Raymond Bridges, Bridges Capital
Built for the Retiree Who Can't Afford a 30% Drawdown
Raymond Bridges runs his firm from a stretch of A1A in Fort Lauderdale that he describes as the spot where the hotels end and the condos begin. The geography is the point. People arrive from the Northeast and the Midwest with a nest egg and start drawing on it, and that investor is not the one most portfolios are built for. The gap is why his fund exists.
The Same Drawdown, Two Different Problems
Start with how he frames volatility. If you are adding money every month, a selloff pays you. COVID was a phenomenal year for anyone contributing, and so was 2022, when the market fell 20 percent and every deposit bought more.
Reverse the cash flow and the same drawdown does the opposite. A retiree taking a monthly distribution is selling into it whether they want to or not, and nobody knows how long it lasts. His point is that the fear is not irrational, which is why the standard industry answer bothers him. He hears advisors say their job is to keep clients invested, and the version that goes further, that you do not need economics, you only need psychology. His counter is that a client who panics and moves the whole account into a fixed annuity has not been kept invested. They have been locked out of growth permanently. The way to prevent that conversation is to make the drawdown shallower in the first place. When the market is off 30 percent and the client is off five or six, that is a very different phone call, and by his read that is where the fee gets earned.
Two Engines, One of Which Barely Moves
The Bridges Capital Tactical ETF launched on the Nasdaq in May 2023 and runs on two processes operating at completely different speeds.
The first is a macro thesis that changes very rarely, grounded in Austrian business cycle theory. Too much money creation sends a skewed price signal, that signal pulls capital into goods, and eventually the consumer is not there to support the prices. He points at houses, boats, used cars, and now data centers and AI as the same mechanism in different decades. His read is that the market is still working through the late stages of the four trillion dollars created during COVID. He watches the three month to ten year curve and the reverse repo balance, which ran to two trillion after COVID and now sits closer to twenty billion, with the caveat that no single series tells you enough.
The second engine does the trading. Breadth gets scored across four categories: total New York Stock Exchange breadth, Nasdaq composite breadth, the top 100 of the S&P 500, and the top 100 of the Nasdaq 100. When everything is participating he treats that as froth and scales off. When the internals break down he treats it as opportunity and scales in. That works out to roughly four round turn trades a year, executed in tranches of two to three percent rather than in one decision.
The tranching is what keeps the fund from ever being all in or all out. Since launch the most equity exposure it has carried is 60 percent against 40 percent cash, and only briefly, at the tariff low. It has held 80 percent cash for long stretches. It has never been fully invested, and there is always a sleeve of at least 10 percent in T bills or box spreads.
The Buy Rule Is Price, Not Conviction
The equity core is the market cap weighted names at the top of the S&P 500 and the Nasdaq 100, the ones actually moving the index. Micron and Applied Materials have worked their way in on the back of their run. Anything smaller comes through an ETF rather than an individual name.
What decides a purchase is not whether he likes the company. It is where the price sits against its own average. A name can be a category leader in the top ten by weight and still not get bought, because it is trading well above that average. It gets held instead. He sat out AMD and Intel for stretches on exactly that basis, and is willing to accumulate semiconductors now that they have come back below the line.
The same rule governs the entry. Index prices can still be falling while the internals underneath strengthen, and he reads that as money coming in that has not shown up in the mega caps yet. So he does not wait for price to confirm, and he does not buy the whole position into a decline either. He takes a tranche, waits for the next breadth thrust, and takes another. On technicals generally he is blunt: price is a signal, the same way it is a signal at a car lot or a grocery store, and dismissing it out of hand is silly.
Sortino, Turnover, and the Wrapper
Two standard evaluation tools misread a strategy like this. The Sharpe ratio penalizes deviation in both directions, so a strategy designed to produce an asymmetric distribution gets marked down for the half of the asymmetry you want. Sortino only penalizes the downside. Turnover has the same problem: a fund holding a large T bill position racks up mechanical turnover that has nothing to do with risk taking, so a 200 or 300 percent number reads alarming and is not.
The wrapper matters for a reason beyond the usual tax pitch. Custom basket redemptions let the fund clear capital gains without pushing them out to holders, so a risk decision never has to be argued against a tax bill. He likes what the structure does to his own practice too. Clients holding the fund do not pay an advisory fee on top of it, the fund fee comes out before the gain rather than after it, and one trade now covers what used to be many accounts.
Where He Thinks It Belongs
Asked where the fund sits on a conservative to aggressive spectrum, he does not hedge. He would take it out of the long duration bond sleeve. His objection to long bonds is that they can carry equity-like volatility while leaving the holder in something considerably harder to exit, and liquidity is the thing he cares about most. He notes the fund trades on a three to four cent spread despite its size, because everything underneath it is liquid.
His closing argument is aimed at other advisors. If you have a process that works, put it in an ETF. You get a track record, you get rated, you get the tax treatment, and you no longer have to be one of the big three to be on the platform. His answer to the crowding worry is that there are more recipes than there are ingredients.
Key Takeaways
- Volatility is not one problem. It pays the investor who is contributing and punishes the one taking distributions, and Raymond built the strategy around the second case.
- The fund pairs a slow macro bias drawn from Austrian business cycle theory with a fast breadth signal scored across four categories, producing roughly four round turn trades a year in two to three percent tranches.
- Positioning has been genuinely defensive: a maximum of 60 percent equities since launch, 80 percent cash for long stretches, and never fully invested.
- Purchases are governed by mean reversion rather than conviction. A top ten name trading above its average gets held, not bought.
- He argues Sortino beats Sharpe for judging a strategy built to be asymmetric, that turnover misreads a cash heavy fund, and that the wrapper's real benefit is letting a risk decision happen without a tax bill arguing against it. On placement he is direct: this comes out of the long duration bond allocation.
Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.
Full Transcript
5,888 wordsMachine transcribed from Brad Roth's conversation with Raymond Bridges, Bridges Capital, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
Welcome to Behind the Ticker, the podcast where we go beyond the symbol and into the strategy. I'm Brad Roth, founder and chief investment officer at Thor Funds. And in each episode, I sit down with ETF managers, CIOs, and industry leaders to break down how these funds are actually built, how they behave in real markets, and how advisors use them in real portfolios. Most people just see a ticker symbol, but we know much more goes on behind the ticker.
Hey, Raymond, welcome to the show.
Hi, Brad. Thank you for having me. So why don't we get started by you giving everybody a bit about your background, your CPA and a CFP. Spent some time at Wells and you founded Bridges Capital back in 2018. So how did you end up building your own shop and eventually now launching an ETF?
Yeah, so I graduated in 2000. I've been in South Florida for roughly 26 years. I'm on A1A, just where the, in Fort Lauderdale, just where the hotels end and the condos begin. The reason I say that really is because of demographics, right? So a lot of people move down to South Florida from Northeast, the Midwest. They have their nest egg and they're looking to retire. It's a different type of investor down here than there is, in different places when they're accumulating. Most of my clients, I've helped transition through their retirement years. And there's a different risk mentality. When I was at Wells Fargo and I've done everything, certified financial planner, private banking, sold some life insurance at a point.
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And in 2018, I left Wells Fargo Advisors, started my own firm, basically because I had a process that was active, was able to protect clients. And it's something that I just wanted to run with my own brand and not behind the Wells Fargo brand. Took some of my clients with me. My firm currently has about $250 million in assets under management. And we started the ETF on the Nasdaq with our active process in 2023. After the COVID downturn, we did very well with this particular process. And we wanted to package it and put it out there for everybody.
Well, before we get into that, I always like to ask people on the show, what do you like to do for fun when you're not working? you're down in Florida. You have some advantages, outdoor advantages down there, but it's pretty hot this time of year, right?
Yeah, I'm a boater and fisherman. I like to boat and fish. And it's nice. It's a nice little ride across to Bimini, too, from here. So, Florida's not a bad place to live.
No, it sure isn't. I come down there and visit, but maybe when it's not as hot as it is down there right now. But let's talk about Bridges Capital. At a high level, can you talk about what the firm does and the investment philosophy that drives it?
Yeah, so we have a couple different models. Like most investment advisory firms, there's different models. There's growth models. There's aggressive models. there's bond models. But primarily what we're focusing on with this risk-averse, because we built the business, like I said, with retirees. When markets, as an investment advisor, when you're dealing with retirees that are taking constant distributions, whether it's monthly or quarterly or periodically, they need money. They don't want to see the 30% or 40% pullbacks in the marketplace that occur on a regular basis, even 20% pullbacks. You get a lot of phone calls. And those are the hardest conversations to have with people.
And a lot of advisors out there would say, my job is just to keep clients invested. Right? That's what they say. Some people say, I don't even need economics. I just need psychology. Right? Because it's just about relationships and keeping them invested. But when you have a retiree, it's a different mindset than when you're 40 and you're investing through the volatility. Right? You're doing dollar cost averaging. COVID was a phenomenal year for people that are putting money into the marketplace. Right? If you're putting money in, even 2022 when we're down 20% and you're putting money in, the volatility pays you. But when you're taking money out every single month and you don't know the future, you don't know, nobody knows the future. So that volatility is scary and it gets people to make the wrong decisions at the wrong times.
And they pull out or they get scared and they throw themselves in a fixed annuity. Right? For all their money and they're in an annuity now. And now they're stuck. And they're giving up real growth. So a lot of advisors would say that the trick is keeping people invested. So with this active process, some people might say that we launched with the fund. They might say it's market timing. But we just say it as a risk management process in order to smooth out the downturns. Because it's easy if the market does 30% and you do 20. Right? You do 18. And the market did 30. that's not a hard conversation with a client. But when the market's down 30% or 20% and you're only down 5% or 6%, 7%, those are great conversations to have with clients.
And that's where you're earning your fee. And that's where we're able to package this and we put this out there. And that's the goal with the ETF. Yeah.
So let's get into the ETF. The ticker is BDGS, the Bridges Capital Tactical ETF. You guys launched this in May of 2023. It's actively managed. at a high level, what is this fund and what's it doing?
Okay. Yeah. So what we'd like to do is we like to follow the indexes, right? We buy the market cap weighted companies that are moving the index. Everything's market cap weighted. There's 10 companies overall in both S&P and the Nasdaq 100, S&P 500 that really drive the index. So what we look to do, and you can get a beta close to one by buying these companies, right? They're moving the index and we can track it. So from a high level, there's two processes that go into the Bridges Capital Tactical ETF. There's a macro thesis that changes very, very rarely. Okay. And then there's a tactical, technical breadth analysis that changes often.
There's about four round turn trades per year, but we use it through tranches. So let me just break that down for you. On the macro thesis, basically that just creates a bias. And with the bias, it kind of goes into like an Austrian business cycle theory. It's a very, very slow rolling business cycle. Not a 20% pullback and the S&P causes a new bull market, right? This is a slow rolling business cycle saying there's too much capital creation, too much money creation in the economy. It creates a skewed price signal into the marketplace. There's an overinvestment in capital goods. We see that through houses. We saw it in boats. We saw it in used car prices. We see it in data centers and AI, right?
There's consumer time preferences don't really change that much over time. But when too much money comes into the marketplace, that's a skewed price signal. When that extra froth works its way throughout the system, the consumers aren't there really to support those elevated prices and things come back down. That's the Austrian business cycle theory. So with that macro thesis, we're still in the late stages of the COVID $4 trillion creation of new money that's worked its way through the system. And we still say we're in that late stages. yield curve inversion, money supply, the reverse repo. So money takes a lot of different indicators out there. So it's not just one thing that you can look at money supply like M2.
There's a lot of different things out there. But we still believe until we get a pricing signal that we're in the late stages of that bull market that's still going on. The second side is the actual trades, the technical indicators. And with that, what we look to do is with active process, custom basket redemptions within the ETF to be tax efficient so that we're not sitting out there sending out capital gains to everybody with our trades. When the market overall, say 6,500 companies, is trending positively, pretty much every company is participating in the run. We consider that froth. And we look to scale off our equity positions and hold cash, cash alternatives or ETF box spreads for tax efficiency within the portfolio.
And we do it through tranches. We scale off. And then when the overall market, when the breadth is trending negatively, when pretty much every company or 80% of companies are trending down, we think that that's an oversell. That's a risk off. And it creates opportunity in the marketplace. And we look to buy in. And what we buy, like I said, we buy the large cap companies, the Apple, NVIDIA, the top companies, Micron and Applied Materials have worked their way into that recently with the booms that they've had. But we look to buy those companies through tranches when the overall market is weak and strengthening. And when the overall market is strong and breaking, we look to scale them off just to smooth out the transactions and the overall turns.
Interesting. So let's stay on this for a little bit. So I guess your master, we'll call it like your master signal would be your business cycle bias, right? The economy is in a position or the cycle is in a position where you believe the market is going to continue to trend upwards. You're going to be long bias. And then with these technical trades, so let's say you're long bias and you've got market breadth is trending negatively. What is the portfolio mechanics start to do? You explained a little bit, but is it, are you trimming 10%, 20%, 40%, 50% of the portfolio? Like what does those trades kind of look like?
And what's the portfolio composition kind of look like as far as picking up cash alternatives or cash or box spreads? what does it look like? Okay.
Okay. So first on the macro thesis, we're actually late stage bull market. We're actually cautionary, right? Even though that we're booming, right? And bubbles. So we're actually cautionary. Since launch, we've held at the maximum and only for short periods of time, 60% equities, 40% cash at the maximum risk on. We've gone as high as 80% cash for long periods of time. And we're still pulling 14% annualized returns, right? Holding 80% cash for long periods of time with lower volatility. So that's because we believe we're late stages with this bull market and nobody can time.
We really can't time what's going on. we just look to control with the risk. So that's what we're looking at. So in the tranches that you say, that you're asking about, usually like last week we did. So early June, we were about 80% cash, cash alternatives. We were scaling into that strength. So it's almost like counter trend, right? That we look to do. It's not that we're completely opposite of the market because we try to ride those trends out. But when the market was overly bullish, late June, we started tranching out. We went from a 60% to an 80% cash holding, cash alternative holding.
Just last Thursday, we did a buy of 15% just last Thursday. So we held that 80% all the way through June, most of July. And then last week, we bought in a 15% tranche. With things going today, we're going to do another 5% tranche if the market holds where it's at today. Because if you look at the breadth, the breadth is strengthening a little bit under the market. We're still getting price dropping. The queues are down close to 200-day moving average now. We're looking at all the AMT, all the semiconductors. They're 30%, 40% off their highs. And we're looking to buy into those. We're going to bring in, and we do tranches. We do 2% to 3% each of these. And what we look to pick at is we look to buy things that are below their average price, right?
Companies have a value. Markets get over that value. They get below that value. We look to believe in mean reversion. It's a powerful indicator. We look to buy those companies that are below their average when we do buy. If things are way above their average, even though they're in the top 10 companies of the Nasdaq, we're not going to look to buy into those. We'll just hold those positions if we have them. And we'll look to increase the holdings so nothing's that below the average.
So the market breadth piece is pretty interesting to me. In a market like we have where a handful of mega caps have been doing so much of the heavy lifting, what is breadth telling you right now?
Right now, it's weak. The Nasdaq 100, you're looking at like 70% of the companies are in downtrends. In the Nasdaq 100, that's weak. Like the New York Stock Exchange is roughly about 50%, and downtrends is about equal, but it's been strengthening. And so what we look to do is when that's weak, we buy in. But we don't wait. We're not trying to catch a falling knife necessarily. The price action might look like a falling knife. We look at price action. prices matter in everything we do, right? We buy a house. We buy a car. We go to a grocery store. Prices is a signal. When we buy stocks, price should be a signal. People that just offhandedly discount any type of technical analysis are silly.
Price is a signal. So whether it's everything or not, but it does matter. So we look at technicals, but what we look at is really the breadth. So the price might still be falling in the overall indexes, but when the internals start strengthening, you start getting these low breadth thrusts in the smaller. We believe that there's cash flowing into the marketplace. It's just not showing in the big mega caps yet. So we're looking to buy those when they do. And we look to participate in those major breadth thrusts that go up.
So can you talk us through the portfolio construction? We touched on this really briefly. So BDGS holds a core of large cap U.S. equities alongside some ETF positions. Like, let's say your portfolio is 100% invested. What would the kind of the composition look like? What would be the split between, U.S. equities and maybe ETF positions? Or is it all equities at that point?
It's all going to be U.S. equity, large cap, or we'll get into the smaller caps through ETFs. We're not going to go out there and buy small individual companies. Like, we'll buy IWM, we'll buy Momentum, SPMO, we'll buy KRE if we want some regional bank, right, exposure in there. But we're not going to go out there and buy individual banks that are small, individual companies that are small, because it's just large cap long. We haven't been 100% invested. We're pretty much the maximum we'll go is 90%. We're always going to hold about 10% allocation in cash, cash alternatives. But since launch, the most we've been is 60% equities, 40% cash.
And that was only a couple times at the tariff low, right, when the market was down a little bit over 20%. We did a few 20% tranches and got down into the, and we did 15% tranche. We do a 5% tranche to roll it to 20. And we're going to do a 10 and then another 10 to bring us down to 40. So we look to get exposure quick and we scale in that exposure slowly as price continues to go. And we wait for these breadth thrusts to occur underlying before we make another trade to buy back in. So if, we get a little breadth thrust, but price continues to drop, we're just going to hold off, right? And we wait until the breadth starts to strengthen again and we'll do another tranche.
And then we do another tranche and we wait. And even if the price action has to go all the way up, what we'll look to do is when the breadth runs and everything starts participating, price tends to follow. We haven't really had an opportunity where price doesn't follow, but within a bear market, right? Say we get an extended bear market like COVID. but COVID was even short-lived as well. When Powell stepped up to the podium and created all these new acronyms, these special purpose vehicles that he did in order to, support the market and create bids out there. He, we had a phenomenal year, even with this process, because we switched from bearish, to a risk on.
And then everything goes macro opposite. We'll hold 80% equities versus 80% cash on the maximum, at the high ends. Go as high as 90, but we'll hold 80%. So we're trailing. So it's similar to like a racing mentality. At this late stages that we believe, we're just trying to draft the index. We're looking at getting those 14% returns. Market might do 20. we're fine with that. We're waiting for the turn. And over a full business cycle, we believe we'll significantly outperform all the indexes, the S&P, the Nasdaq, with much less volatility. And give a smoother ride. And that's the goal.
So I just have kind of like one last question about these, the money that you're putting to work or taking off the table. Is that systematic in nature or is it more, is it based off of data or is it more based off of, your active manager? Is it more based off of some other type of process that you might have?
It's a very rules-based process. So when we get the companies, we scale them off. Like Micron and Applied Materials have recently worked their way in to the top 10 because of their growth that they've experienced. So there's a list of companies. And then whether we're buying in or selling off depends on where their price is compared to where their average price is. So sometimes, like we won't even participate in AMD for a period or Intel for a period because it just continues to run, right? And we scaled off and then we weren't even participating in it for a little bit. But now that it's below its average and we're in a buying phase, we're going to look to accumulate these semiconductors currently right now where they are.
So it's a very systematic process, rules-based. And then the tranche is the way we do it. And then with the breadth analysis, it has to break a certain threshold between the S&P. We break it down to like four main categories, total New York Stock Exchange breadth, Nasdaq composite breadth, then the top 100 of the S&P 500 and the top 100 of the Nasdaq 100. And then we rate those according to how they're trending.
So doing my research before, you guys talk and focus a lot on the Sorrentino ratio rather than a lot of fund managers who might focus on Sharp. So can you talk about the distinction between those two and why it matters for the investors in your fund?
Yeah. So there's lots of ratios out there, right? CPA. there's a ton of financial ratios and a lot of them matter. And people might get clogged down. Sorrentino ratio, Sharp ratio. Basically, both of them just take your absolute return and divide it by a volatility metric. The standard deviation total is the Sharp ratio. So your positive growth over your average negatively affects your Sharp ratio, right? So if you have this skewed growth, that's abnormal, you get a smaller Sharp ratio. But if your abnormal growth is your positive trend is higher than your negative, you'll get a strong Sortino ratio.
Because Sortino ratio doesn't penalize you for going above your average price by a standard deviation, where the Sharp ratio penalizes you on both the upward and downward movement.
So portfolio turnover in any tactical strategy runs pretty high. So how does the ETF wrapper help deliver that active approach in a way that is more tax efficient than a traditional separately managed account? Yeah.
Yeah. So that's a great question because historically, portfolio turnover is like a risk metric, right? So if you're actively trading it, that's added risk, it's added taxes, it's a negative. we hold a lot of cash, T-bills. So we're going to get a large annual portfolio turnover anyways. And that's not risky, right? So, if we have a 200% or 300% portfolio turnover, people are like, whoa, that's high. But we are holding a heavy amount of cash and we scale in and out of tranches. So it's actually less. That's why I lean on like a Sortino ratio as a better risk metric than portfolio turnover. And then when it comes to taxes, the ETF wrapper, I know you're probably aware of it, but your audience might not be fully aware.
But compared to a standard mutual fund, an ETF is very tax efficient. You can do custom basket redemptions where you can basically just get rid of your capital gains without distributing out that tax gain, that taxable gain to your long-term holders at the ETF. So it's almost like a deferred capital gain. You don't completely get rid of it because the long-term holders, but you don't have to worry about taxes when you're managing a portfolio and you're trying to manage for risk. Right. So if you're just an RIA out there and you have these concentrated positions in the video or AMD or any of this stuff, you can do 351 exchanges into an ETF. Right. And get some benefit because then once you do that exchange, they'll custom basket that out for you.
But as a manager, the ETF wrapper is phenomenal because from a risk management standpoint, you don't have to factor in taxes. You can do custom basket redemptions, get rid of those long-term capital gains, short-term capital gains, and the long-term holders of the ETF don't have to worry about. They don't get a 1099 at the end of the year.
So I'm curious, you and I run, we have similar investment philosophies where we believe, tactical and risk management like matters and which could put our funds somewhere differently on a risk spectrum than a traditional ETF. So if you're, you are an advisor, but as an advisor or as a, somebody who's looking to invest in your fund, how would you describe where BDGS would sit, between that conservative to aggressive risk tolerance?
Yeah, thanks for that question. Because that's actually very important for advisors or people looking to invest in it. I'm not the biggest bond guy, like I, I, I just don't like bonds that much. some clients have bonds and they like bonds and so we do them. But I would, I get rid of your long-term bond holdings and buy bridges, you know what I mean? And then depending on your risk metric, look to, look to scale and, whether you're going to get more aggressive or less aggressive and whether you're in 60, 40. But I bias because look, we're holding, even though we're in equity, large cap equity, right now we're holding 60% T-bills, cash, and we go up to 80.
But I look, because of our volatility metric, I look to get rid of your bonds because long-term bonds, they can be as volatile as equities and you're stuck with illiquid, with an illiquid product, that, that you have to get a bid and ask for. An ETF is very liquid, even though we aren't the largest of ETFs out there, everything we hold is fully liquid. So liquidity, you can hit a very large order, $500,000, million dollar order, and you're going to get filled pretty quickly with your broker. If you want to do a very large order, you do an RFQ, a request for quote, and you'll get, Schwab, Interactive Broker. You'll get right in and right in between the bid-ask spread.
And we have a spread that's like three, four cents, even though we're not the largest of ETFs because what we hold, the underlying assets we hold are extremely liquid. So you can, you can hit it. So liquidity has always been a big issue for me. And that's another reason why I'm not a big fan of bonds. So I would, I would look through in your conservative bond allocation, your low volatility allocation, put something, a fund like ours that has a very strong Sortino ratio, right? And put it and get rid of, your, your low volatility stuff. That's just not going to give you those positive returns. you're really getting four or 5% on bonds with large cap, fluctuations in the, in the value.
If, if rates go up, you're going to lose on your bonds. Replace that with something that's going to get you, that's targeting the 12, 14% of return with very low volatility. And that's where I looked at position BDGS.
Yeah. Interesting. So just curious where your take is now, um, kind of on the cycle. I think I've read you've, your models telling us right now we're in the late stages of a bull market that started after COVID. And, what are we watching right now? What would flip this model, to be even more defensive than it already is today?
Yeah, well, we're, we're pretty defensive, right? So, um, get us more, more risk on would be actually resetting and pricing, right? So, uh, there's so many different indicators with liquidity and money. the reverse repo was something people watched for a while because it ran up to like $2 trillion post COVID. And all during, um, when Powell was raising rates and doing quantitative tightening, money went from $2 trillion down to like $100 billion. It's been very low, like $20 billion, uh, $100 billion peaks a little bit at the end of the month. And then it goes back down around $20 million, $20 billion. But it was at $2 trillion. And that's historically. So reverse repo is just where banks park their excess money at the Fed.
Fed pays, their interest on excess reserves, you know. So, um, that's one indicator. There's other ways you can look at liquidity out there and it's not one way you can do it. People look at M2, but M2 has a lot of other factors. Um, you look at the yield curve, right? So the yield curve, the three month, 10 year, it, it hasn't failed. It's just not a timing indicator. But you put that up next to recessions going back to the 1950s. Um, when it inverted, a recession followed, after it normalized and started to steepen. Yield curve steepening right now. I'm a big fan of Warsh. like I, I was an advocate for Warsh over a year and a half ago when he was in the running, uh, before he was picked.
And everyone was out there saying all these different things. Uh, when he resigned in 2010, um, over an ideological difference between a rising Janet Yellen, uh, like if you read the minutes of that meeting, this, he, he, he has a, a valid theory of inflation that I buy into as well. My undergraduate was in economics. My master's in accounting, but my passion is kind of a monetarist libertarian type leaning economics. And I, um, I'm a big fan of Warsh. I think, he quoted Milton Freeman in his opening remarks at, um, for his Senate confirmation hearing. He quoted him again just recently in the hearing he had a week and a half ago. So, I'm a big fan of him.
I think he's going to do the right thing. He can't come in there and just dictate a change. Um, right. He's the first monetarist in 16 years to be leading the Fed. Everyone else has been Keynesians. So, he can't just come in there, but these task forces, if you look at who he appointed, he's been fair. He's been fair about the people that he put on. He didn't just stack it with monetarists. He put an equal Keynesian monetarist leaning, um, mentality. And just for your audience to kind of break that down, like monitors believe that the money supply matters, that the Fed balance sheet matters. That's not just interest rates. Keynesians focus mostly on like a demand side interest rate setup. So, they've, they, Powell would say, oh, the balance sheet doesn't matter.
We're just doing plumbing. You know what I mean? Like we're doing these reserve management purchases and it's just plumbing, you know? Well, for me, from a monitor's perspective, that's just converting treasuries to USD bank reserves. That's the plumbing. You're basically just, it's a pipeline. So, um, uh, monitors would say that matters. treasuries and USD bank reserves are similar. debt does help create money, but they're not identical. There's a difference between the two, but a Keynesian doesn't really think there's a, there's a difference. And I think that that's one reason why we have extreme wealth inequality over the last 16 years. There's been a lot of real costs to the economy from that type of practice. And I think that a monitorist that's going to look at the balance sheet is going to, he's going to positively affect the economy.
And I'm a big fan of Warsh and what he's doing.
So I just want to pivot as we like, we start to close here a little bit. I'm curious, we're starting to see more traditional advisory practices move into the ETF space for all of the reasons that we've already, discussed. How has it helped maybe make your practice more efficient or how is overall, like, how has it changed your business by, launching this product and going from, I would assume you trading, multiple, multiple accounts with the same strategy. It's to now having, one trade to fire off and one holding.
Yeah. So not every client is a hundred percent invested in my fund, right? There are a good amount of clients that are a hundred percent invested in the fund because they've been with me for a very long time. We've suffered through COVID through multiple times and they like it. They like the process. They see what this active process does for them. And they trust it a hundred percent. There's other people that are younger that, are aggressive in their growth and they want the hottest stocks in their portfolio. They care, right? with the hottest stocks in their portfolio, they want to see the Microsofts that the long term. And that makes sense too. So there's a different, it's a whole skew of it.
But when it comes to managing in practice, it is a much easier because with those clients that hold it, you can do the rebalancing. You can, you can manage the fund and then it's better for the client overall. Like our expense ratio is a 0.78, right? So it's a decent expense ratio, but I don't charge a fee on the assets that are in the ETF, right? You don't double dip. So it's actually a better situation for my clients because of that. They get a, a pretty good size discount and then they're holding the ETF and they're getting that active management process. And it's not like they, it's even tax efficient because the, an ETF fee comes out before your gain.
You never even see it where an advisory fee comes out post gain, right? And it's not even tax deductible anymore since the tax cuts and job that you can't even deduct it. So, um, yeah, it's, it's a better situation overall. And I like the ETF wrapper. I like what's happening in the industry with ETFs. I think that, your podcast has a good section here where you're able to explain it because I would love, I think if advisors have a process, it's, it's profitable. And there's not one way to make money in the marketplace. There's, lots of ways to make money in the marketplace. If you have a process, you should have an ETF. You get, you get track record, you get Morningstar ratings, right?
It's out there. It's tax efficient. It's better for the clients. And, people say, oh, there's so many ETFs. Well, there's so many, there's more ETFs than there are stocks. And I like the thing where there's, there's more in, there's more recipes than there are ingredients. there's, it's, we're in a consumer driven free market. Well, we're not as free as I would like, but we're in a consumer driven, those products and those choices create value in the marketplace. And I like where they, the costs have come down for ETFs. It used to be millions of dollars to have an ETF. Now, a quarter million dollars a year can run an ETF.
And you're able to, you're able to put it out there and package it out for the investor. And I think that over time there could be a sea change when younger and younger people that are active on their phones, active in charting, they don't need the relationship manager as much, right? ETFs are, they can fill that niche and allow advisors that have processes to get a hold. And you don't have to just be at the vanguards and the Black Rocks and the capital groups, even though they have good products, right? You can be with a smaller ETF, a smaller advisory firm that has a process and is able to provide a service to you. It's not just, boxed up product that is going to give you what the market gives you.
We'll give you something a little bit different.
Well, Raymond, I really appreciate you spending some time with me today. Before I let you go, where can people learn more about Bridges Capital and your ETF BDGS?
Yeah, so BridgesETF.com is the website. And my certified team is my website. And if you want to look at X.com, I post stuff on there all the time. So at Bridges Capital, and you can look. I give constant market updates so you can find out more of that as well.
Great. Well, again, thanks for spending some time with me today.
Yeah, thank you for having me, guys. It was a pleasure. Thank you. Thank you.
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