Corey Hoffstein: A Primer on Return Stacking - [Making Markets, EP.2]

6 snips

Nov 3, 2023

Eric Golden interviews Corey Hoffstein, Founder and Chief Investment Officer of Newfound Research, discussing topics like portfolio allocation, diversification, and the innovative approach known as Return Stacking. They also touch upon lessons learned from running an Asset Management firm for 15 years.

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ADVICE

Use Leverage For Diversification, Not Concentration

Use leverage cautiously and for diversification, not concentrated bets.
Prefer liquid-backed leverage (futures/swaps with liquid collateral) to avoid the 2008-style liquidity mismatch.

ADVICE

Rebalance Often To Manage Futures Leverage

Rebalance frequently when using leveraged futures exposure to avoid catastrophic losses from rapid drawdowns.
Ensure you hold enough liquid collateral so you can meet margin calls without forced fire sales.

INSIGHT

Futures Funding Mirrors Short Treasury Rates

The embedded funding cost in futures equals borrowing roughly at short Treasury yields plus a small premium historically.
For S&P futures this has historically been close to 1–3 month Treasury yields plus ~40 bps.

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This is Eric Golden and my guest this week is by Corey Hoffstein, the Founder and Chief Investment Officer of Newfound Research. Corey offers a fascinating and distinctive take on investing, which we delve into during our discussion. We cover topics like portfolio allocation, diversification and the innovative approach known as Return Stacking. We wrap up with lessons learned from 15 years of running an Asset Management firm. Please enjoy this conversation with Corey Hoffstein

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

(00:02:00) - (First Question) The origins of the 60/40 portfolio

(00:04:30) - How to tackle the allocation problem when it comes to 60/40

(00:08:15) - How Corey deals with the doubters when the strategy doesn’t work

(00:12:00) - Reasons why it makes sense to continue to participate even when there have been periods of underperformance

(00:15:00) - Diversification in futures and stocks to create a less volatile investment journey

(00:19:15) - The origins of return stacking

(00:28:00) - Skepticism, evolution, and potential risks associated with portable alpha

(00:33:30) - The need for careful risk management and the importance of rebalancing when using leverage to amplify investment returns

(00:36:30) - Using historical data to determine the funding rate

(00:40:00) - Implied funding rates and the spread between futures markets and spot markets

(00:44:45) - The complexity of measuring market positions and strategies when it comes to futures and bonds

(00:46:30) - The challenges Corey faced when starting an asset management firm

(00:52:45) - The importance of presenting products in an understandable way for investors

(00:54:30) - Examples of products or investment ideas that Corey got wrong

(00:58:30) - The competitive nature of the ETF landscape and the importance of branding

(01:02:00) - Corey’s success navigating the challenging landscape of the ETF space

(01:05:15) - Fee competition and brand differentiation have led to firms exploring regulatory grey areas

(01:06:30) - The distinction between speculation and investing

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