John Forlines

John Forlines has built his investment career around a principle borrowed from behavioral science: people are roughly two-and-a-half to three times more likely to be risk-averse than gain-seeking when it comes to money and health. That asymmetry , the fact that losses hurt more than equivalent gains feel good , is the foundation of Donoghue Forlines' philosophy and the design of their DFRA ETF (Yield Enhanced Real Asset ETF).

Risk Management as the Core Product

"Every time a business cycle shifts over or there's radical change in the market, like a 2008, you're going to lose clients," John acknowledges. "That's really what we built our philosophy around. To be poised to help out during those times of large drawdowns , I think that's an important function." His firm exists because enough investors recognize they don't have the emotional stability to weather another 2008 without guardrails.

The irony of running a risk-managed strategy is that success creates its own questions. "One of the things you'll find out is when you have a really good year from a nominal standpoint, there are questions asked about you. Like, how come you did so well?" It's the opposite of what most managers experience , and it reflects the reality that clients of risk-managed strategies are inherently different from growth-seeking investors. They want consistency, not home runs.

The Private Equity Lens on Public Markets

DFRA was engineered to fill a gap: an alternative-type vehicle that actually generates yield. The fund's screening philosophy mirrors how private equity evaluates companies, not how traditional public market screens work. "There's nothing better , a lot of the way screens and managers look at companies is wrong in our view in the public markets. And we look at it like private market folks do , we look at our version of free cash flow."

The emphasis on free cash flow over reported earnings is deliberate: "If you're looking at free cash flow, you're not looking at manipulated earnings or charges here and there. It's basically money that's available for investors." This screen is built directly into DFRA's rules-based methodology, targeting real asset companies , REITs, infrastructure, commodities, and other yield-generating businesses , through a cash-flow-first lens.

Rules-Based Execution, Active Philosophy

While the underlying philosophy is active and informed by decades of experience, the ETFs and funds themselves are very much rules-based. John draws a distinction between the systematic execution of the funds and the broader firm philosophy around risk management. The risk-on/risk-off decision framework considers market regime, valuations, and the behavioral tendency of investors to panic at exactly the wrong time.

The challenge, especially in environments flooded with monetary stimulus, is maintaining the discipline. "Markets like this one, the last few years where we've been flooded with monetary stimulus, it could be kind of daunting." Brad agrees from direct experience: "Every time I talk to an investor or an advisor who says they want risky investments and want to beat the markets , they're generally the first person calling me or panicking when there's a drawdown."

Yield Enhancement in Real Assets

DFRA's specific construction targets what John calls "yield enhanced real assets" , companies generating real cash flows from tangible businesses. The portfolio includes REITs, companies in the materials and energy sectors, and other businesses where the cash-flow generation is tied to physical assets. The yield component isn't a simple dividend screen , it's a free-cash-flow screen that captures companies capable of returning capital to shareholders regardless of how they classify their distributions.

The "enhanced" part comes from the security selection process. Rather than just buying a broad real asset index, the free-cash-flow screen filters for quality within the real asset universe. Companies making it into DFRA have to demonstrate genuine cash generation, not just sit in the right sector classification.

The Behavioral Finance Edge

What makes John's perspective distinctive is how thoroughly behavioral science informs the business strategy, not just the investment strategy. He understands that the clients attracted to risk-managed approaches are fundamentally different from momentum chasers. They need different communication, different expectations-setting, and a different relationship with drawdowns and rallies alike.

For advisors looking to add real asset exposure with genuine yield and downside awareness, DFRA offers a specific solution: real assets screened through a private-equity lens on cash flow, wrapped in a rules-based ETF structure. It's built for investors who know they'll panic in a crash and want their portfolio to account for that reality before it happens.

The conversation touches on a broader theme that runs through many Behind the Ticker episodes: the gap between what investors say they want and how they actually behave. John has built an entire business around that gap. Investors say they want growth, but they sell at the bottom. Investors say they can handle volatility, but they panic during drawdowns. Donoghue Forlines' philosophy acknowledges this behavioral reality upfront and designs portfolios accordingly. The two-and-a-half to three times loss aversion ratio isn't an academic curiosity , it's the foundation of their product design, their client communication, and their business strategy.

Key Takeaways

• That asymmetry , the fact that losses hurt more than equivalent gains feel good , is the foundation of Donoghue Forlines' philosophy and the design of their DFRA ETF (Yield Enhanced Real Asset ETF).
• "Every time a business cycle shifts over or there's radical change in the market, like a 2008, you're going to lose clients," John acknowledges.
• To be poised to help out during those times of large drawdowns , I think that's an important function." His firm exists because enough investors recognize they don't have the emotional stability to weather another 2008 without guardrails.
• The irony of running a risk-managed strategy is that success creates its own questions.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.