John Davi, Astoria PPI

To starting Astoria Advisors? Yeah, sure. So spent 20 years doing institutional research, portfolio construction for firms like Merrill Lynch, Morgan Stanley. So 10 years at Merrill Lynch, 10 years at Morgan Stanley. Started my career actually in quantitative research. So kind of late 90s, just, I know quantitative analysis, portfolio construction is very much in vogue. But, back then, it was all about single stocks and fundamental research and, being institutional I rank, like that was the big thing in, research and even at the sell side. but, from a, from a, from a stand and start, it was always about how do you build portfolios that delivered, unique sources of risk and return for

Yeah. And I want to talk about all that as we kind of move forward with the conversation. But before we talk about the business stuff, I always like to ask each guest, what do they like to do for fun? You have any hobbies outside of just working?

I got three kids, two teenage daughters and a two-year-old son. So my time is very much spent with my family. it's July, it's going to be July, late June, but, I'm starting to do my kayaking and biking and cycling. So I like to do outdoor activities. As I get older, I definitely appreciate the warm weather more and more. I very much, enjoy kind of, sports, grew up as a diehard kind of New York Mets fan, Jets fan, Knicks fan. So it's been quite a struggle. I speak to somebody that's from Pittsburgh that has had a lot of success with their sports teams the last 20 years. But, between sports and family and physical activity, those are my kind of passions.

Yeah. Well, other than the Pirates over here, you're right. We've been pretty fortunate. And like you, I also have a two-year-old son. So you and I are going through the same thing right now, but they're getting to the fun stage. So it's not too bad anymore. So primarily, I want to talk to you about PPI. But before we do, let's talk about Astoria Advisors as a whole. So you kind of touched on who you work with. So you work with registered investment advisors. Maybe let's dive in a little bit more into what you guys do. We have a very similar business, except I noticed when I kind of looked at the ADV, do you also custody assets as well as provide model portfolios, like outsource model portfolios as well?

Okay. Good question. So custody is a very legal-ish term. Let me drive the point home. A lot of advisors we work with, like they don't want to touch the portfolio too much, deal with corporate actions, rebalancing, tax source harvesting. So we empower advisors by building solutions. And then they really do like that. We're actually physically doing the trade in, the rebalancing, corporate actions, raising cash needs. So I think some of my peers, and I'm not sure what your firm exactly does, but they'll have their strategic asset allocation model on a TAMP, like SEI, InvestNet, and say, we're the best thing on earth by our strategies on InvestNet.

Yeah. So we do more of the OCI work rather than physical touching the assets. And that's interesting. You're almost like providing TAMP-like services while still providing your strategies, which I think is extremely useful because you're right. Some of these larger TAMPs can get expensive. And you're also right that there's way too many strategies on there for advisors to choose from. So I really appreciate you kind of going through that because when I was going through it, I wasn't sure if you had a separate business where you were working directly with clients, but it just sounds like you're working with RIAs directly and totally. So.

Independent RIAs that, like sub, half a billion, but that's kind of the sweet spot. Once you get past half a billion, they had their own trader, their own CIO. And then it's like, it's, we become less appealing to them per se. But that's been the business plan so far. And, maybe that evolves over time, but for now, I think like the firm kind of prides themselves in our research and, how we build portfolios. And then the add on is

Like the operational aspect of what we do. So in terms of building portfolios that these RIAs are utilizing, how, how, how do those investment decisions get made? How are you building those portfolios? Is it much like the quantitative lens that you, you worked in prior or kind of talk about your investment philosophy as a whole and how you're making investment decisions?

So, so the goal would be, so we have a couple of pillars and we have like a slide deck that I could, kind of point, watchers and listeners to, but, we believe in after tax, after inflation, risk adjusted returns. So those are some pretty serious words. After tax, that's important, right? That's what tax loss harvesting. So you go on a temp, they're not going to tax loss harvest. I don't think nearly as frequently as we can. The beauty of ETFs is that once you get in those big building blocks, like, large cap, mid cap, let's say like, there's a number of ETFs you can tax those harvest. So after tax return is quite important. After inflation, that's a big thing. We've always had inflation linked assets in

Portfolio construction process. Let's dive into that just a little bit deeper. So depending on where you are in terms of that cycle thesis using your indicators, is that going to change the asset allocation inside of your portfolio, let's say it's a 70-30 portfolio and you're in a certain part of the cycle. Let's just say you're in a cycle. Do you believe that the market might go through some volatility or some downside, or we might have a recession? Are you going to be tilting that portfolio actively to make it less risky? Or is it just in terms of providing insights and research to clients?

So, yeah. So good question. A lot to unpack there. I would say that what we're trying to do is, okay, so we kind of identified going into this year that, we were kind of late cycle. if you went to our Outlook report, we said there were three things that the market was pricing in. Earnings recession, economic recession, and then, some like DEF CON5 downfall in the S&P, right? Like another 20%. So we thought there would be one of those, like all three were not going to happen, right? Economic recession, earnings recession, and then another DEF CON5 drawdown in the S&P. By the way, we had one last year, right? S&P fell something like 28, 30%. Closed down in the year 18, but we rallied significantly,

Right? Q1, Q2 of next year, as we see a cycle play out. This is super interesting. And I hope you don't mind. I know we're here to talk about, PPI, but this, I find your portfolio construction interesting. And I like this idea of having really a passive tactical piece with a satellite side of it that can kind of be a little bit more tactical, right? You said it's not tactical, but it sounds like you're looking for some spaces to be able to, take advantage of some opportunity. So when let's just stay with the 70-30 portfolio, 70% equity, 30% fixed income, what portion of that portfolio is going to stay kind of core passive and what, how much are you going to

Sleeve away to be, as you call it, kind of satellite? I try and keep it where it's like half the portfolio is tickers that aren't going to change. The other half are up for review with the goal of like no more than like 30 to 35% turnover on average per year, assuming that like it's normal market conditions. Sometimes that just could be like a big ticker swap, like not that we're tactical, but, we made a decision years ago to kind of split our currency risk, like half currency hedge, half unhedge. So like that was like a decent sized ticker swap, but that's not like us being tactical. Right. we just subscribed to the idea that like, are you getting paid for owning,

Yeah, that's, that's interesting. Thanks for explaining that to me. Kind of one last question because you and I are both in this, model business outside of the ETF. What do you find to be most frustrating for you in that business? I know I have my opinion, but I'd like to get yours.

What's most frustrating in the models business?

Yeah, well here, I'll give you mine. It's really frustrating to me. We have, I don't know, 10 models. It's really frustrating to me when we sit down, with an advisor and we lay out a really nice asset allocation between our models, but one sleeve of that asset allocation does really well and they want to strategy chase it. And then all of a sudden they are, they're making a tactical move within our strategies to kind of chase performance, right? Whether it's a single stock growth model, it's happening this year, right? Growth, obviously tech was bad in 2022. Model didn't perform well. It is started off the year with an absolute bang and now everybody wants to chase back into growth and back into specifically unprofitable tech growth. So that for me is very

No, I think we have the same frustration. Performance chasing is real. I think like there's a lot of people that talk about this, like how long can you let a strategy underperform, right? you do, you should have, three years, five years, 10 years, like let a manager kind of play out their views. what you'll find on us is that like, because we allocate towards our alternatives and alternatives, let's say, our drag on portfolio, like you, like we look at alternatives as insurance, right? Like you need an event to happen for the insurance kick in like car insurance, right? You get into a car accident, boom, your, your premium that you pay every year finally gets, put to use, right? So, we, we just need like events to happen for our models to

And they have very short attention spans. Yeah. Yeah. I find that, I find that as well. So one last question before we dive really deep into PPI. You, with all of these other strategies that you run, do you have plans to launch any more funds or is, is PPI going to be, your single strategy or I should say your single ETF moving forward? Well, I think like we're at an interesting

Position because, we do have, some success with PPI and it's opened our eyes to like, okay, what could the future look like for us? so I think like, in, in, we're never going to be the next, iShares or Wisentree or Pacer ETFs. But if there's a few interesting tickers that we can bring to the market that'll help solve an internal problem that we're having, I think that could, my frustration with, okay, you start with the S&P, right? That's got like 33% technology and communication stocks. So to me, that's an issue just because there's like too much sensitivity to like one sector and valuations have gone up and now the S&P is back to being expensive. And then now all the smart beta ETFs are optimized against the

So yeah, I would agree with that. So let's talk about PPI, which is inflation sensitive ETF. You guys run the narrative and the ticker, I'm assuming, I should say the environment and the ticker symbol itself has probably been good for you, especially with inflation ramping and you got the perfect ticker for inflation sensitive ETF. So could you explain what PPI is meant to do? And then we'll talk about how the investment process works in the selection, but what is it really designed to do?

So it's designed to kind of help a multi-asset portfolio deal with inflation pressures. Okay. In a nutshell, that's what it's trying to do. It's trying to give you exposure to different parts of the capital market system that are, that are going to be sensitive to inflation. at the end of the day, like these are growth sensitive, business cycle sensitive sectors. So we're leaning on energy. We're leaning on materials, industrials, a little bit of financials that makes up the equity side. We have an allocation towards commodities and commodity equities. And then we have a little bit of exposure to tips. So it's a multi-asset class ETF, but basically the way that I think we're thinking about portfolio construction is that different parts of the inflation

Yeah. So you, you, you kind of hit on this in terms, sorry, did you have something else you wanted to add?

Yeah, just one thing. the tech, the P ratio currently right now is about eight. these are cheap stocks, right? It's very difficult to find cheap stocks in an era where the S&P is, 20 times, forward earnings. I've seen periods of my career where energy stocks are much higher in terms of valuation. when I started my career, energy stocks were north of 15% of the S&P sector weight. There was, there's been times where it's like 2025, not in my career, but like in the seventies, which is, it's this interesting point, right? Because energy got down to like two, three percent, because of the last decade, it's all been about tech and, ESG type stuff. So like, it's just interesting

So how are you doing, how are you looking at, I understand all of that, but in terms of actually picking the underlying names in the portfolio, how does that security selection process work?

So that's the kind of true North of Astoria, quantitative, systematic portfolio construction on the stock side. So outside of our ETF managed portfolios, we have like quantitative stock portfolios for advisors that want it. So it's a robust screen. We're looking at ultimately, at the end of the day, we're looking for cheap stocks with strong growth prospects, good momentum that have shown sensitivity to CPI historically, and that are high quality in nature. So looking at those four sectors that I mentioned, and then mining for the alpha and the beta, five US stocks, five non-US stocks. So kind of 40 stocks, let's say in general. And then there's like, some ETFs for like tips and commodities exposure, but it's very kind of rules-based systematic.

Yeah. And then in terms of weighting decisions and also, rebalancing, since it's an active fund, I'm sure you can just rebalance unless you have a rebalanced schedule. But as far as weighting inside of those different pockets, that is that decision also fluid or do you have kind of guardrails on the weightings in terms of the difference between equities and tips and all the

Other buckets? Yeah. So good question. So it is not a tactical strategy where it's going to go to like a hundred percent tips. Cause we're thinking about like de-risking because I don't know, there's some invasion in Ukraine or something like that. Like that's not what it does. Like, of course we're active, so we don't have to like have a rule in place where we say, okay, we're going to be like no more than 20% fixed income. Um, yeah, today we've been running it for, a year and a half. We've kept the bands like 70 to 80%, 85% stocks, 10, 15%, kind of tips, um, somewhere around there for commodities. Um, rebalance is like twice a year. Okay.

And last year. So, yeah. So that actually feeds into one of my, one of my questions, um, which is if you're, if you're, uh, talking to an advisor, a new advisor, you don't have a OCIO relationship with, you're, you're not running an SMA for, how would you, uh, kind of talk to them about using PPI in their already diversified model portfolio suite? Like what type of allocation would you suggest and, and, and where would you put that in kind of a model portfolio, uh, for an advisor that, already has an existing suite or an existing model

Portfolio they're running? So I think it should come more from the equity side. Cause that's what it, like if you sell equity, like if you sold your bonds to buy PPI, like, think of a PPI is like a 70 equity, 15 bonds, 15 commodities. Right. So you should kind of proportionally trim your exposures that way. Um, I think like the way we've done it, which is use it as an alternative, um, and just kind of look at it as like an inflation insurance, right. as long as you, like I have car insurance, right. Cost us two grand in New York to, cover two cars with two drivers, like no matter what, like we're going to spend that two

Yeah, no. And I would agree with that. And so let's, as we wrap up here, I think that was a great dive into what PPI does. And I just would want to ask some questions about how you're going about marketing the fund, right? How, what are, what are some of the things you're doing? I talked to a lot of managers on here. I talked to people who were in the service side of the business. And the number one thing is it's really hard to get out there and sell these things. So how is your firm, how is Astoria kind of positioning PPI and how are you getting out there and trying to sell it and grow, grow the

Fund? Yeah. And so Access Investments is the advisor. So they're primarily responsible for sales and marketing where the portfolio manager is, I'm a content generator. So, it's, it's helpful because I come with a big, kind of media presence and, this is what we do. Like we're, we're a sub-advisor for a lot of RAs. So I know exactly how to like communicate the message once we get people on the phone. I don't want to speak on behalf of Access, but they've got their own distribution channels, digital marketing, they've got a process for kind of how they, email campaigns and drip campaigns and whatnot. So let me bring that question to like what I see other issuers do, you know,

Yeah. I think the most frustrating thing, and we've kind of, we're, we're now in, in that $1,500 million size, the most frustrating question was, or, or rebuttal to when we would talk to advisors is, well, it doesn't have any volume. And I'm like, volume is not indicative of liquidity. let's, let's move on past that. But I did, as we wrap up here, I did want to say, I noticed you, you have done a lot of media. I was on your site today. So you've, you have done a great job of getting yourself out there, getting on CNBC, getting on all the big networks. And so how has that kind of helped you tell the story to advisors, not just with PPI, but with other things, do you see that as a big proponent to allowing your firm to

Continue its growth? Yeah. I, I published institutional research for, 20 years before, I started Astoria. So I just, I've, I've had some relationships with the media, but to be clear, Brad, like, more in San Marino, like they didn't care if I went on TV, like it was about publishing research, getting institutional clients to like read the research, transact with these firms. Like that was very important, like drive revenue. So I was kind of business savvy. what I would say is that, in this world, like the buy side, you, you've got to have like a presence. So you just, if you don't have relationships, how do you do it? Like once you start getting vocal on Twitter and people start

Well, John, this has been very helpful. And I really appreciate your time before I let you go. Where can people learn more about PPI and also learn more about a story advisors?

Yeah. So if you go to storyadvisors.com or on Twitter, add a story advisors, that's the best way to find information about the firm and you'll find information about all our solutions.

Okay. Well, great, John. Again, thank you for taking the time for being here with us today. And I look forward to, having the opportunity to one day hopefully meet you in person.

Yeah. my wife's family's from Pittsburgh, so I'm there, once a year at least. So.

All right. Well, you'll have to shoot me a note and I'm in New York probably six times a year. So maybe I'll run into you one day down, down on the floor. But again, John, thanks for your time. And I really appreciate you doing this. Cool. Thanks, man. Bye.