Daniel Snover, ARP
Adaptive Risk Parity: A Systematic Approach
Daniel Snover's ARP ETF at PMV Capital brings a dynamic twist to risk parity , a framework that took a beating in 2022 when both stocks and bonds fell simultaneously. The classic risk parity approach, born from Ray Dalio and Bridgewater's "All Weather" concept, balances risk across environments defined by changes in growth and inflation. Daniel's innovation is making that allocation adaptive rather than static, using momentum trends in underlying asset classes to identify where we are in the macro cycle and shift accordingly.
The Problem with 60/40 (and Static Risk Parity)
Daniel starts with a clean explanation of why traditional portfolio construction fails: "Take the 60/40 portfolio , stocks have four to five times the risk of bonds. So when you do the allocation on risk, stocks account for more than 90% of the risk of that portfolio. The correlation of a 60/40 portfolio to the S&P 500 is around 0.95, which is telling you you're not getting any diversification benefits."
Static risk parity solves part of this by equalizing risk across asset classes. But it has its own vulnerability: rising rate environments. "As you raise interest rates or discount rates, that in theory brings down the value of all assets. In that environment, it's hard to find positively trending things to diversify , the correlations of these assets are coming together and their returns are going down together." 2022 proved this dramatically.
The PMV Approach: Adaptive Risk Parity
PMV stands for the equation for momentum , and that's the key differentiator. "Instead of passively allocating risk between the four scenarios, we identify where we are in the macro cycle from the relationships of the assets and then use that to determine our underlying allocation."
Daniel gives a concrete example: "Over the past couple of years, broad commodities were up a lot from 2020 through June of last year. At the same time, long-duration treasuries were down close to a similar amount. If you look at the spread , the difference of those , that's telling you you're in a high-growth, high-inflation environment." As those trends shifted, the allocation shifted with them: "Right now we see the market pricing in slowing growth and slowing inflation."
The strategy performs best "when those trends are persisting and when more than one asset class is performing well." When only one asset class is working , like commodities in an isolated inflation spike , any risk allocated elsewhere becomes a drag. But in most environments, the adaptive approach can find opportunity somewhere in the asset class spectrum.
Monthly Rebalancing with a Built-In Narrative
One of the most practical selling points is the communication framework. "Every month when we do the rebalance, we send out an update that says, based on the trends in the underlying assets, here's where we think we are in the economy and here's how we're positioning the portfolios." Advisors can use this directly with clients: "We're in this high-inflation environment, we're going to diversify your account with commodities, which were up 16% last year. But these trends are changing, and if we hit a recession, you don't necessarily have to worry because long-duration bonds were up 33% in 2008."
This narrative capability , giving advisors a clear, monthly story about positioning and rationale , may be as valuable as the returns themselves. Advisors need to explain to clients why their portfolio looks the way it does. A strategy that generates its own communication framework solves a real distribution problem.
Keeping It Simple
When asked about future products, Daniel's answer is notable for its restraint: "My vision is really to keep it simple and just stick with this one ETF product. We'd like to put all of our effort into that, make it as great as we can." If there's strong demand, they might eventually launch a more aggressive version, "but outside of that, we don't really plan any other future product launches."
In an industry where issuers constantly multiply their product lineups, the discipline of running a single fund well is increasingly rare. ARP represents a specific thesis , that adaptive risk parity using momentum signals can manage changing macro environments better than static allocation , and Daniel is betting the firm on executing that thesis rather than diversifying away from it.
The educational value of ARP extends beyond the specific fund. Daniel's explanation of how asset class relationships reveal the macro environment , commodities vs. treasuries as a growth/inflation signal, equities vs. commodities as a growth signal , gives advisors a framework for understanding their own portfolio positioning. Even advisors who never buy ARP can use the monthly updates to inform their own allocation decisions. That utility creates goodwill and awareness that eventually translates into assets. The "PMV" name itself , the equation for momentum , signals the quantitative rigor underlying what could otherwise be dismissed as just another tactical allocation fund.
Key Takeaways
- Daniel Snover's ARP ETF at PMV Capital brings a dynamic twist to risk parity , a framework that took a beating in 2022 when both stocks and bonds fell simultaneously.
- Daniel starts with a clean explanation of why traditional portfolio construction fails: "Take the 60/40 portfolio , stocks have four to five times the risk of bonds.
- So when you do the allocation on risk, stocks account for more than 90% of the risk of that portfolio.
- The correlation of a 60/40 portfolio to the S&P 500 is around 0.95, which is telling you you're not getting any diversification benefits." Static risk parity solves part of this by equalizing risk across asset classes.
Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.
Full Transcript
6,171 wordsMachine transcribed from Brad Roth's conversation with Daniel Snover, ARP, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
Welcome to Behind the Ticker. I'm Brad Roth, Chief Investment Officer of Thor Financial Technologies and Portfolio Manager of THLV, the Thor Low Volatility ETF. Behind the Ticker uncovers the inner workings of the ETF industry. We will interview portfolio managers and ETF service providers to dive deep into their work lives and their businesses. We will learn the inner workings of their strategies and what drives them as they continue to grow their company. Many of these individuals are entrepreneurs and will have unique and compelling insights to share as much goes on behind the ticker. Please note, nothing in this show is investment advice and it is meant solely for educational and entertainment purposes only.
Welcome to Behind the Ticker, Episode 3. Today we have Daniel Snover. He is the founder of PMV Capital as well as the Portfolio Manager of the ARP ETF, which stands for Adaptive Risk Parity. If you don't know what risk parity is, today you're going to get a lesson on it. If you don't have it in your portfolio, you're going to get reasons why you absolutely should. I think Daniel and his team do a wonderful job with the systematic approach they take towards risk parity. I hope you enjoy this episode with Daniel Snover. Hey Daniel, welcome to Behind the Ticker. Thanks for joining the show. Nice to see you, Brett. Thanks for having me on. Before we get started, we're going to talk about your Adaptive Risk Parity ETF today. We're going to talk about your firm, but why don't you
Tell the people a little bit about who you are, your background, and how you got to where you are today.
Yeah, sure. I started in portfolio management and asset allocation right during the financial crisis in the 2009 period. I think a lot of people's early experiences determined their outlook on investing and how they think about things. That's certainly true for me. I've always been concerned with figuring out how we manage this market risk, systematic risk. My approach to that has been through asset allocation and mixing in stocks, bonds, commodities in a way that really manages that risk. That's what we're doing at PMV. That's the origin of my story.
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At PMV, we'll talk about the ETF, but what else do you get? Do you guys do anything else for clients? Do you do sub-advisory work or anything else at the firm? We do. We have some separate accounts
That we manage, but our primary focus is really on the ETF. We have a series of risk-based allocation models that are in this risk parity style. We'll use our ETF as the active component, and then we'll mix in other static positions to get people to where they need to be. But we have a series of those SMA portfolios.
Yeah, that's great. I guess I'm curious too, what made you really start the firm? You started your career, like you said, in 2008, but what made you take that entrepreneurial leap and say, I'm going to go out and do this myself?
Yeah. The firm I was working with out of school, I became an owner in and actually sold that business in 2019. I worked with a firm that bought us for about nine months and wasn't really doing the portfolio management side that I wanted. I thought, I need to go off and do my own thing. The two partners I founded PMV with, I had worked on in a previous capacity for about 10 years. They were good friends of mine. I brought them the idea of starting our own thing. In 2020, the firm actually founded it. Then we quickly realized that the industry was moving towards, we needed an ETF to really get our strategy out. Advisors don't really want to pay 30, 40 basis points for an SMA. Even our
Current SMAs, we offer without additional charge to the advisors because we mix in our ETF product. I think really to compete and given the active nature of the strategy with the tax consequences, we needed the ETF structure. We spent all last year getting that set up. Our goal was to have it launched before year end and the ETF was launched in December.
Yeah. We launched at about the same time. Yeah, great. We're fairly new to the whole space. You manage, like you said, the ARP ETF, which is the adaptive risk parity ETF. What is it designed to achieve? What is the goal of risk parity from a high theoretical level?
Yeah, the highest level. The goal is to remove as much as possible what's called the systematic risk risk from the portfolio. The idea is to just capture the return or the risk premium of the underlying assets and to combine those assets in a way to where the systematic risk of each one of them offsets. It's really about maximizing the diversification benefits of the stocks, bonds, commodities.
So in everything you do at the firm is 100% systematic, correct? So you guys aren't behind the scenes really trying to pull strings or making market calls?
Right. So yeah, it's systematic because really it's just a process. And even if you're another manager, let's say you're managing a value strategy, if you have a process whereby you screen stocks for a certain metric and you have a rebalancing timeframe and you can eventually just get it to a process. And so we think that's important because if you have an idea about how something might work and you want to try it out, well, then you might want to put that into a system and run it through different scenarios to see how that might play out. So yeah, we are big proponents of a systematic process, whether that's actually including technical data and market data or however it's structured. But yeah, we think a defined process is very beneficial.
So are you continually working on and enhancing your systems or is this something that you've built to be robust and doesn't really need to change over time?
Yeah, it's built to be robust. And so we don't imagine it changing at all going forward. We of course have the discretion to update it, but the system that we have put in place now is something I've been developing for a little bit more than 10 years now. And so in the beginning, it started off with an Excel spreadsheet and kind of three set portfolios that we would rotate in between and that advanced, so on and so forth until the point where we are now, where any changes we make are really on the margin. They're not really, the underlying asset classes that we trade or the way we think about markets or the way we determine the position sizes. You know,
All those things have really been sorted out through the time. And so many changes we would make, I think are going to be pretty marginal.
So if you, so you started building this 10 years ago, along the way, you started in Excel. Did you have to learn how to code? are you, are you self-taught in that area as well to build this thing out?
I wish I could tell you I knew how to code, but I don't. Yeah. So at my previous firm, there was someone who worked there that had coding experience. We also used a portfolio management software where people at that software company knew how to code and build strategies. And so we hired them to develop some of the initial ones. And then PMV, our chief operating officer, Mark, Gian Antonio knows how to code. And so he's built the current iteration. And, but yeah, now I kind of just direct, direct the process.
I was the same. I've, I've been doing this for probably 10 years as well in the systematic space. Exactly 10 years. So it'd be 2013. And, um, I start looking into the backend of the code and I'm so afraid to touch anything because if I, if I, I could break the whole thing really quickly. And so I have to rely on others for that, but you learn a lot. I never thought I would, I'd be in the space where I was, uh, having to, to at least familiarize myself with it. Yeah, that's it. Definitely. So tell me, tell me about the strategy behind ARP, right? We know it's risk parity, but like let's really dive deep into what you're trying to accomplish, how, the composition of the
Portfolio tends to look and can change. So, let's really dive into, to what this, what investors are going to see when they invest in ARP.
Yeah, great. So I think what's exciting about the strategy is that it's really integrated the macroeconomic environment and outlook with the systematic process. And so what I mean by that is when I said risk parity is trying to minimize the effects of the market cycle on the portfolio, I think we need to start there and kind of talk about and define what I mean by systematic risk and, um, what goes into that. Because once you get to the asset class level, there's not individual stock risk, right? So the risk that is inherent in, the overall stock market, for example, is the risks that are driven by the underlying economy and the cycles that we're experiencing. And we're going through a very interesting one right
Now, which we can talk about if you'd like, but, um, what we're going through right now, um, in the economy is, uh, the same trade-off that we always get, which is this trade-off between economic growth on the one hand and inflation on the other. So if you don't think about investing at all, you just think about the economy and the market cycles, the what's, what's driving those cycles through time is economic growth and inflation. And, um, that mechanism is, is really a debt cycle because when, when inflation is low and, and economic growth is low, the fed, the central bank, whatever country you're in, we'll step in to spur growth and they can do that up until the point when inflation becomes a concern, right? And then obviously reverse course.
So that, that trade-off, um, is the trade-off of the, um, market cycle, which then translates into the systematic risk that we see inherent in each asset class. So what's interesting too, is that there's not a different market risk or systematic risk for stocks or bonds or commodities because it's, people often think, well, there's the risk of stocks and then there's the risk of bonds and then there's the risk of commodities, right? But in reality, it's one systematic risk. It's, it's, they're all driven by the same underlying economy. They are just influenced differently by those trade-offs. So if we start with stocks, for example, when do stocks go down?
When, when do stocks hit a bad environment? And that's when economic growth is slowing or when inflation is high, right? But if you think about commodities, when do commodities, we're talking broad commodities here, uh, tend to perform best. And that's when economic growth is high and inflation is high, right? So what risk parity is trying to do is to identify which broad asset gives the most direct exposure to the changes in those underlying variables that you can, such that you can mix them together in a way that offsets that systematic risk. And so if you think in your mind about a four quadrant where, and you need to probably
Finish this, but. I was just going to bring it up because I was on your site and, and you've made a, a very complicated, uh, idea, uh, very easy to understand when you go on your website, you have a quatted and then you, you show over time when we are in these different environments and what best investment during that particular year and month.
Yep, exactly. And that research is really from Ray Dalio and Bridgewater, if you're familiar with them and, and risk parity is really an offshoot of the all weather strategy. So if you hear all weather and risk parity, they're referencing the same thing. And, um, so, the macro research is really driven by them. And, um, so on a, on a static basis, the classic or static risk parity portfolio, uh, will try to balance the risk between the four environments that are created by increases and decreases in growth and inflation, right? Because this, this portfolio construction idea. So if you think about building a portfolio, and you want to maximize diversification, which is the same as saying you want to minimize risk, right? Then, um, you, the way you do that is, is by having positions that have different correlations
When one goes up, the other goes down, right? And you, um, need to have the same risk allocated to each one because take the 60, 40 portfolio, if the stocks in the portfolio or five times or four, four times riskier than the bonds, then when you do the allocation on the risk, stocks are accounting for more than 90% of the risk of that 60, 40 portfolio, right? So if you look at the correlation, the correlation of a 60, 40 portfolio to, let's say the S&P 500 is around 0.95, which is telling you, you're not getting any diversification benefits. So the risk parity concept is about balancing risk between uncorrelated positions. Well, I think the average investor learned that
Last year, right? Right. Um, you had both fixed income and equities. You, you got the full brunt of the downside and the lack of diverse, diversification benefits of that portfolio last year, right? Yep. That's exactly right. So what primary factors help drive better risk adjusted return in your model, right? So it's, and let me ask that a different way. I should say in what environments, you should always own risk parity in my opinion, right? I think it always deserves a spot in your portfolio, but when are you going to produce the most alpha in this portfolio? Is that in recessionary environments or in market vol? And when I speak, when I say market vol, equity vol,
Yeah. So to answer that question, I think, um, it would be helpful to explain what we're doing as compared to a static or traditional risk parity, because we have an adaptive process whereby we identify the momentum trends that are created by these economic environments. So the name of our company PMV is the equation for momentum. And, uh, so what we're doing, our thesis essentially is that the broad momentum trends that you see, if you just pull up a graph of, let's say commodities, right? The, the broad trends that you see in these underlying asset classes are created by the underlying economic environment. And so instead of passively allocating risk between the four, um, scenarios, we identify where we are in the macro cycle from the relationships of the assets.
And then we use that to determine our underlying allocation. So, if you take the past couple of years as a great example, obviously broad commodities were up a lot from 2020 through June of last year. And at the same time, treasuries, long duration treasuries were down, um, close to a similar amount. And so if you look at the spread, the difference of those, that's telling you you're in a high growth, high inflation environment. And that's been coming down. Those trends have been coming down to where right now we, we see the market pricing in slowing growth and slowing inflation, which, whether that persists or whether the market's correct, that's kind of what we're seeing is getting priced in. And so, when our strategy will perform best is when
We are in an environment, when those trends are persisting, right. And when more than one asset class is performing well. So if we're in an environment, when the only, asset class that's going up is let's say commodities, then it's going to be hard for us to diversify because without giving up return, because any risk that we allocate to outside of that is going to be a drag on the performance. Right. Um, and risk parity portfolios, will tend to have a hard time in a rising rate environment because if you think about any asset, whether it's stocks, bonds, commodities, you can determine the value of those assets by the present value of their future cash flows. Right. So as you raise the interest rates or discount rates that in theory brings down the value
Of all assets. And so in that environment, it's hard to find positively trending things and to diversify when, the correlations of a lot of those assets are, are coming together and they're,
And the returns are going down together. So when you're starting to build these portfolios out and from a holdings and holding construction perspective, can you guys go anywhere? Um, or are you just buying broad, broad equities, broad commodities, broad fixed income? can, can you kind of go anywhere or is it just kind of broad ETFs?
Yeah. So our investment universe is set. We have, um, eight different asset classes that we trade and I'll mention what those are, but, um, I also want to mention that it's a fund to fund structure. So our ETF trades other ETFs. And the reason we set it up that way is that we could trade a futures contract on each one of the underlying indexes or assets that we trade, but then our investors would be subject to the 60, 40 tax treatment of the futures contract. So by taking out a little bit extra expense from the underlying internal expenses of the Vanguard, iShares, other ETFs that we trade, we can, through the custom, basket creation process, minimize to the extent possible, the cap gains. So that's why we, we, even though it's a
Little bit more expensive, chose that fund to fund structure. And then, um, I mentioned the four different, uh, market environments. So when equities are performing well, we can go U S international or IFA. So no sectors, no individual stocks, just broad assets, U S international and EFA, and then, um, or emerging, sorry. And, uh, on the bond side, we have short duration T bills and long-term 20 plus year treasuries because no other bond is a diverse fire to stocks, right? If you go down the credit scale, you're just getting correlation to stocks, right? So we just want treasuries on the fixed income side. Um, for commodities, we just trade the broad commodities basket, but then we also separate physical gold out separately because in a stagflationary
Environment, which, I anticipate us being in, then, you don't want broad commodities, broad commodities peaked last June, right? As, um, economic growth started slowing and you saw a gold, rallying much more over this recent period. Um, so those are
The assets. So are you using inside of the basket? Let's just stick with equities, right? So you have three different places to choose from inside that equity universe. You're then applying momentum calculations to figure out the weighting of those asset classes on top of the, the quad
Decision, if we can call it that. Yeah. Great question. So, uh, we have a monthly rebalance and we start with a clean slate, right? So no set targets to any of the assets that I mentioned. Then what we do is we measure the momentum over various look back periods because the momentum that I'm talking about is persistent. We think somewhere between three months and 12 months, but if you just picked one window, then you're going to get a different response or, right? So, um, we take multiple readings between a three to 12 month period. And then we essentially just develop risk parity portfolios over each of those periods and blend them together. So, um, the first thing that you want to do is invest in assets going up. So the first thing we
Screen for over each of our windows are positively trending asset classes. Then what you want to do is of those assets that are going up of those positively trending assets to the extent possible, you want to minimize the risk. And that's where you look at correlations and, standard deviations and all that. And so within each of those periods of assets going up, you try to,
Balance the risk, uh, the best you can. So are there guardrails on waiting inside of a quad? So, could theoretically you invest just a hundred percent us and not in international or emerging markets, or are there certain guardrails where you can go? Yeah, great question. So there's a
40% max to each of those assets that I mentioned. So if U S international and emerging, we're all positively trending over each of the look back windows, which I don't know that that's ever happened. You could in theory go a hundred percent to equity, but it would not be all U S it would be some international or emerging. Um, in reality, what you get is different readings. So for example, right now our shorter term window is giving us a different signal than our longer term. The shorter term has been, kind of a loosening of conditions, more equity waiting. Um, so we're getting a lot of equity allocation from our shorter term window, but as you go further back, we're still getting, some, some risk off trades, some U S dollar currency and T bills,
Um, physical gold. Right. And so what you end up with is when you're getting different signals, a very, um, balanced or, um, non concentrated portfolio. But then when you get, uh, the same reading over all of those different windows, a pretty highly concentrated portfolio, um, with still that 40% max to any asset or index.
That makes a ton of sense. And so when you built the index, the index, I would assume is passive, correct? Yeah. And you re you said you rebalance on a monthly basis. Monthly. Right. Okay. Okay. So let's pivot a little bit. Um, that was, that was a masterclass in explaining risk parity. I think people are going to learn a lot from even though brief discussion. Um, but let's talk about the business side, right? How long did it take you to get this ETF to market? You said it took you most of last year, but talk about that process of actually from decision to do it to, first trade.
Yeah. So we decided to do it sometime in my light just went off. Uh, we decided to do it sometime in April or may. And, uh, so from, yeah, around April to the end of the year, that was the timeframe. Um, a good friend of mine, uh, went to SEI. And so we were in talks with some other providers and, doing diligence on who we might partner with, um, but ended up going with SEI and they were really integral in helping us find partners and, going through the whole process. And, um, my other partner, I mentioned Mark on the operation side, but my other partners, um, Andrew Nall, and he was a enforcement examiner at FINRA. And so he is very familiar with, uh, the regulatory
Environment. And when he's not familiar, he can read these regulations and integrate them way quicker than, than I'd be able to. So, uh, he helped us, navigate all of the legal and, and compliance side. Um, but yeah, it was a, it was a learning process because you can trade ETFs, but until you actually understand the underlying workings of, of the operation side and all that goes into it, it's pretty remarkable how efficient, the, this trading system is and the structures that
Are, that are there. Yeah. And it's definitely a learning curve and you are, you're extremely lucky, lucky to have a former SEC examiner. I think for us, the biggest thing that kept us up at night when we were deciding to launch this thing is to making sure we were doing everything correctly, right? We didn't want to accidentally getting, get ourselves in trouble for something that we didn't know. And so, uh, you, you don't have that worry. So, uh, that should, that should allow you to sleep a little bit better at night. So as far as service providers, if you don't mind sharing, sure. what service providers are you guys currently using? I know that that was, uh, a long, dating process as we went through it. So, uh, who are you guys working
With currently? Yeah. So, um, for our lead market maker, we went with GTS and they've been fantastic so far. I think they're the largest on the New York stock exchange floor, if I'm not mistaken. And, um, great, great team there, a lot of experience. So we've not had any, any real trouble on, um, liquidity side at all. And, uh, for our sub-advisor, we decided to go with sub-advisor and help us trade, even though what we're not doing is really anything out of the box, but, uh, just to have that experienced team on our side was important for us. So we went with Vident. Um, yeah, a lot of advisors may not know that name, but they, they sub-advised on quite a few funds and ETFs. So good team there. And, um, other than that,
SEI does most of our, um, other, other work. And then we listed on the New York stock exchange.
And so I'm curious, what drove that decision to, to launch on the New York stock exchange? We obviously all had other options, uh, to look at, but what made you guys decide to go with the NYSE?
Yeah. So I think the name brand was important for us. we're a relatively new, um, company and fund. And so, being able to launch on the New York stock exchange, I think was pretty cool, but, we also interviewed, as you mentioned, the other exchanges and got references and referrals. And, um, it seems like, the, the New York stock exchange, the Nasdaq are the two kind of primary players. And I think for what we're doing on the active ETF side, um, we see most of those style of funds also being listed on the NYSE. So, um, with the referrals and references that we got, that was kind of the direction that we, we went down.
Yeah. They're very similar, thought process to ours. So being a relatively new fund when you're thinking about distribution, right? Cause at the end of the day, yes, we have to be really good at what we do on the investment side, but in order to stay alive, we got to think about distribution and marketing. So I would assume, I hate to assume, but I would assume you're, you're marketing more towards investment advisors in that space rather than trying to go directly to retail, maybe just because of the complexity of the strategy.
Yeah, exactly. So we don't plan to go direct to retail, um, working with independent advisors and family offices, um, for the independent advisors. I'm very familiar with that space. As I mentioned, that's where I started out and working with them. And, what I was missing when I was building portfolios was the, the basic diversifiers, right? So, we mentioned before most portfolios don't have any risk allocated to anything else besides stock. But the reason why advisors don't do that is because over the longterm stocks do have a higher risk premium or expected return than foundation treasuries or broad commodities or gold, right? So if you're going to sit down and build a portfolio with a client, even if you risk match those, over time, what advisors
Think is, well, we'll invest for the longterm and not allocate risk anywhere else. So what we're saying is we can provide you the broad exposure that you need to these other diversifying assets in those environments when you might need them without you having to spend 10% of your portfolio on gold. Or 20% of your portfolio on long duration treasuries, right? To get that diversification. And, the alternative discussion has been going on a lot in the independent advisor space and some of these other products that are out there. You don't really understand the exposures that you get. If you think about some of the managed futures positions, they'll go long and short 40 to 60 different markets. there's leverage and shorting, right? And so they tend to be more
Complicated and kind of scare advisors when they go through periods that they don't understand the performance. And so what we try to do is provide a very clear understanding and story about why we're allocated to where we are. The advisors know exactly what the positions are. There's no leverage or shorting, right? And so it becomes a situation where they can build confidence and trust in the process by understanding what they're holding.
So how are you approaching, getting in front of advisors, right? What is what is marketing plan look like for you guys going forward? And what do you think's worked so far?
Yeah. So we have James on our team who joined us recently, and he's head of our distribution. And so we've just been networking with independent advisors. We've been hosting some events here in our office in Dallas. We've started a email outreach campaign. And honestly, LinkedIn has been great recently. I've been trying to post more and kind of bring awareness to some of these different issues on there. And been connecting with some advisors. So nothing out of the ordinary. It's really, emails, conferences, meetings, podcasts, LinkedIn, that type of stuff.
Yeah. I was actually talking about this with a previous guest. One of the things that's odd in our business is, oftentimes you don't know who your customers are, right? You can do a 13F filing, but if they're not SEC registered or a 13F search, but if they're not SEC registered, you don't know who your customers are and somebody could have just bought it and you can't touch base with them and say, how you doing? And, unless they reach out to you, but it's just, it's definitely makes consistent marketing to those people a little bit more difficult.
Yeah, no, it's true. And, it's changed a lot in terms of, where you find advisors, but, we've, we've tried some calling and that doesn't work at all. when people call me, I don't really pick up either. So for some people that might work, but we've kind of steered away from, from just cold calling people and trying to find more organic ways of connecting.
Yeah, that's great. So you, you answered this already, but maybe in a little bit more defined allocation style, if you're sitting down with an investment advisor and you're saying, please put ARP in your model portfolios, where would you, how would you suggest they build that asset allocation or where does this fit inside of a kind of an overall portfolio?
Yeah. So we recommend that advisors leave their stock allocation where it is, right? Because for the advisors, you don't want to go through a prolonged period and have an invite, client expecting to capture that upside, right? What we're saying really is that if you're spending 20 to 40 to even 80% of your client's portfolio on ag bond or core bond, that is not a good diversifier to the stock position, right? And so we tried to get them to think about replacing that ag bond exposure with, with what we're doing. Yeah. So, and we've run some, some numbers on it. So if you were to do that, even though our ETF is expected to have a higher standard deviation or risk profile than ag bond, because it's a better diversifier to the stock side,
We don't expect it to add any additional risk to the portfolio through that replacement, but it does come in the form of higher return because, when, when we can, manage the risk better than, ag bond and some of these environments like we've seen, then, then that can not add risk overall while still improving the return profile.
Yeah. And I agree with that a hundred percent. So hopefully investment advisors are listening and especially the way that you've built the product and in all honesty is, and you alluded to this earlier is you didn't make it extremely complicated for the underlying investor to understand what they're actually investing in. an advisor can't necessarily go at the level you're going to explain risk parity per se, but they can pull up your quads and say, in these environments, this is what we think is going to perform well. And in this quad, this is what we think is going to perform well. And they know what they're going to be invested in. And I think that that's very powerful for you guys and also for the advisor and kind of storytelling to the end client,
What they're actually achieving here.
Yeah. That's actually maybe one of the, one of the biggest selling points that we tried to touch on is that, advisors are looking for a way of communicating with their clients about where we are in the markets and how they are adjusting the portfolios to that environment. Right. And so every month when we do the rebalance, we send out an update that says, based on the trends and the underlying assets, here's where we think we are in the economy and here's how we've positioned the portfolios. And the advisors can use that information for the client. So, over the past year, if the, communication to the clients were in this high inflation environment, we're going to diversify your account with commodities, which are, up 16% last year, but these trends are
Changing. And if we hit a recession, you don't necessarily have to worry because there's one of these assets that's likely to be performing well, regardless of the environment. So, if we can tell clients we might hit a strong recession, but in that environment, if the Fed starts cutting rates, that's good for these long duration bonds, which were up 33% in 08. Right. So there's opportunities somewhere depending on the environment and you don't necessarily have to be concerned about which environment we head into, as long as you have the flexibility to adapt to that and find
Opportunity. Yeah, that's great. And a great story to tell. And so a couple of last questions. Do you guys have any plans for future product or are you going to stick with flagship ARP and run it that way? Or what do you got on the table or what do you got in the bag, if anything?
Yeah. So kind of my vision is really to keep it simple and just stick with this one ETF product. we'd like to put all of our effort into that and make it as great as we can. At some point, if there's a lot of interest, then we might launch a more aggressive version of the strategy because the risk profile, the one we came out with is relatively low. But no, outside of that, we don't really plan any other future product launches.
So where can people learn more about you, the company, the fund? Where should they be looking?
Yeah, great. So our website is pmvcapital.com. And on the site, we have a strategy tab that goes more into depth about the underlying process. There's an article on kind of the theory behind it and just a general presentation. I mentioned that every month we send out an update about where we are and how we're allocated. So if you'd like to receive that, it's on the strategy tab. You can sign up for the newsletter. And then also on the site is a page for the ETF where you can find, fact sheets and returns and all that.
Okay. Well, great. Daniel, thank you so much for spending some time with me today. I think not only was this informative about the fund, but it was also educational. So again, thanks for spending some time with me. Appreciate it, Brad. Thank you.
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