seyffert, ETF analyst at Bloomberg Intelligence. James,
thank you so much for joining me today.
Speaker 2 (00:33):
Yeah, thanks for having me, David, happy to be here.
Speaker 1 (00:36):
So in the ETF midyear Outlook, there was a section
on ETF issuers flocking to vaneguard free zones to snag
growth and revenue. One section is on buffer ETFs. Can
you explain what a buffer ETF is and why they're
called boomer candy?
Speaker 2 (00:52):
Yeah, I mean it's arguably one of, if not.
Speaker 3 (00:56):
The fastest growing areas of the ETF market in the US. Specifically, Really,
anything that was providing income and with some sort of
downside to volatility, decreasing volatility while capturing some sort of
upside is doing really well.
Speaker 2 (01:12):
And buffers are a subset of that.
Speaker 3 (01:14):
Right, So within buffers, you what they use is they
use derivatives to either completely diminish the downside over a
specified time period, so over a year. So if you're
investing the SMB of five hundred the queues you name it,
essentially it's going to give you some sort of protection
on the downside by selling derivatives or buying derivatives, and
they're gonna sell derivatives on the upside, basically going to
(01:37):
cap your exposure. So what they're doing is they're going
to protect you at some to some level and downside
in some cases to one hundred percent of your downside
over a given time period. But in order to do that,
you're going to have capped upside, so say nine percent
right now in the current interest rate and environment. Well
we can get into some of the more fine details there,
but essentially what it's due if you're in an investor,
(01:58):
you're protecting yourself a little bit and getting the upside.
Maybe not the full upside, but it still looks pretty
good and it's very defined. So this is very synonymous
with like covered call products, where people are selling options
on the overs on the upside in order to get
income from selling those derivatives, and basically you're going to
get decreased fall that income is going to protect you
(02:19):
a little on the downside, but you don't know exactly
how that's going to play out. With these buffer products,
it's a lot more defined. And boomers, we say boomer
candy because the people who are retired, that people are
entering retirement, really care about that income piece and that
downside protection and this is just like.
Speaker 2 (02:36):
It speaks to them very very well.
Speaker 3 (02:37):
And that's why things are selling very well, particularly for
people who maybe are scared to go in the market
fully don't want to take risk of full volatile of
volatility of the stock market.
Speaker 2 (02:47):
This kind of speaks to them well.
Speaker 1 (02:49):
Speaking of buffer ETFs, we have Matt Kaufman, head of
ETFs for Kalamos, and David o'donahue, co head of Alternative
Strategies and head portfolio manager for the al the most
structured protection ETFs with us. Matt Dave, thanks for coming
on the podcast.
Speaker 4 (03:05):
Thanks for having us.
Speaker 2 (03:06):
Good to be here.
Speaker 5 (03:06):
Thanks, good to be here.
Speaker 1 (03:07):
Well let's start with Matt. Can you tell us how
you got your start in ETFs and what it was
like in the beginning years of the ETF.
Speaker 4 (03:14):
Sure, yeah, happy to I started my ETF career at
power Shares in the early days. The interesting story there is.
Your power Shares got its exemptive relief from a we'll
say an unnamed Chicago based asset manager who had one
of the only exemptive reliefs in the country.
Speaker 2 (03:34):
At the time.
Speaker 4 (03:34):
There were only a few out there that the SEC
had granted. I think the statement that they had made
was they thought all the good indexes were taken. You know,
the S and P five hundred was taken, the NASDAQ
one hundred was was an ETF, and so the diamonds
was out there, and so they didn't think there was
much more room for growth in the ETF space. You know,
(03:55):
I say that kind of jokingly, but you know, the
same is true here today. There's still a lot of
innovation that can be had in the ETF world. But
you know, when I was at power Shares there we
launched well over one hundred ETFs building out the smart
beta et F space. Most of the products were all
market cap weighted back then, and so we were delivering
(04:16):
smart beta type ETFs, delivering thematic ETFs, you know, bringing
some of the first ETFs to market to bring access
to spaces that investors just couldn't get get a hold of.
But the ETF rapper really served to deliver that. So
that's that's really where I cut my teeth, and ETFs
learned a lot, you know about launching product, marketing products
(04:37):
and working with financial advisors. It was a phenomenal opportunity.
And then you know, power Shares sold to Investo, a
lot of the partners retired, and I went over to
an actual real consulting firm, which you know was you know,
not in ETFs whatsoever. But you know, we learned a
lot about risk management there, which we can touch on,
but you' I'll stop there and pass it back over
(04:57):
to you.
Speaker 1 (04:58):
Well that was great, now, David's your turn.
Speaker 5 (05:02):
Yeah. You know, I got started in the business and
interested investing in college. I was a finance major, and
like a lot of eighteen to twenty twenty two year olds,
I had no idea what that actually meant and what
to do with it. But I was lucky enough to
get a job offer from a hedge fund that specialized
in convert arb, which I think I had you know,
(05:22):
one page and one book and one class about up
until that point. But you know, it's interesting. It was
you know, good hedge fund, good comp you know, it
was actually local to where I grew up, so it
was a great opportunity, so I jumped at it. And
interesting side note to that, when I started, I accepted
the offer and was still in college. They sent me
(05:43):
two books to read to get up to speed, and
one was McMillan's book and Options, which I think is still,
you know, one of the go to option books. And
the other was John Callamos's book on Convertibles, And so
it was interesting. You know, it was exciting to join
up with Calum most years later because you know, he
legitimately wrote the book on convertible. But you know, convertibles
is kind of a blend of bonds and options, and
(06:05):
so everything that goes into valuing a bond, you know,
interest rates, coupons, credit spreads, and everything that goes into
valuing an option, you know, strike price, stock price, applied volatility,
interest rates again, you know, all of that comes together
and there's just so many moving parts, and when you
add in hedging and shortening stock and CDs and bond hedges,
(06:26):
there's just it's a big puzzle, you know, and trying
to solve for the inefficiencies. And then you know, when
you add in the cell side interaction and you know,
I spotted this opportunity. Can I find somebody that actually
has these bonds and while they sell them to me,
and can I negotiate a better price. All of that
was really right down the middle and kind of hooked
from hooked early on. And you know, I've it's been
(06:49):
the same ever since I've been I'm in my twenty
fourth year now running convert and option related strategies and
so you know, these buffer structured ETFs is kind of
just another step that process of making something in the
market I can use to move around to payoff and
create a structure that makes sense for people.
Speaker 4 (07:08):
Cool.
Speaker 1 (07:09):
Well, you know James had mentioned, you know how buffer
ETF's work in general, but Matt, you actually built the
intellectual property for defined outcome ETFs. Can you kind of
tell us how those work?
Speaker 4 (07:20):
Yeah, I had had an opportunity to have a role
in that. So, you know, as I went over to
Millman was the name of the firm, and they were
a large actuarial consulting firm. As I went over there,
it was around twenty ten, I believe, you know, interest
rates were remarkably low, and so what we were doing
was a lot of risk management strategies. We were building
(07:42):
funds that were based off of the hedging strategies that
we were running on the balance sheets of life insurance companies,
and so we saw those risk management strategies work remarkably well.
The interest rate environment that we were in, though, you know,
really forced the insurance companies to move into this risk
sharing model. You know, the cap rates that they could
(08:04):
deliver on a fixed indexed annuity which gives you one
hundred percent protection, were remarkably low. You know, that product
set kind of went into the grave for a while.
People weren't really buying fixed index annuities. The same was
happening on the variable annuity. The guarantees that insurance companies
could provide were very low because the interest rate environment
(08:25):
was low, and we saw the same instructure products with
the banks. You know, the cap rates were low on
the principle protected strategies, and so what happened and it
caused this move into what we would call partial principle
protected world in that low rate environment where instead of
one hundred percent protection, you know, an insurance company could
afford to give you something less. We could give you
(08:46):
a ten percent protection level or twenty percent protection level,
or you could call it a buffer, you know, ten
percent buffer on the S and P five hundred. Well,
then you could give somebody a meaningful upside cap rate.
And so we saw that moving through the insurance space
and through the banking space and really looked back. This
is around twenty fifteen, twenty sixteen, and we just were
(09:09):
talking one day and said, you know, you can build
that model very efficiently using options. We do not need
a balance sheet from a bank or an insurance company
to deliver a buffer on the S and P five hundred,
and so we built some intellectual property that held a
series of options positions that all expired on the same
day and could deliver the upside to a cap relative
(09:34):
to the S and P five hundred and a buffer
level of what we determined. And you put all those
in options positions, and then we developed that through a
series of indexes, and then we built those within unit
investment trusts. We built those types of strategies in annuity
products through variable sub accounts, and then helped build the
(09:54):
first defined outcome ETFs in the market as well. Those
were launched in two thousand eighteen and really set the
stage for the buffered ETF space. Remember we filed for
those products in twenty seventeen. You know, normally it's a
seventy five day SEC approval, you know period, and the
(10:14):
SEC will take you know, roughly thirty forty five days
to get back to you. They they called about two
hours into the filing and said, what is this. We said, oh,
we're replicating a structured outcome inside of an ETF And
they said, okay, that's what we thought you were doing.
We're gonna have to talk about this one, you know,
And it took several months back and forth to get
everybody comfortable with, you know, what was actually being delivered.
(10:37):
But you know, fast forward, you know, seven eight years
here and it's more than a fifty billion dollars space.
Interest rates are obviously much higher, and so I came
over to Calamos last year to build out the active
ETF business. You know, there were some SEC rule changes
that active ETF space is growing tremendously and so as
(10:57):
I came over, you know, we're watching that rate environment.
Interest rates are off of zero. You know, we're watching
people buy fixed index annuities again. People are trying to
you know, go after that five percent yield now that
rates are higher and their CDs and money market funds,
and so the space that we wanted to capture at Kalamos.
We didn't want to be the tenth buffer ETF provider,
(11:19):
but the capital protected ETF space, the one protection space,
was ripe for the taking. And so that's what where
we're operating in today. You know, I sat down with
Dave o'donna. He was one of the first people I
met at Calamos. I think I set up a two
hour meeting with Dave to talk through these you know,
quote buffer ETFs. He kind of super nice guy. He
(11:41):
kind of put up his hand five minutes in He's like,
I get it. He's like, we've been watching these. We
really like what what you've done. Let's roll. And so,
you know, it was a great match, you know, to
come to Calamos, you know, who's been doing risk management
for nearly fifty years. You think about John Calamos building
and writing the book on convertibles, building one of the
(12:02):
first convertible funds in the market, right around the same
time that options actually opened on the CBO, you know,
Chicago Board Options Exchange. And so you fast forward forty
five years to today and we're still delivering risk management.
We're still using options. The tools have evolved remarkably. The
flex options which we can get into you didn't exist
(12:23):
till nineteen ninety three. But all that said is, you know,
Calamos was really well positioned to continue this trajectory of
risk management for investors.
Speaker 1 (12:32):
So I guess this one's for Dave. How does the
structured protection strategy work in an ETF such as CPSM
or the Calamos S and P five hundred Structured at
protection ETF?
Speaker 5 (12:46):
Yeah, it's you know, at its core, it's it's simply
a product that uses a package package of options to
create a payoff with no downside and some amount of upside.
You know, people people talk a lot about rising rates
and higher rates and the impact that has on fixed
income and treasury yields, but they'd don't always think about
(13:07):
the impact that has on option pricing. You know, as
I mentioned earlier, interest rates are one of the factors
that goes in to valuing options. And you know, twenty
five basis point move here or there doesn't matter that much,
but when you go from zero to five like we
did recently, it does matter a lot. And so you know,
(13:28):
as Matt said, it's kind of an extension of some
of the other option related strategies and hedge equity strategies
that you know we run and other people run. You know,
if we have one of our flagship funds that I
work on as our market neutral income fund, which is
really a fixed income alternative, but it has a hedged
equity sleeve. And so you think about the impact on
(13:50):
rates have on option prices. When rates are higher, call
prices are higher and put prices are lower. And so
you know, setting up a hedge hedging out exposure. You
can buy a put and sell a call, and that
hatches out your exposure. When you have zero interest rates,
that put costs you more than you get for selling
a call. Specifically, you mentioned you know CPSM and one
(14:14):
year SMP options. You know, you had to pay more
for an at the money put than you'd get for
that call. So you were paying to hedge. You know,
fast forward to five percent risk free or five and
a quarter risk free. Now you're getting paid to hatch.
That put costs you less than you're taking in for
the call. You can actually almost buy two puts for
every call you sell, and so for our market neutral fund,
(14:37):
which is more of the fixed income alternative. We're buying
that put, selling that call, taking the extra money as income,
and that kind of creates that steady, stable return that
you expect out of bonds. If you move a step
further to hedge equity, instead of taking that extra money,
you can use that ratio to create a positive a symmetry.
(15:00):
You know right now you can actually if you buy,
you can buy point sixty five puts for every point
three to five calls you sell. And if you own
the underlying and do that, you set up a structure
where you get sixty five percent of the upside and
only thirty five percent of the downside. And you know
that's attractive for people who want to have equity exposure,
(15:21):
not capped upside, and are willing to take some risk.
But then we took it another step further, and this
is where you know Matt came in. You know, this
is something we've been looking at already, is well, what
if you want no downside? You know what can I
do then? And so instead of having that thirty five
percent downside, we took that to zero. You buy full
put protection. You know what can I get you know
(15:44):
I can. I don't have to sell you know, one
call to pay for it. Or what what we do
when a lot of people do is instead of selling
a lower amount of at the money calls, we move
that call strike up and it becomes you know, how
high a call strike can I sell to pay for
the cost of that put. And that's really how these work.
You're taking advantage of that dynamic of option pricing where
(16:07):
the you know, the put costs less than the call
and using that to create that package where you have
full put protection. You know, we own full at the
money put protection. That's how you can protect people and
give them one hundred percent downside protection and we don't
have to sell and at the money call to pay
for that. And you know we can sell a higher
you know, farther out of the money call and give
(16:29):
people some amount of upside. And you know that's really resonated.
You know, each of those each of those structures is
leaning in. Each of those funds is leaning on that
same option dynamic, but it's doing it with a different
end use for a different investor base. And I think
you know, this has has been a natural fit, as
James mentioned, for a lot of people you know. You know,
(16:50):
my dad included who you know, wanted exposure to the markets,
loved being in the markets, but just was so scared
of a down forty percent, you know, and he couldn't
take that. And so you know, it fits for a
lot of people, this new structure.
Speaker 3 (17:05):
Sticking along the lines of what you were just talking about,
can you get into a little bit more about the
of the specifics of like how that cap is determined.
You talk about you have to sell the put get
the one hundred percent, but like what factors go into
determining what that cap is going to be?
Speaker 5 (17:18):
Yeah, I mean, simplistically, as I mentioned, it's just what call,
what how far up that strike is that we need
that we can sell to fully fund the puts. Basically
there's a little bit of extra things in there. You know,
that zero strike doesn't trade exactly at intrinsic you know,
and all of that. But but basically we want to
make that that package cost zero so at the end
(17:39):
of that one year outcome period, if the market is
flattered down, you still have your your same investment.
Speaker 4 (17:46):
I would say. One of the ways that we explain
this to our advisors who they use this analogy when
they're talking to their clients. Just to make it really
simple for them is just to pretend like I give
you one hundred dollars and then we can recreate that exposure. So,
you know, if we one hundred dollars, we're going to
take about ninety eight of those dollars to buy our
participation layer, which will give you the upside and downside
(18:08):
exposure of the S and P five hundred and you know,
the technically it's a deepen the money or a near
zero strike call. Like Dave said, the next layer, we're
going to spend four dollars on an at the money
put and so that's going to be paying off all
along the way, you know, as the market goes down.
And so if you've been following along, we've spent ninety
eight on your participation leg, four dollars on your put leg,
(18:32):
so we've overspent. We've spent one oh two. And that's
where the you know, no free lunch comes into play.
So to bring that back to one hundred dollars, we're
going to sell off enough upside to collect two dollars
worth of premium and whatever the out of the money
strike prices of that call that we have to sell
is to collect two dollars, determines your upside cap and
(18:53):
so that's where the cap comes from. So right now,
that caps you know, around eight to nine percent, depending
on the underlying re and saaset.
Speaker 5 (19:00):
That you use.
Speaker 3 (19:01):
So if we're at that eight to nine percent right now, like,
how will I mean everyone's expecting rates to fall? First
cuts are likely coming in September. How much of an
impact will falling interest rates have on like how high
that cap is going to be or how low that
cap is going to be?
Speaker 4 (19:17):
For Yeah, Dave can check my math here, but you know,
roughly you can expect that we'll deliver about twice the
one year risk free rate. And so if rates settle
let's say long term average one year risk free rate
around three percent, you'll see a cap rate on the
SMP of around six percent, maybe a little higher for Nasdaq.
Speaker 2 (19:35):
And then the.
Speaker 4 (19:35):
Russell has a little more volatility, but still a good
a good dev yield, and so the Russell cap will
be a little bit higher still, but comparing to like
your alternative, let's compare to your CD or a bond.
You know, if you bought a CD at the one
year risk free rate of three percent. You're going to
collect that guaranteed three percent, but then you're going to
pay tax, you know, ordinary income tax on that three percent,
(19:59):
so you're three will turn and into about two percent,
depending on your tax bracket. So the opportunity would be
to turn in that guaranteed two percent and own the upside.
Tie your cash to the upside of an equity market.
In this case, you get up to six percent in
our example, but then that money grows and stays in
the ETF. It can grow tax deferred, and then you
(20:20):
pay long term capital gains rates at the end. So
no matter how low rates go, you're still going to
have something meaningful over the risk free rate. So if
it's a bond alternative, you're going to be your opportunity
is going to be a lot more significant than just
owning that bond out right. And then if rates are
you know that three to five percent range, which is
where we're at today I think four fifties last time
(20:42):
I checked, then you're going to have upside near the
average historical return of the S and P five hundred.
So it is a very good trade off there as well.
But they feel free to correct anything I think we
got it there.
Speaker 5 (20:55):
Yeah, No, I mean I think as you mentioned, I
mean we you know, for our market neutral income fund,
we raise a ton of money when rates were zero
because people we were able to kind of consistently give
a four to six percent return and you know, you forget,
but that was really in the sweet spot for a
lot of people. So I think it'll be interesting to see,
you know, these products didn't exist really then, and so
if we get not that anybody's expecting to get back
(21:16):
down to you know, rates of zero. But you know,
if we if we really have a pullback on rates,
you're going to see those caps come down, as Matt mentioned,
But I still think it is an interesting alternative for
a lot of people. So we'll see, we'll see how
they react to that. And as Matt said, it probably
transitions a little bit from more of an equity alternative
to a little bit of a fixed income alternative. But
(21:37):
potentially when you see that come down, But but it'll
be interesting to see how that that dynamic shifts.
Speaker 2 (21:43):
And and what what.
Speaker 3 (21:44):
So we just talked about rates, like is there anything
else that's as impactful as rates and figuring out is.
Speaker 5 (21:49):
Implied volatility matters, and and really more specifically, skew matters,
you know, because what the volatility of that call you're
selling relative to the volatility that puts you're buying matters,
and so that will change it in generally flat skew
is a little bit better and lower ball is a
little better so for creating that cap, so that that
(22:11):
will matter a little bit, but rates is kind of
the bigger driver of it.
Speaker 3 (22:16):
Great, And then how much of this is like you
just talked like you're basically going to spend those two
dollars no matter what you have to do to offset that,
But like how much of that is automated? Like are
you putting it out for people to bid on it?
Like what is the actual process? How much of it
is like passive in a way, and how much of
it is like actually somebody out there actively trying to
get the best deal you can to get the highest cap.
Speaker 4 (22:38):
Yeah. I think in terms of the active ETF space,
we see a lot of buffer and capital protected ETFs
filed is active, and so I think the important point
to note here is that if ETF filed is active,
simply means that it does not track an index, and
so a lot of these ETFs are filed as active ETFs,
(23:02):
but they don't track an index per se. They actually
they track an underlying reference asset, and so there's a
legal framework there as far as understanding goes. But you know,
there's a lot of active ETFs that trade every single day.
They're always moving around discretionarily. But for these types of ETFs,
the goal is to deliver the upside to a cap
(23:22):
with a built in protection level over that one year
outcome period. And so the trading happens really once a
year where we enter into these options positions, those positions
are set and then they trade that package all throughout
the whole next year. And so as people get in
and out of those products, they can go to our
website and you can see exactly what your outcome would
(23:45):
be if you were to buy today. And so we're
seeing a lot of active traders use these products. It's
in a tactical or an active way to get in
and out and finding opportunities there. But as far as
the active management goes, you know, there's certainly a process
on day one to bid out that that options package
get the best cap rate possible. But then once that
(24:07):
trade is set, it really is set for the life
of the product.
Speaker 5 (24:10):
Yeah, there's a little bit of cash management and managing
that cash drag versus you know, paying fees and a
few things we kind of have to do along the
way potentially, But the create redeemed process actually runs pretty smooth.
Speaker 1 (24:23):
You know.
Speaker 5 (24:23):
You think about the market makers out there making markets
in it. Eventually he gets short enough that he goes
to the AP authorized participant to create more. They come
to us. It's cash creates. They give us cash, we
farm out. That trade goes out to I think five
different counterparties who bid on it, you know, best price
(24:43):
gets it. The cool thing is that that trade prints
at the close of the market and so those prices
are used to set the NAV for that day, which
is where how you know, what determines how much money
comes in for that create. So it all works pretty
pretty small than seamless, you know. So better prices or
package on that option package isn't going to change your
(25:06):
cap over the course. It's just going to change your
NAV and your price. So the investor doesn't really have
to worry about any of that. All they have to
worry about is what price am I buying it at?
And you know, if you're buying it a little bit
above the starting price or below the starting price, that's
going to change your cap and your downside protection levels.
But you can make that determination for yourself, and as
(25:27):
Matt said, you can go to our website and see
exactly what you know. Here's the price and here's what
the indexes and what does that mean for me today?
Speaker 3 (25:34):
Yeah, So, Matt, so we talked at the beginning like this,
we refer to these types of strategies as boomer candy.
People that are retired or near retirement tend to love these.
But Matt also spoke about like people using these tactically
in some ways. I guess who are the end clients? Like,
what can you talk about like the buckets of your
what you're seeing and how these things are being used
from your point of view.
Speaker 4 (25:54):
Yeah, I think Eric made a great comment about boomer candy.
I thought that was, you know, aptly put. We're seeing
people use this for I would call safe money, you know,
whether that's shorter term money that people might have a
need for and you know, one two years out, but
being able to tie their cash to the equity markets
(26:15):
and get that upside potential with no downside risk over
the outcome period, you know, opens up a lot of
doors for folks. So people who might be looking at
CDs or capital protected structured notes, fixed index ainuities are
looking at these products as tax advantaged alternatives. And then
we're also seeing people de risk their equity exposure today
(26:39):
using these types of products. So if you were to
move into one hundred percent protection ETF, you know, you
would obtain that one hundred percent protection, But if you
just moved a portion of your equities in, you can
see how as an advisor, you can work with your
client to determine exactly how much risk do you want
to take over the next you know, six months, twelve months,
whatever that is, and you can dial that in exactly.
(27:02):
So let's say you want to take half your equity
risk off the table. Well, now i can move half
my equities into a structured protection ETF, and now I've
got fifty percent downside protection because I've moved half my
equities in, but that zero to call it nine ten
percent upside, you're still going to capture one hundred percent
(27:24):
of that move because you've got that upside to a
cap and then above the cap instead of being capped out,
you're going to capture fifty percent of every move above
the cap. So we're seeing advisors use this as an
equity risk management tool, portfolio risk management tool. And then
to speak, you know, directly to the Boomer Candy comment,
retirees are using these in a big way. You know,
(27:47):
there's institutions that have similar spending mandates, like pension plans,
and so the way that retirees are using these, you know,
they have to solve for a number of risks that
they see in retirement, and a lot of them are
largely financial. There's longevity risk, you know, being able to
outpace you know, or outlive there spending. There's inflation risk,
(28:10):
the ability to actually out earn the inflation rate is
a huge risk for retirees. You know, like folks like
us are working. We can still get pay adjustments and
you know, can help pay for ourselves. But if once
you're retired, you're locked in. You might get a Social
Security adjustment, but you've got to be in the equity
markets if you want to outpace inflation. And so this
gives retirees an opportunity to outpace inflation over time, but
(28:34):
do so with very little risk. The volatility on these
strategies is in the low single digits. It's like two
to three percent. And then the volatility piece is big
for retirees. You know, if you're younger, you can afford
to wait out the storms, ride out all of the
volatility in the markets. But as you age, you know,
you shorten your time horizon. You've got to have more
(28:56):
safety to your money. And so this really allows or
tirees to solve for all three of those risks in retirement.
Speaker 2 (29:05):
And then along what we're talking about here.
Speaker 3 (29:08):
So if you're taking David, you kind of hinted at this,
you said some if rates go I think you said,
if rates go down, this might become more of a
bond alternative. But if we're looking at like a sixty
forty portfolio, you gave a great example of like somebody
who wants to de risk their equity side. But like,
are people actually taking this from like like I said,
in standard sixty forty? Are they taking it from the equity?
Are they taking it from the fixed income. When I
first started hearing about these like five ish years ago,
(29:30):
I heard some people saying, like, well, bonds are yielding
zero percent, So I'm basically doing this as a bond alternative.
Speaker 2 (29:36):
How are you seeing advisors do this?
Speaker 3 (29:38):
Are they putting it in a portfolio as again like
you talked about to decrease the risk and equities? Are
they doing it to juice up their fixed income? Are
you seeing both like? And then how do you see
that changing if rates do go down as you were
talking about before, David.
Speaker 5 (29:52):
Yeah, I mean I think a lot of people you
know right now it's Matt probably is a better idea
of the end client, but it's it's at you know,
alternative to CDs and you know, treasuries and whatever for
the for the you know, the lower risk clients. I
think at the advisor level, it's more coming out of
(30:13):
equity right now. It's as Matt said, people you're using
it to dial up and down risk. We had a
big call with a client who ended up being a
bigger investor in one of the series and they wanted
to make a tactical bet on that underlying index, and
but they were concerned about, you know, a bigger move
to the downside, right, you know, having that negative skew,
(30:36):
like if we think it's going to go up, but
if it doesn't go up, and this really is a
change of timing. We're worried about it being a bigger
move down, and so they used it to tactically make
that bet. And so I think for advisors you're going
to have more tactical equity uses, and then for the
retail clients you're going to have more. I just want safety,
and you know, I don't want four per As Matt said,
(30:57):
if you do the math on treasuries after paying ordinary
income on it, you know, and you compare that to
the potential outcome here and the tax advantages of an ETF,
that's more of the trade offs I think people are
looking at on the retail side.
Speaker 4 (31:11):
Yeah. I think when interest rates we're low, you know,
people struggled to use fixed income for risk management and
for income purposes. The light bulb moment for a lot
of advisors is when they realize that you can use
equity growth for providing income. You know, you don't have
to just look at what's the yield number that I'm
(31:32):
earning on this as far as income. But if you
can use protected equities or the structured protection equity, something
with a built in protection mechanism, well, now you can
use the equity markets for risk management, because now you've
got products that can deliver the risk management you're looking for.
And if you can ride that equity growth up to
(31:53):
nine ten percent cap and then pay yourself from that growth,
you know you're you're going to be able to do
over time a lot better than just a yield from
you know, a bond that you might get. So when
we talk to advisors, you know, it's not necessarily an
either or you know, do I take this from equity?
Do I take it from fixed income? But the light
(32:13):
bulb moment really goes off for advisors when they realize
they can now use, you know, more of their equity
sleeve to help generate income. And it's a much more
tax efficient way to do it than just to take
a take a yield coupon that's being kicked off to
you and then paying ordinary income rates on it. Here,
if you hold it for a year, then you start
paying yourself from that growth. You're generally going to earn
(32:35):
more and you're going to be paying long term capital
gains rates, which is which is more more times than
not better.
Speaker 3 (32:42):
Yeah. So I mean, right now, from my point of view,
for anyone listening, they're probably like all right, this sounds
too good to be true, and I think there are
a few things that we should talk about like the
pros and cons here.
Speaker 2 (32:51):
Like so, like what is the catch? Here?
Speaker 3 (32:53):
Is the catch that you're just capped and over the
long term you're definitely going to underperform. Like what other
catches are there that you would basically warn people about
when they're trying to use these products so they know
what they're getting themselves into.
Speaker 4 (33:05):
Yeah, So personally, I view this more as opportunity costs
than risk. You know, these products have been in the
market for quite some time. They've withstood several tests. You know,
we had one at the beginning of August again, market
was down, you know, six percent, the structured protection ETFs,
you know, the August series was down I think eighty
basis points. So that the protection is holding up even
(33:28):
intra period. It's not just over the outcome period. But
with that at the money put you're getting protection all
along the way. So we're seeing these products work extremely well.
I think when you you know, when you're building risk
managed products, if you if you're building technology products, you
can build the beta version. You know, you can put
out AI and try to generate the image of somebody's
(33:51):
face and the eye you know, I looks crooked and
the noses off. But it's like, Okay, I'm going to
build the next version. But like, you can't do that
with financial services products, like you have to innovate and
you have to innovate with security. And we spent a
lot of time making sure that these were built the
right way, in a way that works, in a way
that you know, retirees and pension plans and folks can
(34:12):
trust that they will work going forward. One of the
main things that help these work efficiently is the use
of the flex options. So you know, we use flex
options on some of the most liquid markets in the world,
the S and P five hundred, the Nasdaq one hundred.
We don't build these on you know, ill liquid reference
assets that you know might price well or give you
(34:33):
a good cap, but may not actually trade well in
real time, And so we build these on very liquid markets.
But we use the flex space because it allows us
to customize those options. We can choose the exact strike
prices that we need, the expiration, the style which we
didn't get into here, but we want them to be
European style, not American style, so they all expire on
(34:55):
the same day and don't get called away along the way.
So all that work has gone into this, you know,
call it eight years ago or so, and people are
benefiting from that today. So the opportunity costs in would
be that you're capped out on the upside, like there
is no free lunch. We're selling that out of the
money call in order to fund the protection level. So
(35:16):
those are the trade offs that you can think about.
But you know, as far as like, as far as
actual risks, the counterparty for these options is the Options
Clearing Corporation. It's a too big to fail organization of
financial market utility as it designated by the Dodd Frank Act,
and so the occ would need to fail for there
to be some sort of liquidity, you know, crisis in
(35:38):
these types of products. But Dave, I don't know if
you have anything else to add there.
Speaker 2 (35:41):
No.
Speaker 5 (35:41):
I think it was interesting when we first announced this, James,
and you know, there was a couple of stories about it.
It was amazing that the the comments where you know,
first was this is too good to be true. There's
you know, it's got to be something hidden in there
that these guys are stealing from you, whatever it is,
and then there's the equal there's not equal, there's less
of them. But there was a people out there saying, no,
(36:02):
this is just a simple option trade. You know, you
could do this, and you know, and so having both
of those spectrums that this is pretty simple and also
too good to be true, I thought was pretty pretty
interesting and probably a pretty good sign we were on
the right track. But really it's it's closer to the
other side. I mean, there's nothing that incredibly complex about
these structures. It's just something that's really hard to do
(36:24):
for retail or even an advisor. You know, you need
an institutional options presence. You need the ability to do
the flex contracts, you need the ability to put it
in that ETF wrapper to get all of the benefits,
tax benefits and other benefits of that. And so having
the capabilities, the institutional capabilities to put all of those
together and trade it, and the relationships to be able
(36:45):
to farm it out and get good pricing on that
and all of that. You know, that's something that you know,
just retail and even advisors can't just can't do on
their own. But you know, it's something that we you know,
somebody with eight institutional option capabilities can do and so
you know, there's no there's no you know, inherent risks
and leverage and you know, anything that's really going to
(37:05):
create any issues. It's it's a pretty simplistic option structure.
It's just having the ability to create that and get
pricing on that that works and all and and be
able to put it in that et F rapp or
that's really you know the thing that that that we
can provide that that you know people can't provide for themselves.
Speaker 2 (37:23):
Yeah, I think if the OCC fails, the least.
Speaker 3 (37:26):
Of your concerns is going to be what happened to
the structured product structured product.
Speaker 2 (37:31):
ETF I invested in.
Speaker 3 (37:32):
So, I mean, this is just a trend that we've
seen that a lot of a lot of ETFs and
what a lot of the growth we're seeing is it's
packaged trades. And as far as I'm concerned, this is
just etfizing structured products. And that's that's the overarching trends
we're seeing with these buffer products. And the one thing
I wanted to go back to is something that Matt
said talking about the outcome period these things like they
give you a hundred percent protection over the outcome here,
(37:52):
and he talked about the fact that it was slightly
down in August, and that's because that's not over the
full outcome period. So I think that's the that might
be another catch that people need to make sure they
understand before they go into this.
Speaker 5 (38:02):
Yeah, for sure they are going to move they will
move down a little bit early. Like you said, if
you wait, If you wait, you can kind of you
will get that back, but there is a little bit
of mark to market risk. I think the interesting thing
versus structured products, though, as you mentioned, is that if
you ideally you wait for the entire outcome period, right,
that's where you're going to get that full protection. That's
(38:22):
where you're going to get that full cap. But you
also don't have to you know, these are really liquid
and pretty tight bit das spreads, and you know, yeah,
it was down a little bit with the market down,
but you know you could get out at that point,
versus structured products, which are you know, a lot tougher
to get out and a lot less liquidity along the way.
And so I think that is you know, it's having
(38:44):
a little bit of that mark to market movement is
a little bit of a downside, but when you compare
it to kind of some of the other structured products,
it's the liquidity that you can get if you do
want to monetize it is still it's still more of
a pro in my mind.
Speaker 3 (38:58):
I mean, it's also way more opaque, often much higher fees.
Speaker 2 (39:02):
So I mean, I would say this, in my view,
this is better.
Speaker 3 (39:05):
It's just you can't customize it quite as much as
you could with a structure product. That's the only the
main difference in my mind. I've asked a lot of questions,
so I'll pass it over to David the mainos to
come back and ask them more important questions.
Speaker 1 (39:18):
Well, actually, you know, we're kind of hitting our time limit,
but I do have one question for the both of you.
First we'll start with Dave. Any prediction for the future
of back to ETFs.
Speaker 5 (39:30):
Yeah, I mean, I think you know, once you get
more people comfortable with the structures, you know you're going
to continue to see it grow. And I said, there's
still you know, the flexibility and you know the benefits
of that ETF structure, whether it's tax or just liquidity
or all the things. We kind of touched on today.
You know, it's still simpler for a lot of people
(39:50):
to get exposure through an ETF than it is to
you know, to buy the underlying assets, whatever they may be,
or the o underlying structures, so you know, they're they're liquid,
they're low cost, they you know, have tax advantages. So
I think you're going to continue to see the space grow.
Speaker 1 (40:05):
How about you, Matt any predictions.
Speaker 4 (40:08):
I think the future is bright, and I think the
potential is massive. You know, we talked at the beginning
of this episode about where the ETF space was in
the early two thousands. You know, it was in the
maybe a couple hundred billion in assets, and you look
at today, we're in about thirteen trillion in global assets.
(40:28):
It's a massive number. If you look at a mature
space like the mutual fund space, you know, there's about
thirteen trillion and passive assets and a similar number in
active assets. And then if you take that stacked bar
chart over to the ETF world, you see about let's
call it twelve and a half trillion in passive assets,
(40:50):
and then that active slice of that top bar is
six seven hundred billion. It's extremely small, and so I
think over the next you know, ten years, we're going
to see that five hundred billion dollar piece of that
bar grow to in my mind, probably close to ten
trillion dollars. I think it's a massive opportunity as people
(41:10):
see the tax benefits and all of the efficiencies of
the ETF wrapper. You know, one thing to note is,
you know, we didn't see a ton of outflow from
the mutual funds. I mean they're saying some, but you know,
not a ton. That's still twenty six trillion dollar space,
and so I think that the the ETF space is
only going to continue to grow. And then it's in
terms of the structured you know note space and the
(41:33):
structured ETF space. If you look around the world, a
lot of families invest via structured products, and they do
it through the bank channels because that's how families invest
their money, and so they get put into structured products
and they're good products. But in the US, families use
financial advisors, and so we are building tools and efficient
(41:54):
tools that advisors are very used to using, and now
putting the structured outcome and those payoff profiles inside of
the ETF wrapper, which gives advisors access to these types
of products. And so I think again, we're in the
very early days of advisors using structured outcomes for families
(42:15):
in the United States. So it's a massive space globally,
and I think we're just getting started in the US.
Speaker 1 (42:21):
Well, it should be exciting to watch. Matt and Dave
thank you for joining me today, and James, thank you
for being my cost until our next episode. This is
David Cohne with Inside Active
Welcome to Inside Active, a podcast about active managers that
goes beyond sound bites and headlines and looks steeper into
their processes, challenges, and philosophies and security selection. I'm David Cohne,
i lead Mutual fund and Active Research at Bloomberg Intelligence. Today.
My cost is James Seyffert, ETF analyst at Bloomberg Intelligence. James,
thank you so much for joining me today.
Speaker 2 (00:33):
Yeah, thanks for having me, David, happy to be here.
Speaker 1 (00:36):
So in the ETF midyear Outlook, there was a section
on ETF issuers flocking to vaneguard free zones to snag
growth and revenue. One section is on buffer ETFs. Can
you explain what a buffer ETF is and why they're
called boomer candy?
Speaker 2 (00:52):
Yeah, I mean it's arguably one of, if not.
Speaker 3 (00:56):
The fastest growing areas of the ETF market in the US. Specifically, Really,
anything that was providing income and with some sort of
downside to volatility, decreasing volatility while capturing some sort of
upside is doing really well.
Speaker 2 (01:12):
And buffers are a subset of that.
Speaker 3 (01:14):
Right, So within buffers, you what they use is they
use derivatives to either completely diminish the downside over a
specified time period, so over a year. So if you're
investing the SMB of five hundred the queues you name it,
essentially it's going to give you some sort of protection
on the downside by selling derivatives or buying derivatives, and
they're gonna sell derivatives on the upside, basically going to
(01:37):
cap your exposure. So what they're doing is they're going
to protect you at some to some level and downside
in some cases to one hundred percent of your downside
over a given time period. But in order to do that,
you're going to have capped upside, so say nine percent
right now in the current interest rate and environment. Well
we can get into some of the more fine details there,
but essentially what it's due if you're in an investor,
(01:58):
you're protecting yourself a little bit and getting the upside.
Maybe not the full upside, but it still looks pretty
good and it's very defined. So this is very synonymous
with like covered call products, where people are selling options
on the overs on the upside in order to get
income from selling those derivatives, and basically you're going to
get decreased fall that income is going to protect you
(02:19):
a little on the downside, but you don't know exactly
how that's going to play out. With these buffer products,
it's a lot more defined. And boomers, we say boomer
candy because the people who are retired, that people are
entering retirement, really care about that income piece and that
downside protection and this is just like.
Speaker 2 (02:36):
It speaks to them very very well.
Speaker 3 (02:37):
And that's why things are selling very well, particularly for
people who maybe are scared to go in the market
fully don't want to take risk of full volatile of
volatility of the stock market.
Speaker 2 (02:47):
This kind of speaks to them well.
Speaker 1 (02:49):
Speaking of buffer ETFs, we have Matt Kaufman, head of
ETFs for Kalamos, and David o'donahue, co head of Alternative
Strategies and head portfolio manager for the al the most
structured protection ETFs with us. Matt Dave, thanks for coming
on the podcast.
Speaker 4 (03:05):
Thanks for having us.
Speaker 2 (03:06):
Good to be here.
Speaker 5 (03:06):
Thanks, good to be here.
Speaker 1 (03:07):
Well let's start with Matt. Can you tell us how
you got your start in ETFs and what it was
like in the beginning years of the ETF.
Speaker 4 (03:14):
Sure, yeah, happy to I started my ETF career at
power Shares in the early days. The interesting story there is.
Your power Shares got its exemptive relief from a we'll
say an unnamed Chicago based asset manager who had one
of the only exemptive reliefs in the country.
Speaker 2 (03:34):
At the time.
Speaker 4 (03:34):
There were only a few out there that the SEC
had granted. I think the statement that they had made
was they thought all the good indexes were taken. You know,
the S and P five hundred was taken, the NASDAQ
one hundred was was an ETF, and so the diamonds
was out there, and so they didn't think there was
much more room for growth in the ETF space. You know,
(03:55):
I say that kind of jokingly, but you know, the
same is true here today. There's still a lot of
innovation that can be had in the ETF world. But
you know, when I was at power Shares there we
launched well over one hundred ETFs building out the smart
beta et F space. Most of the products were all
market cap weighted back then, and so we were delivering
(04:16):
smart beta type ETFs, delivering thematic ETFs, you know, bringing
some of the first ETFs to market to bring access
to spaces that investors just couldn't get get a hold of.
But the ETF rapper really served to deliver that. So
that's that's really where I cut my teeth, and ETFs
learned a lot, you know about launching product, marketing products
(04:37):
and working with financial advisors. It was a phenomenal opportunity.
And then you know, power Shares sold to Investo, a
lot of the partners retired, and I went over to
an actual real consulting firm, which you know was you know,
not in ETFs whatsoever. But you know, we learned a
lot about risk management there, which we can touch on,
but you' I'll stop there and pass it back over
(04:57):
to you.
Speaker 1 (04:58):
Well that was great, now, David's your turn.
Speaker 5 (05:02):
Yeah. You know, I got started in the business and
interested investing in college. I was a finance major, and
like a lot of eighteen to twenty twenty two year olds,
I had no idea what that actually meant and what
to do with it. But I was lucky enough to
get a job offer from a hedge fund that specialized
in convert arb, which I think I had you know,
(05:22):
one page and one book and one class about up
until that point. But you know, it's interesting. It was
you know, good hedge fund, good comp you know, it
was actually local to where I grew up, so it
was a great opportunity, so I jumped at it. And
interesting side note to that, when I started, I accepted
the offer and was still in college. They sent me
(05:43):
two books to read to get up to speed, and
one was McMillan's book and Options, which I think is still,
you know, one of the go to option books. And
the other was John Callamos's book on Convertibles, And so
it was interesting. You know, it was exciting to join
up with Calum most years later because you know, he
legitimately wrote the book on convertible. But you know, convertibles
is kind of a blend of bonds and options, and
(06:05):
so everything that goes into valuing a bond, you know,
interest rates, coupons, credit spreads, and everything that goes into
valuing an option, you know, strike price, stock price, applied volatility,
interest rates again, you know, all of that comes together
and there's just so many moving parts, and when you
add in hedging and shortening stock and CDs and bond hedges,
(06:26):
there's just it's a big puzzle, you know, and trying
to solve for the inefficiencies. And then you know, when
you add in the cell side interaction and you know,
I spotted this opportunity. Can I find somebody that actually
has these bonds and while they sell them to me,
and can I negotiate a better price. All of that
was really right down the middle and kind of hooked
from hooked early on. And you know, I've it's been
(06:49):
the same ever since I've been I'm in my twenty
fourth year now running convert and option related strategies and
so you know, these buffer structured ETFs is kind of
just another step that process of making something in the
market I can use to move around to payoff and
create a structure that makes sense for people.
Speaker 4 (07:08):
Cool.
Speaker 1 (07:09):
Well, you know James had mentioned, you know how buffer
ETF's work in general, but Matt, you actually built the
intellectual property for defined outcome ETFs. Can you kind of
tell us how those work?
Speaker 4 (07:20):
Yeah, I had had an opportunity to have a role
in that. So, you know, as I went over to
Millman was the name of the firm, and they were
a large actuarial consulting firm. As I went over there,
it was around twenty ten, I believe, you know, interest
rates were remarkably low, and so what we were doing
was a lot of risk management strategies. We were building
(07:42):
funds that were based off of the hedging strategies that
we were running on the balance sheets of life insurance companies,
and so we saw those risk management strategies work remarkably well.
The interest rate environment that we were in, though, you know,
really forced the insurance companies to move into this risk
sharing model. You know, the cap rates that they could
(08:04):
deliver on a fixed indexed annuity which gives you one
hundred percent protection, were remarkably low. You know, that product
set kind of went into the grave for a while.
People weren't really buying fixed index annuities. The same was
happening on the variable annuity. The guarantees that insurance companies
could provide were very low because the interest rate environment
(08:25):
was low, and we saw the same instructure products with
the banks. You know, the cap rates were low on
the principle protected strategies, and so what happened and it
caused this move into what we would call partial principle
protected world in that low rate environment where instead of
one hundred percent protection, you know, an insurance company could
afford to give you something less. We could give you
(08:46):
a ten percent protection level or twenty percent protection level,
or you could call it a buffer, you know, ten
percent buffer on the S and P five hundred. Well,
then you could give somebody a meaningful upside cap rate.
And so we saw that moving through the insurance space
and through the banking space and really looked back. This
is around twenty fifteen, twenty sixteen, and we just were
(09:09):
talking one day and said, you know, you can build
that model very efficiently using options. We do not need
a balance sheet from a bank or an insurance company
to deliver a buffer on the S and P five hundred,
and so we built some intellectual property that held a
series of options positions that all expired on the same
day and could deliver the upside to a cap relative
(09:34):
to the S and P five hundred and a buffer
level of what we determined. And you put all those
in options positions, and then we developed that through a
series of indexes, and then we built those within unit
investment trusts. We built those types of strategies in annuity
products through variable sub accounts, and then helped build the
(09:54):
first defined outcome ETFs in the market as well. Those
were launched in two thousand eighteen and really set the
stage for the buffered ETF space. Remember we filed for
those products in twenty seventeen. You know, normally it's a
seventy five day SEC approval, you know period, and the
(10:14):
SEC will take you know, roughly thirty forty five days
to get back to you. They they called about two
hours into the filing and said, what is this. We said, oh,
we're replicating a structured outcome inside of an ETF And
they said, okay, that's what we thought you were doing.
We're gonna have to talk about this one, you know,
And it took several months back and forth to get
everybody comfortable with, you know, what was actually being delivered.
(10:37):
But you know, fast forward, you know, seven eight years
here and it's more than a fifty billion dollars space.
Interest rates are obviously much higher, and so I came
over to Calamos last year to build out the active
ETF business. You know, there were some SEC rule changes
that active ETF space is growing tremendously and so as
(10:57):
I came over, you know, we're watching that rate environment.
Interest rates are off of zero. You know, we're watching
people buy fixed index annuities again. People are trying to
you know, go after that five percent yield now that
rates are higher and their CDs and money market funds,
and so the space that we wanted to capture at Kalamos.
We didn't want to be the tenth buffer ETF provider,
(11:19):
but the capital protected ETF space, the one protection space,
was ripe for the taking. And so that's what where
we're operating in today. You know, I sat down with
Dave o'donna. He was one of the first people I
met at Calamos. I think I set up a two
hour meeting with Dave to talk through these you know,
quote buffer ETFs. He kind of super nice guy. He
(11:41):
kind of put up his hand five minutes in He's like,
I get it. He's like, we've been watching these. We
really like what what you've done. Let's roll. And so,
you know, it was a great match, you know, to
come to Calamos, you know, who's been doing risk management
for nearly fifty years. You think about John Calamos building
and writing the book on convertibles, building one of the
(12:02):
first convertible funds in the market, right around the same
time that options actually opened on the CBO, you know,
Chicago Board Options Exchange. And so you fast forward forty
five years to today and we're still delivering risk management.
We're still using options. The tools have evolved remarkably. The
flex options which we can get into you didn't exist
(12:23):
till nineteen ninety three. But all that said is, you know,
Calamos was really well positioned to continue this trajectory of
risk management for investors.
Speaker 1 (12:32):
So I guess this one's for Dave. How does the
structured protection strategy work in an ETF such as CPSM
or the Calamos S and P five hundred Structured at
protection ETF?
Speaker 5 (12:46):
Yeah, it's you know, at its core, it's it's simply
a product that uses a package package of options to
create a payoff with no downside and some amount of upside.
You know, people people talk a lot about rising rates
and higher rates and the impact that has on fixed
income and treasury yields, but they'd don't always think about
(13:07):
the impact that has on option pricing. You know, as
I mentioned earlier, interest rates are one of the factors
that goes in to valuing options. And you know, twenty
five basis point move here or there doesn't matter that much,
but when you go from zero to five like we
did recently, it does matter a lot. And so you know,
(13:28):
as Matt said, it's kind of an extension of some
of the other option related strategies and hedge equity strategies
that you know we run and other people run. You know,
if we have one of our flagship funds that I
work on as our market neutral income fund, which is
really a fixed income alternative, but it has a hedged
equity sleeve. And so you think about the impact on
(13:50):
rates have on option prices. When rates are higher, call
prices are higher and put prices are lower. And so
you know, setting up a hedge hedging out exposure. You
can buy a put and sell a call, and that
hatches out your exposure. When you have zero interest rates,
that put costs you more than you get for selling
a call. Specifically, you mentioned you know CPSM and one
(14:14):
year SMP options. You know, you had to pay more
for an at the money put than you'd get for
that call. So you were paying to hedge. You know,
fast forward to five percent risk free or five and
a quarter risk free. Now you're getting paid to hatch.
That put costs you less than you're taking in for
the call. You can actually almost buy two puts for
every call you sell, and so for our market neutral fund,
(14:37):
which is more of the fixed income alternative. We're buying
that put, selling that call, taking the extra money as income,
and that kind of creates that steady, stable return that
you expect out of bonds. If you move a step
further to hedge equity, instead of taking that extra money,
you can use that ratio to create a positive a symmetry.
(15:00):
You know right now you can actually if you buy,
you can buy point sixty five puts for every point
three to five calls you sell. And if you own
the underlying and do that, you set up a structure
where you get sixty five percent of the upside and
only thirty five percent of the downside. And you know
that's attractive for people who want to have equity exposure,
(15:21):
not capped upside, and are willing to take some risk.
But then we took it another step further, and this
is where you know Matt came in. You know, this
is something we've been looking at already, is well, what
if you want no downside? You know what can I
do then? And so instead of having that thirty five
percent downside, we took that to zero. You buy full
put protection. You know what can I get you know
(15:44):
I can. I don't have to sell you know, one
call to pay for it. Or what what we do
when a lot of people do is instead of selling
a lower amount of at the money calls, we move
that call strike up and it becomes you know, how
high a call strike can I sell to pay for
the cost of that put. And that's really how these work.
You're taking advantage of that dynamic of option pricing where
(16:07):
the you know, the put costs less than the call
and using that to create that package where you have
full put protection. You know, we own full at the
money put protection. That's how you can protect people and
give them one hundred percent downside protection and we don't
have to sell and at the money call to pay
for that. And you know we can sell a higher
you know, farther out of the money call and give
(16:29):
people some amount of upside. And you know that's really resonated.
You know, each of those each of those structures is
leaning in. Each of those funds is leaning on that
same option dynamic, but it's doing it with a different
end use for a different investor base. And I think
you know, this has has been a natural fit, as
James mentioned, for a lot of people you know. You know,
(16:50):
my dad included who you know, wanted exposure to the markets,
loved being in the markets, but just was so scared
of a down forty percent, you know, and he couldn't
take that. And so you know, it fits for a
lot of people, this new structure.
Speaker 3 (17:05):
Sticking along the lines of what you were just talking about,
can you get into a little bit more about the
of the specifics of like how that cap is determined.
You talk about you have to sell the put get
the one hundred percent, but like what factors go into
determining what that cap is going to be?
Speaker 5 (17:18):
Yeah, I mean, simplistically, as I mentioned, it's just what call,
what how far up that strike is that we need
that we can sell to fully fund the puts. Basically
there's a little bit of extra things in there. You know,
that zero strike doesn't trade exactly at intrinsic you know,
and all of that. But but basically we want to
make that that package cost zero so at the end
(17:39):
of that one year outcome period, if the market is
flattered down, you still have your your same investment.
Speaker 4 (17:46):
I would say. One of the ways that we explain
this to our advisors who they use this analogy when
they're talking to their clients. Just to make it really
simple for them is just to pretend like I give
you one hundred dollars and then we can recreate that exposure. So,
you know, if we one hundred dollars, we're going to
take about ninety eight of those dollars to buy our
participation layer, which will give you the upside and downside
(18:08):
exposure of the S and P five hundred and you know,
the technically it's a deepen the money or a near
zero strike call. Like Dave said, the next layer, we're
going to spend four dollars on an at the money
put and so that's going to be paying off all
along the way, you know, as the market goes down.
And so if you've been following along, we've spent ninety
eight on your participation leg, four dollars on your put leg,
(18:32):
so we've overspent. We've spent one oh two. And that's
where the you know, no free lunch comes into play.
So to bring that back to one hundred dollars, we're
going to sell off enough upside to collect two dollars
worth of premium and whatever the out of the money
strike prices of that call that we have to sell
is to collect two dollars, determines your upside cap and
(18:53):
so that's where the cap comes from. So right now,
that caps you know, around eight to nine percent, depending
on the underlying re and saaset.
Speaker 5 (19:00):
That you use.
Speaker 3 (19:01):
So if we're at that eight to nine percent right now, like,
how will I mean everyone's expecting rates to fall? First
cuts are likely coming in September. How much of an
impact will falling interest rates have on like how high
that cap is going to be or how low that
cap is going to be?
Speaker 4 (19:17):
For Yeah, Dave can check my math here, but you know,
roughly you can expect that we'll deliver about twice the
one year risk free rate. And so if rates settle
let's say long term average one year risk free rate
around three percent, you'll see a cap rate on the
SMP of around six percent, maybe a little higher for Nasdaq.
Speaker 2 (19:35):
And then the.
Speaker 4 (19:35):
Russell has a little more volatility, but still a good
a good dev yield, and so the Russell cap will
be a little bit higher still, but comparing to like
your alternative, let's compare to your CD or a bond.
You know, if you bought a CD at the one
year risk free rate of three percent. You're going to
collect that guaranteed three percent, but then you're going to
pay tax, you know, ordinary income tax on that three percent,
(19:59):
so you're three will turn and into about two percent,
depending on your tax bracket. So the opportunity would be
to turn in that guaranteed two percent and own the upside.
Tie your cash to the upside of an equity market.
In this case, you get up to six percent in
our example, but then that money grows and stays in
the ETF. It can grow tax deferred, and then you
(20:20):
pay long term capital gains rates at the end. So
no matter how low rates go, you're still going to
have something meaningful over the risk free rate. So if
it's a bond alternative, you're going to be your opportunity
is going to be a lot more significant than just
owning that bond out right. And then if rates are
you know that three to five percent range, which is
where we're at today I think four fifties last time
(20:42):
I checked, then you're going to have upside near the
average historical return of the S and P five hundred.
So it is a very good trade off there as well.
But they feel free to correct anything I think we
got it there.
Speaker 5 (20:55):
Yeah, No, I mean I think as you mentioned, I
mean we you know, for our market neutral income fund,
we raise a ton of money when rates were zero
because people we were able to kind of consistently give
a four to six percent return and you know, you forget,
but that was really in the sweet spot for a
lot of people. So I think it'll be interesting to see,
you know, these products didn't exist really then, and so
if we get not that anybody's expecting to get back
(21:16):
down to you know, rates of zero. But you know,
if we if we really have a pullback on rates,
you're going to see those caps come down, as Matt mentioned,
But I still think it is an interesting alternative for
a lot of people. So we'll see, we'll see how
they react to that. And as Matt said, it probably
transitions a little bit from more of an equity alternative
to a little bit of a fixed income alternative. But
(21:37):
potentially when you see that come down, But but it'll
be interesting to see how that that dynamic shifts.
Speaker 2 (21:43):
And and what what.
Speaker 3 (21:44):
So we just talked about rates, like is there anything
else that's as impactful as rates and figuring out is.
Speaker 5 (21:49):
Implied volatility matters, and and really more specifically, skew matters,
you know, because what the volatility of that call you're
selling relative to the volatility that puts you're buying matters,
and so that will change it in generally flat skew
is a little bit better and lower ball is a
little better so for creating that cap, so that that
(22:11):
will matter a little bit, but rates is kind of
the bigger driver of it.
Speaker 3 (22:16):
Great, And then how much of this is like you
just talked like you're basically going to spend those two
dollars no matter what you have to do to offset that,
But like how much of that is automated? Like are
you putting it out for people to bid on it?
Like what is the actual process? How much of it
is like passive in a way, and how much of
it is like actually somebody out there actively trying to
get the best deal you can to get the highest cap.
Speaker 4 (22:38):
Yeah. I think in terms of the active ETF space,
we see a lot of buffer and capital protected ETFs
filed is active, and so I think the important point
to note here is that if ETF filed is active,
simply means that it does not track an index, and
so a lot of these ETFs are filed as active ETFs,
(23:02):
but they don't track an index per se. They actually
they track an underlying reference asset, and so there's a
legal framework there as far as understanding goes. But you know,
there's a lot of active ETFs that trade every single day.
They're always moving around discretionarily. But for these types of ETFs,
the goal is to deliver the upside to a cap
(23:22):
with a built in protection level over that one year
outcome period. And so the trading happens really once a
year where we enter into these options positions, those positions
are set and then they trade that package all throughout
the whole next year. And so as people get in
and out of those products, they can go to our
website and you can see exactly what your outcome would
(23:45):
be if you were to buy today. And so we're
seeing a lot of active traders use these products. It's
in a tactical or an active way to get in
and out and finding opportunities there. But as far as
the active management goes, you know, there's certainly a process
on day one to bid out that that options package
get the best cap rate possible. But then once that
(24:07):
trade is set, it really is set for the life
of the product.
Speaker 5 (24:10):
Yeah, there's a little bit of cash management and managing
that cash drag versus you know, paying fees and a
few things we kind of have to do along the
way potentially, But the create redeemed process actually runs pretty smooth.
Speaker 1 (24:23):
You know.
Speaker 5 (24:23):
You think about the market makers out there making markets
in it. Eventually he gets short enough that he goes
to the AP authorized participant to create more. They come
to us. It's cash creates. They give us cash, we
farm out. That trade goes out to I think five
different counterparties who bid on it, you know, best price
(24:43):
gets it. The cool thing is that that trade prints
at the close of the market and so those prices
are used to set the NAV for that day, which
is where how you know, what determines how much money
comes in for that create. So it all works pretty
pretty small than seamless, you know. So better prices or
package on that option package isn't going to change your
(25:06):
cap over the course. It's just going to change your
NAV and your price. So the investor doesn't really have
to worry about any of that. All they have to
worry about is what price am I buying it at?
And you know, if you're buying it a little bit
above the starting price or below the starting price, that's
going to change your cap and your downside protection levels.
But you can make that determination for yourself, and as
(25:27):
Matt said, you can go to our website and see
exactly what you know. Here's the price and here's what
the indexes and what does that mean for me today?
Speaker 3 (25:34):
Yeah, So, Matt, so we talked at the beginning like this,
we refer to these types of strategies as boomer candy.
People that are retired or near retirement tend to love these.
But Matt also spoke about like people using these tactically
in some ways. I guess who are the end clients? Like,
what can you talk about like the buckets of your
what you're seeing and how these things are being used
from your point of view.
Speaker 4 (25:54):
Yeah, I think Eric made a great comment about boomer candy.
I thought that was, you know, aptly put. We're seeing
people use this for I would call safe money, you know,
whether that's shorter term money that people might have a
need for and you know, one two years out, but
being able to tie their cash to the equity markets
(26:15):
and get that upside potential with no downside risk over
the outcome period, you know, opens up a lot of
doors for folks. So people who might be looking at
CDs or capital protected structured notes, fixed index ainuities are
looking at these products as tax advantaged alternatives. And then
we're also seeing people de risk their equity exposure today
(26:39):
using these types of products. So if you were to
move into one hundred percent protection ETF, you know, you
would obtain that one hundred percent protection, But if you
just moved a portion of your equities in, you can
see how as an advisor, you can work with your
client to determine exactly how much risk do you want
to take over the next you know, six months, twelve months,
whatever that is, and you can dial that in exactly.
(27:02):
So let's say you want to take half your equity
risk off the table. Well, now i can move half
my equities into a structured protection ETF, and now I've
got fifty percent downside protection because I've moved half my
equities in, but that zero to call it nine ten
percent upside, you're still going to capture one hundred percent
(27:24):
of that move because you've got that upside to a
cap and then above the cap instead of being capped out,
you're going to capture fifty percent of every move above
the cap. So we're seeing advisors use this as an
equity risk management tool, portfolio risk management tool. And then
to speak, you know, directly to the Boomer Candy comment,
retirees are using these in a big way. You know,
(27:47):
there's institutions that have similar spending mandates, like pension plans,
and so the way that retirees are using these, you know,
they have to solve for a number of risks that
they see in retirement, and a lot of them are
largely financial. There's longevity risk, you know, being able to
outpace you know, or outlive there spending. There's inflation risk,
(28:10):
the ability to actually out earn the inflation rate is
a huge risk for retirees. You know, like folks like
us are working. We can still get pay adjustments and
you know, can help pay for ourselves. But if once
you're retired, you're locked in. You might get a Social
Security adjustment, but you've got to be in the equity
markets if you want to outpace inflation. And so this
gives retirees an opportunity to outpace inflation over time, but
(28:34):
do so with very little risk. The volatility on these
strategies is in the low single digits. It's like two
to three percent. And then the volatility piece is big
for retirees. You know, if you're younger, you can afford
to wait out the storms, ride out all of the
volatility in the markets. But as you age, you know,
you shorten your time horizon. You've got to have more
(28:56):
safety to your money. And so this really allows or
tirees to solve for all three of those risks in retirement.
Speaker 2 (29:05):
And then along what we're talking about here.
Speaker 3 (29:08):
So if you're taking David, you kind of hinted at this,
you said some if rates go I think you said,
if rates go down, this might become more of a
bond alternative. But if we're looking at like a sixty
forty portfolio, you gave a great example of like somebody
who wants to de risk their equity side. But like,
are people actually taking this from like like I said,
in standard sixty forty? Are they taking it from the equity?
Are they taking it from the fixed income. When I
first started hearing about these like five ish years ago,
(29:30):
I heard some people saying, like, well, bonds are yielding
zero percent, So I'm basically doing this as a bond alternative.
Speaker 2 (29:36):
How are you seeing advisors do this?
Speaker 3 (29:38):
Are they putting it in a portfolio as again like
you talked about to decrease the risk and equities? Are
they doing it to juice up their fixed income? Are
you seeing both like? And then how do you see
that changing if rates do go down as you were
talking about before, David.
Speaker 5 (29:52):
Yeah, I mean I think a lot of people you
know right now it's Matt probably is a better idea
of the end client, but it's it's at you know,
alternative to CDs and you know, treasuries and whatever for
the for the you know, the lower risk clients. I
think at the advisor level, it's more coming out of
(30:13):
equity right now. It's as Matt said, people you're using
it to dial up and down risk. We had a
big call with a client who ended up being a
bigger investor in one of the series and they wanted
to make a tactical bet on that underlying index, and
but they were concerned about, you know, a bigger move
to the downside, right, you know, having that negative skew,
(30:36):
like if we think it's going to go up, but
if it doesn't go up, and this really is a
change of timing. We're worried about it being a bigger
move down, and so they used it to tactically make
that bet. And so I think for advisors you're going
to have more tactical equity uses, and then for the
retail clients you're going to have more. I just want safety,
and you know, I don't want four per As Matt said,
(30:57):
if you do the math on treasuries after paying ordinary
income on it, you know, and you compare that to
the potential outcome here and the tax advantages of an ETF,
that's more of the trade offs I think people are
looking at on the retail side.
Speaker 4 (31:11):
Yeah. I think when interest rates we're low, you know,
people struggled to use fixed income for risk management and
for income purposes. The light bulb moment for a lot
of advisors is when they realize that you can use
equity growth for providing income. You know, you don't have
to just look at what's the yield number that I'm
(31:32):
earning on this as far as income. But if you
can use protected equities or the structured protection equity, something
with a built in protection mechanism, well, now you can
use the equity markets for risk management, because now you've
got products that can deliver the risk management you're looking for.
And if you can ride that equity growth up to
(31:53):
nine ten percent cap and then pay yourself from that growth,
you know you're you're going to be able to do
over time a lot better than just a yield from
you know, a bond that you might get. So when
we talk to advisors, you know, it's not necessarily an
either or you know, do I take this from equity?
Do I take it from fixed income? But the light
(32:13):
bulb moment really goes off for advisors when they realize
they can now use, you know, more of their equity
sleeve to help generate income. And it's a much more
tax efficient way to do it than just to take
a take a yield coupon that's being kicked off to
you and then paying ordinary income rates on it. Here,
if you hold it for a year, then you start
paying yourself from that growth. You're generally going to earn
(32:35):
more and you're going to be paying long term capital
gains rates, which is which is more more times than
not better.
Speaker 3 (32:42):
Yeah. So I mean, right now, from my point of view,
for anyone listening, they're probably like all right, this sounds
too good to be true, and I think there are
a few things that we should talk about like the
pros and cons here.
Speaker 2 (32:51):
Like so, like what is the catch? Here?
Speaker 3 (32:53):
Is the catch that you're just capped and over the
long term you're definitely going to underperform. Like what other
catches are there that you would basically warn people about
when they're trying to use these products so they know
what they're getting themselves into.
Speaker 4 (33:05):
Yeah, So personally, I view this more as opportunity costs
than risk. You know, these products have been in the
market for quite some time. They've withstood several tests. You know,
we had one at the beginning of August again, market
was down, you know, six percent, the structured protection ETFs,
you know, the August series was down I think eighty
basis points. So that the protection is holding up even
(33:28):
intra period. It's not just over the outcome period. But
with that at the money put you're getting protection all
along the way. So we're seeing these products work extremely well.
I think when you you know, when you're building risk
managed products, if you if you're building technology products, you
can build the beta version. You know, you can put
out AI and try to generate the image of somebody's
(33:51):
face and the eye you know, I looks crooked and
the noses off. But it's like, Okay, I'm going to
build the next version. But like, you can't do that
with financial services products, like you have to innovate and
you have to innovate with security. And we spent a
lot of time making sure that these were built the
right way, in a way that works, in a way
that you know, retirees and pension plans and folks can
(34:12):
trust that they will work going forward. One of the
main things that help these work efficiently is the use
of the flex options. So you know, we use flex
options on some of the most liquid markets in the world,
the S and P five hundred, the Nasdaq one hundred.
We don't build these on you know, ill liquid reference
assets that you know might price well or give you
(34:33):
a good cap, but may not actually trade well in
real time, And so we build these on very liquid markets.
But we use the flex space because it allows us
to customize those options. We can choose the exact strike
prices that we need, the expiration, the style which we
didn't get into here, but we want them to be
European style, not American style, so they all expire on
(34:55):
the same day and don't get called away along the way.
So all that work has gone into this, you know,
call it eight years ago or so, and people are
benefiting from that today. So the opportunity costs in would
be that you're capped out on the upside, like there
is no free lunch. We're selling that out of the
money call in order to fund the protection level. So
(35:16):
those are the trade offs that you can think about.
But you know, as far as like, as far as
actual risks, the counterparty for these options is the Options
Clearing Corporation. It's a too big to fail organization of
financial market utility as it designated by the Dodd Frank Act,
and so the occ would need to fail for there
to be some sort of liquidity, you know, crisis in
(35:38):
these types of products. But Dave, I don't know if
you have anything else to add there.
Speaker 2 (35:41):
No.
Speaker 5 (35:41):
I think it was interesting when we first announced this, James,
and you know, there was a couple of stories about it.
It was amazing that the the comments where you know,
first was this is too good to be true. There's
you know, it's got to be something hidden in there
that these guys are stealing from you, whatever it is,
and then there's the equal there's not equal, there's less
of them. But there was a people out there saying, no,
(36:02):
this is just a simple option trade. You know, you
could do this, and you know, and so having both
of those spectrums that this is pretty simple and also
too good to be true, I thought was pretty pretty
interesting and probably a pretty good sign we were on
the right track. But really it's it's closer to the
other side. I mean, there's nothing that incredibly complex about
these structures. It's just something that's really hard to do
(36:24):
for retail or even an advisor. You know, you need
an institutional options presence. You need the ability to do
the flex contracts, you need the ability to put it
in that ETF wrapper to get all of the benefits,
tax benefits and other benefits of that. And so having
the capabilities, the institutional capabilities to put all of those
together and trade it, and the relationships to be able
(36:45):
to farm it out and get good pricing on that
and all of that. You know, that's something that you know,
just retail and even advisors can't just can't do on
their own. But you know, it's something that we you know,
somebody with eight institutional option capabilities can do and so
you know, there's no there's no you know, inherent risks
and leverage and you know, anything that's really going to
(37:05):
create any issues. It's it's a pretty simplistic option structure.
It's just having the ability to create that and get
pricing on that that works and all and and be
able to put it in that et F rapp or
that's really you know the thing that that that we
can provide that that you know people can't provide for themselves.
Speaker 2 (37:23):
Yeah, I think if the OCC fails, the least.
Speaker 3 (37:26):
Of your concerns is going to be what happened to
the structured product structured product.
Speaker 2 (37:31):
ETF I invested in.
Speaker 3 (37:32):
So, I mean, this is just a trend that we've
seen that a lot of a lot of ETFs and
what a lot of the growth we're seeing is it's
packaged trades. And as far as I'm concerned, this is
just etfizing structured products. And that's that's the overarching trends
we're seeing with these buffer products. And the one thing
I wanted to go back to is something that Matt
said talking about the outcome period these things like they
give you a hundred percent protection over the outcome here,
(37:52):
and he talked about the fact that it was slightly
down in August, and that's because that's not over the
full outcome period. So I think that's the that might
be another catch that people need to make sure they
understand before they go into this.
Speaker 5 (38:02):
Yeah, for sure they are going to move they will
move down a little bit early. Like you said, if
you wait, If you wait, you can kind of you
will get that back, but there is a little bit
of mark to market risk. I think the interesting thing
versus structured products, though, as you mentioned, is that if
you ideally you wait for the entire outcome period, right,
that's where you're going to get that full protection. That's
(38:22):
where you're going to get that full cap. But you
also don't have to you know, these are really liquid
and pretty tight bit das spreads, and you know, yeah,
it was down a little bit with the market down,
but you know you could get out at that point,
versus structured products, which are you know, a lot tougher
to get out and a lot less liquidity along the way.
And so I think that is you know, it's having
(38:44):
a little bit of that mark to market movement is
a little bit of a downside, but when you compare
it to kind of some of the other structured products,
it's the liquidity that you can get if you do
want to monetize it is still it's still more of
a pro in my mind.
Speaker 3 (38:58):
I mean, it's also way more opaque, often much higher fees.
Speaker 2 (39:02):
So I mean, I would say this, in my view,
this is better.
Speaker 3 (39:05):
It's just you can't customize it quite as much as
you could with a structure product. That's the only the
main difference in my mind. I've asked a lot of questions,
so I'll pass it over to David the mainos to
come back and ask them more important questions.
Speaker 1 (39:18):
Well, actually, you know, we're kind of hitting our time limit,
but I do have one question for the both of you.
First we'll start with Dave. Any prediction for the future
of back to ETFs.
Speaker 5 (39:30):
Yeah, I mean, I think you know, once you get
more people comfortable with the structures, you know you're going
to continue to see it grow. And I said, there's
still you know, the flexibility and you know the benefits
of that ETF structure, whether it's tax or just liquidity
or all the things. We kind of touched on today.
You know, it's still simpler for a lot of people
(39:50):
to get exposure through an ETF than it is to
you know, to buy the underlying assets, whatever they may be,
or the o underlying structures, so you know, they're they're liquid,
they're low cost, they you know, have tax advantages. So
I think you're going to continue to see the space grow.
Speaker 1 (40:05):
How about you, Matt any predictions.
Speaker 4 (40:08):
I think the future is bright, and I think the
potential is massive. You know, we talked at the beginning
of this episode about where the ETF space was in
the early two thousands. You know, it was in the
maybe a couple hundred billion in assets, and you look
at today, we're in about thirteen trillion in global assets.
(40:28):
It's a massive number. If you look at a mature
space like the mutual fund space, you know, there's about
thirteen trillion and passive assets and a similar number in
active assets. And then if you take that stacked bar
chart over to the ETF world, you see about let's
call it twelve and a half trillion in passive assets,
(40:50):
and then that active slice of that top bar is
six seven hundred billion. It's extremely small, and so I
think over the next you know, ten years, we're going
to see that five hundred billion dollar piece of that
bar grow to in my mind, probably close to ten
trillion dollars. I think it's a massive opportunity as people
(41:10):
see the tax benefits and all of the efficiencies of
the ETF wrapper. You know, one thing to note is,
you know, we didn't see a ton of outflow from
the mutual funds. I mean they're saying some, but you know,
not a ton. That's still twenty six trillion dollar space,
and so I think that the the ETF space is
only going to continue to grow. And then it's in
terms of the structured you know note space and the
(41:33):
structured ETF space. If you look around the world, a
lot of families invest via structured products, and they do
it through the bank channels because that's how families invest
their money, and so they get put into structured products
and they're good products. But in the US, families use
financial advisors, and so we are building tools and efficient
(41:54):
tools that advisors are very used to using, and now
putting the structured outcome and those payoff profiles inside of
the ETF wrapper, which gives advisors access to these types
of products. And so I think again, we're in the
very early days of advisors using structured outcomes for families
(42:15):
in the United States. So it's a massive space globally,
and I think we're just getting started in the US.
Speaker 1 (42:21):
Well, it should be exciting to watch. Matt and Dave
thank you for joining me today, and James, thank you
for being my cost until our next episode. This is
David Cohne with Inside Active
Host
Gina Martin Adams
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