In a recent episode of Behind the Ticker, Wayne Penello, founder of NextGen EMP, shared the fascinating journey that led him to launch the NextGen Efficient Market Portfolio Plus ETF (ticker: EMPB). With over 40 years of experience as a commodity trader—including a decade on the floor of the New York Mercantile Exchange and years advising global trading firms—Penello developed a deep understanding of risk management. He later patented the Performance Risk Management System, which earned his clients over $13 billion in hedging profits and was detailed in his book, Risk as an Asset. After selling his firm, Penello turned his attention to equities, frustrated by the industry’s overreliance on diversification and lack of active risk management, ultimately leading to the creation of EMPB.
About Wayne Penello and NextGen EMP
EMPB is a long/short equity ETF designed to actively manage systemic market risk using a proprietary, statistically driven methodology Penello describes as a “foggy ball”—an imperfect but highly effective algorithm that identifies the weakest sectors (“nags of the market”) and shorts them to dampen volatility. Rather than attempting to predict market direction or time the best 90 days, the fund focuses on avoiding the worst periods, which historically have the most destructive impact on long-term performance. The ETF holds about 16 sector or thematic ETFs, balancing long and short exposures to achieve a Sharpe ratio above 2, with the aim of consistently outperforming the S&P 500 while maintaining a maximum drawdown of less than 10%.
Investment Strategy and Approach
A key differentiator for EMPB is its accessibility: Penello was determined to build a sophisticated hedge-fund-like strategy for everyday investors, not just accredited institutions. By launching as an ETF rather than a private fund, NextGen EMP made the strategy available to anyone with $25, offering hedge-fund-caliber active management in a tax-efficient, low-minimum format. Despite an advertised expense ratio of 2.21%, Penello explained that the effective net cost to investors is closer to 1% or less when accounting for the offsetting interest income from short positions and dividends on long holdings. The fund is rebalanced monthly.
Penello positioned EMPB as a core equity exposure solution rather than an alternatives sleeve, emphasizing its potential appeal to both young investors seeking equity growth with controlled risk and retirees who cannot afford major portfolio drawdowns. With a disciplined, systematic process that removes emotional decision-making and a structure that works efficiently within tax-advantaged accounts, EMPB represents what Penello calls the “next generation” of equity investing.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Wayne Penello covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
The equity style returns let's say 10 to 12 percent a year and you're taking risk to do that. And the other party portfolio was getting bond type returns which back four years ago was nothing today it's 4 percent but it's still nothing. And I said there must be a better way so I spent the last four years working on a methodology that would. Allow me to create a portfolio that one managed risk without sacrificing returns and then two made it available to the average investor you didn't need to be a qualified investor.
And what I found is that the market predictability on an individual level as and I would agree with Phama. I mean, nobody, nobody knows what's going to happen tomorrow. Nobody knows really what's going to go up or down. So what we took the approaches that we wanted to use pieces of the equity space as a hedge since all of the various different industry sectors are reasonably well correlated. That is typically 70% or higher. And we said, can we find a way to use the industry sectors themselves as a way to hedge the systemic risk that is when it's a risk off trade and everybody is selling everything.
Market Context and Positioning
And then around the year 2000 I started a consultancy to design and maintain hedge programs for companies because it was obvious to me that people weren't focusing on the right elements to manage risk properly. And I eventually patented that methodology that's called the performance risk management system. And our clients using the performance risk management system were paid over $13 billion for hedging successfully. That cut the attention of Forbes books and they approached me and I published that methodology in a book called risk is in asset that's available on Amazon.
So we have portfolios that on the during board that are themed and them. And they perform as well. And we have long only that perform as well. But they all have slightly higher risk components. And I think they'll be attracted to investors at some point in the future. Because no matter how you tell people that don't try to time the market. Everybody tries that time the market. And I can envision a world where there will be a bunch of people to say, OK, I think the market's going back up now.
Notable Insights
"As we go through life, and we see what happens in the real world, we'll find out."
"Anything we did was new because nobody had ever had the opportunity to do it before."
Key Takeaways
- Rather than attempting to predict market direction or time the best 90 days, the fund focuses on avoiding the worst periods, which historically have the most destructive impact on long-term performance.
- The ETF holds about 16 sector or thematic ETFs, balancing long and short exposures to achieve a Sharpe ratio above 2, with the aim of consistently outperforming the S&P 500 while maintaining a maximum drawdown of less than 10%.
- A key differentiator for EMPB is its accessibility: Penello was determined to build a sophisticated hedge-fund-like strategy for everyday investors, not just accredited institutions.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Wayne Penello highlights important considerations around income investing. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of income investing and portfolio construction discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Wayne Penello, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.