Mike Loukas
Leveraged Bull and Bear ETFs for Advisors
Mike Loukas is the founder and CEO of TrueShares, a firm he launched in 2019 after 30 years in the investment business. TrueShares has grown to 21 ETF tickers across all three exchanges, spanning actively managed funds, structured outcome products, income strategies, and their newest launches. They snuck their first products onto the exchanges right before COVID triggered a moratorium on new listings in 2020. On this episode of Behind the Ticker, Mike joins Brad to break down Q-Bull (QBUL) and Q-Bear (QBER), a pair of quarterly-resetting hedged equity products designed to give investors directional market exposure with principal protection.
The TrueShares Platform: Not a White Label Shop
Loukas makes it clear that TrueShares is not in the white label business. Their intent was never to compete with the white labelers. About 75% of their products are internally managed portfolio solutions, with the remaining 25% coming from opportunistic sub-advisory relationships. When sub-advisors do come into the picture, it works two ways: either TrueShares identifies a strategy gap and recruits a specialist to fill it, or a manager approaches them with a product that fits their platform. Either way, the product needs to be timely and have a realistic path to critical mass. Because in this business, as Loukas puts it, the ability to actually buy the ETF with daily volume is as important as the strategy itself.
The lineup today includes traditional fundamental active management, an AI and deep learning product (a concentrated 20-21 name portfolio launched in 2020), a dozen defined outcome buffer ETFs, and a growing income and yield suite covering both domestic and international markets. The firm runs two parallel tracks: portfolio solutions (tools for building complete portfolios) and stand-alone investments targeting specific asset classes or pain points in the market.
How Q-Bull and Q-Bear Actually Work
The concept is principal protection with directional exposure. Q-Bull targets upside. Q-Bear targets downside. Both reset every three months.
Here's the mechanics: the principal goes into Treasury securities. The anticipated yield from those Treasuries gets used to buy out-of-the-money options. For Q-Bull, that yield buys call options roughly 5% out of the money. For Q-Bear, it buys put options at a similar strike. Because these are Treasuries plus options structures, TrueShares keeps the construction intentionally simple compared to buffer products that might use four to seven different contracts. The simplicity is a feature.
If the market stays between plus and minus 5% in a given quarter, you're flat, earning Treasury return. If the S&P moves more than 5% in either direction, the corresponding product kicks in and starts generating convexity. Loukas explains that if the market drops 10% in a quarter, Q-Bear could generate roughly a 6% positive return. On the Q-Bull side, a 7% up-move might capture one to two percent initially, with returns accelerating the further the market moves beyond the threshold.
The 5% threshold isn't fixed. It can fluctuate between roughly 4% and 6% depending on where Treasury yields sit. Higher yields mean more premium available to buy options, which can tighten that band. Market volatility also affects pricing: good volatility (upside) drives up call prices, bad volatility (downside) drives up put prices. But the quarterly reset means the products can re-adjust to the new volatility environment every three months rather than sitting with stale strikes for a full year.
Why Quarterly and How to Use Them
The quarterly reset was chosen for versatility. Loukas explains that with annualized products, or even six-month products, options decay causes the product's price to diverge from the market's actual moves over time. That annualized return everyone is addicted to doesn't capture the reality that the bulk of returns come in short bursts. A three-month duration keeps the correlation tighter to actual market moves, so what you see in the market more closely matches what you see in your position.
For an all-weather portfolio, you own both Q-Bull and Q-Bear, covering both tails. Start at 50/50 and toggle based on conviction. If you're more bullish, go 75/25 toward Q-Bull. The downside in either product is limited to Treasury risk.
Brad pointed out what he sees as the real sweet spot: active managers who go to cash or Treasuries when their signals turn negative. Instead of sitting in dead money, rotating into Q-Bull gives you Treasury-level downside with the chance to capture upside if you're wrong about direction. And here's a pairing play with buffer ETFs: buffer products typically cap upside participation. Mixing in Q-Bull effectively uncaps that upside by adding convexity above the buffer's ceiling. Loukas calls it "filling gaps with existing product." For anyone who has a set-it-and-forget-it approach, the quarterly auto-reset handles itself without any active management required.
Key Takeaways
- Q-Bull (QBUL) and Q-Bear (QBER) are quarterly-resetting hedged equity products. Principal goes into Treasuries; the yield funds directional options positions roughly 5% out of the money.
- Between +5% and -5% market moves in a quarter, you earn Treasury returns. Beyond that band, convexity kicks in. A 10% market drop could generate roughly 6% positive return from Q-Bear.
- The quarterly reset keeps correlation to market moves tighter than annual products, reducing tracking drift from long-dated options decay. The threshold can vary between 4-6% based on Treasury yields.
- TrueShares now has 21 tickers with about 75% internally managed solutions and 25% selective sub-advisory. They are not a white label platform.
- The products are designed for tactical managers who rotate into Treasuries during risk-off periods, and they can be paired with buffer ETFs to uncap upside participation.
Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.
Full Transcript
4,205 wordsMachine transcribed from Brad Roth's conversation with Mike Loukas, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
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Welcome to Behind the Ticker. Today we have on Mike Lucas. He is the founder and CEO of TrueShares, and they have an extensive lineup of active ETFs. But today we're talking about their newest issues, QBull and QBear, which is QBUL and QBER. They are a quarterly resetting hedged equity product. I'll let him explain to you how they operate and how they work. I think they're very interesting products. I think they could be used for active portfolio managers as they are maybe in a risk-off mode to allow them some upside exposure.
So without further ado, please welcome Mr. Mike Lucas.
Hey, Mike. Welcome to the show. Yeah, thanks, Brad. Good to be here.
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So why don't you start by telling everybody a bit about your background and how you ended up at TrueMark Investments and then ultimately starting TrueShares?
Well, we started TrueMark Investments for the purpose of starting TrueShares, right? So that's one and the same to me. But we founded TrueMark back in 2019. And after 30 years in the business and lots of time fighting the tide, I realized that, you know what, maybe ETFs are really going to stick around. And more so than that, I think we saw the next leg up for not just actively managed ETFs, but really get into that sort of solutions-based platform for ETFs where, the evolution was what? Sort of passive index strategies and then thematic.
And now I think it's morphed into, let's take more traditional active strategies. Let's take some more institutional hedging strategies. let's take portfolio construction to a whole new level. And that's what we wanted to be. So that was the onset of TrueShares. And we launched our first ETF products in 2020. We snuck them out literally right before they put a moratorium on listings for COVID and the shutdown and all that good stuff. And then we haven't looked back. So we're up, I think we have 21 names, 21 tickers out there right now across all three exchanges and a couple more in the pipeline. And we'll just, we'll keep moving on with ideas that we think have merit out there and continue to build what we think is a pretty good brand name for TrueShares.
That's great.
And before we get into kind of like the nitty gritty of TrueShares, the type of products that you offer, and we're going to talk about two of your ETFs today specifically, what do you like to do for fun? Any hobbies? You and I were talking about donuts before we started, but I'm sure that's not a pure
Hobby of yours. Yeah, it used to be. No, the donut thing has gone by the wayside. But, like I'm a traveler, which fits well with my job, right? So I think not unlike a lot of folks in the last few years, I've fallen in love with Japan, with the exchange rate where it is. If you haven't gone there yet, do it and do it now. Just an amazing place to be. I've gone there a few times in the past couple of years. I like to travel to other places in Europe as well. I'm over 50 now. So I think that automatically qualifies me to dig into military history. so that's a bit of a hobby of mine.
But beyond that, sort of golfing, skiing, I like to stay in shape and keep active. I think that's sort of the key, right? Keep moving and try not to sit for too long. Yeah.
No, I would, you and I share golfing, skiing, and traveling. It's ski season here in Pittsburgh, and I haven't picked up a club. And I'm starting to get the itch. it's like, you're ready to give it up for a month. But, it's negative, like, too real feel here today. So I'm ready to start. I'm ready to pick up a club again. But you talked a little bit about the philosophy of the firm in terms of the type of products that you want. And you've got, 20 plus ETFs that you have issued. So what are some of the different types of products you've already brought to market? What's that menu kind of look like?
Yeah. So in the early days, we had what our interpretation of traditional fundamental active management is. We launched a few of those. We have an AI and deep learning product that's been out there since 2020. Pretty concentrated, long only, 20 names, 21 names in the portfolio. And then we started to expand from there. And we put out, obviously, our structured outcome products or defined outcome or buffered ETFs, as they're commonly known. We launched our first of those back in 2020 as well. So we've got a dozen of those out there. We started to build out our income and yield suite. We've got some great income products in the platform, both domestic and international.
And then we most recently launched QBull and QBear, which are quarterly bull hedge and quarterly bear hedge. So we'll continue to travel those parallel tracks, one being what we consider portfolio solutions, meaning, look, you've got a holistic view of a portfolio, whether you're a model provider or an investor. And you need the tools to create that expected outcome and risk tolerance of that portfolio. So we'll continue to put those tools out there. And alongside that, we'll opportunistically launch what I consider, quote, unquote, standalone investments, which would be a particular strategy, particular asset class that might be in demand in the marketplace or solves a pain point.
So maybe a little bit more of the solutions based than the standalone basis moving forward. But those are our two dueling priorities in terms of product.
And some of the products, if you can correct me if I'm wrong, when I was looking at the website, you have sub advisors on. So are people coming to you actively? And I would assume, given your product suite, you have control of your own trust. So are you, in the in the white labeler realm at this point, trying to compete with some of these white labelers out there? Or do you have such a specific niche for these solutions based products that you're kind of trying to be known more for that than, hey, we're going to launch anything?
Yeah, that's a great question. And in terms of the initial part of that question, the answer is a firm no. We are not in the white label space. Our intent was never to be in the white label space. I think the sub advice product that we have really can come from two different areas. One, it can be someone coming to us. And it's a strategy that we think is timely that can get up to critical mass quickly, right? Because we know in this business that daily volume or the ability to buy the ETF is as important as the ETF itself or the strategy underlying. So we look for those types of characteristics in what we launched with sub advisors. We do a deep dive on the sub advisor.
If we partner up with one, we will more than likely do a follow-on product with them if that's something that is in their wheelhouse. But it comes from two different angles on that. One, it can be, look, we need a strategy that fills this niche. Who do we have in our role next? Who do we know in the network that we can go out to and maybe find an asset class specific manager to fulfill? And the other would be them coming to us and say, look, we've got something we want to put up there. But by and large, I think it'll probably be about a 75-25 split moving forward where the 75% will be internally managed portfolio solutions.
And then we'll do opportunistic sub advisory. Great.
So let's get into the two ETFs we want to talk about today, which is your newest launches, QBull and QBear, which QBull is QBUL. QBear is QBER. So really at a high level, what are these two funds trying to accomplish?
Principal protection with directional market exposure, equity exposure. All right. So if you look at our structured outcome product lines, if you look at offered ETFs in general, right, particularly the equity-based ones, you have a thought process behind them is like people still want exposure to directional market moves, right? They still want exposure to the growth characteristics of large gap equities, for example. But they want to mitigate the downside. They're willing to give up some of that upside potential, right, for downside mitigation. And so those are great. we have a series of them. There are lots out there. They all do what they're supposed to do, as long as you understand the math behind them. And we thought to ourselves, look, they're a great standalone.
A lot of people don't necessarily understand how to implement them. And a lot of people implement them in a way that might be incorrect for their investment goals. And so we thought, look, let's target the holistic portfolio viewpoint again. And we can provide tools that can fully protect or at least treasury risk, right, is your downside protection in these strategies. But it can allow investors and model providers alike to get out there and incorporate these into their portfolio, blend them with whatever asset class they're in, just in case they're wrong or just in case they want to toggle their risk exposure.
Because it allows you to create equity-based risk, however you have upside exposure to large-cap equities with QBull or downside, potential downside alpha, right, with QBear. So they're mirror strategies, different directions. QBull, three-month duration before they reset. They reset every three months. So QBull, it would be, look, if you've got a market move that's north of 5% in a quarter, then QBull kicks in. And your downside is that of holding a treasury. So you've got this opportunity to say, like, I have this risk tolerance.
It's non-negotiable. If the market booms in a quarter, which historically it does a heck of a lot more often than we think, I want to be able to participate in some of that. But I can't take on the risk. On the other direction, QBear, same concept. if the market drops more than 5% in a three-month period, you will start to generate a positive return from QBear. And that band between plus 5 and negative 5 for the two strategies, you're flat, you're treasury. So it's really a more versatile tool, I think, than what we typically see out there. It's meant to allow someone constructing a portfolio to blend it with offered ETFs, blend it with long-only equity exposure, blend it with cash.
So you can create all sorts of scenarios with most asset classes out there that can benefit from adding this ingredient to the portfolio to achieve what your desired outcome is. Yeah. No, it makes a ton of sense to me.
So just so we're, really clear, if I owned QBull, I'm just going to get treasury return with maybe some income unless the market exceeds, until the market exceeds 5%. Is that correct?
So if you're QBull, yeah, market upside 5%, QBear would be market downside 5%.
And is it going to be a one-for-one after that threshold?
Or is, I know it might never be exact. Yeah, it would never be exact. So it would eventually start to catch up the farther the market moves in that direction. So if market's up 7% in the quarter, you're going to get, you'll get some convexity once it pushes through 5%. So you'll initially start at sort of 1% or 2% and it'll start to increase and gain convexity the higher it goes above 5%. Same thing on QBear in the sense that, if the market's down 10%, you're probably going to capture, let's say, 6% positive return. Just obviously throwing out estimates.
And QBull, the same type of thing, right? Yeah.
I could see QBear just thinking about portfolio construction. if you're really bearish on the market, but you don't have the risk tolerance or want to short the market, you're right. You're going to get paid. You're wrong.
You're just exposed to treasury risk. Right. That's exactly right. Yeah. Okay. It's the same old concept with a hedge, right? No free lunch, right? So we can't give you the full benefit of the move, but we can give you an opportunity to, even if, say, you're tactical and your signals are telling you to go all cash, own some QBull just in case. Yep. Right? you've got treasury risk and you've got the potential to catch it, that upside if you're wrong or something occurs in the near term that changes the directional momentum of the market. And same thing with QBear. Sure.
Yeah. No, it makes a ton of sense to me. So can you kind of explain the asset allocation inside kind of the balance in between, the treasuries that you're holding and then I'm assuming you're got to be holding some options here. So how are these being constructed? Maybe start with QBull first and then we can flip to QBear. But how are these portfolios being allocated and then rebalanced every three months?
So much like we do with our structured outcome series, we try to keep it as simple as possible. when you have caps and one-for-one participation to a certain level, et cetera, you typically will have minimum sort of four to seven different contracts in the underlying mechanism. So with QBull and QBear, very straightforward stuff. So the principal goes into a treasury. So we take the anticipated yield of that treasury, right? And because it'll be a zero, right? So we take that anticipated yield and then we allocate that to buying a directional position. So QBull, for example, we will put the principal into treasuries and we will take that income and we will go ahead and buy out of the money calls to the extent possible, right?
So the higher the yield from that underlying income instrument, the more call coverage you get. QBear, same thing. You put the principal into a yielding investment, in this case treasuries, which is perfect where the yields are where they are right now. And you take that anticipated income and you'll buy a put position out of the money, in this case 5% below the mark. So the coverage on those will get you your convexity, right? So the more coverage, the greater convexity. Right. And that's what I was going to ask.
So does your 5% number fluctuate based on current yields of treasuries? Like will that target, I know we've used that blanketed, but are you always targeting that 5% gate or is it going to be variant based off of where treasury yields are?
Yeah, it could vary. Not significantly. But it could vary. So, if you've got solid coverage on your yield, you can get it down, say, 4%. You're never going to have it down, 2% and that sort of thing. But it can vary between sort of a 4% to 6% band. Okay.
No, it's interesting. And so what was the impetus behind choosing a quarterly roll strategy? A lot of buffers are now point to point that are, year over year or some now month to month. Like what was the idea behind picking every three months?
Versatility, I think, first and foremost. All right. So depending on how you're using these, and I think we could go on for a whole other podcast session on this, but I think the understanding of the sequence of returns, it was always misconstrued in the marketplace. We're still so addicted to annualized returns and not fully understanding that the bulk of those returns come in short periods. So with the annualized product or even the six-month products, you have an extended period of time where your expected return doesn't necessarily match up with your current price or current value of the investment because the options decay, because of the length of those options.
So using a shorter timeframe allows the product to react with a higher correlation to what the market's doing. And if you are, just as an example, one way to do this is, if you've got a buffered, a 12-month buffered ETF strategy where you're layering or laddering 12-month buffered ETFs and you blend it with QBull, market pops, QBull goes up. You can click that coupon and dollar cost averaging into your buffer strategy, right? You can trade out of that QBull and go in a QBull if the market has pops, reverse your outlook on it, click that coupon, dollar cost averaging to the other asset class.
So that correlation to the market is important to us because we believe that you have to be versatile with some of these moves and take advantage of them if you're blending it with other asset classes. Now there's always just, there's set it and forget it. So the other aspect of that is it works for both sides, right? If you're not tactical at all and you like to set it and forget it, it just re-rolls every quarter. And so it's going to give you that dynamic sort of adjustment to the market on a quarterly basis regardless of what you do. So you have that tactical option and the set it and forget it option and that tighter correlation to market moves because of the shorter option expiration period.
Makes a ton of sense to me. I guess I asked this question on one hand, but I didn't ask it on the other hand, which was I asked you about yields and how that could affect your target. But I also missed, market volatility, right? And that's going to affect the price of the option. So can you explain that relationships is like as markets enter a period of volatility? Let's just say, we get some volatility to rear here in the next couple of months. And how will that affect this product as you do your roll again in second quarter?
Yeah. So it's in the end, it will obviously have an effect, right? And I think that depending on the direction of that volatility, right? I always like to say there's good volatility and bad volatility. And so relative to the product that you're in, whether it be QBowl or QBear, if that's upside volatility, if it's the good stuff, yeah, sure, it's going to drive up price of calls. And, it will adjust to that, right? Based on how much of the underlying income we use to establish the call position. If it's that bad volatility, a downside volatility, it'll drive up puts. But again, understanding that these strategies will adapt to that environment because of their short-term nature.
And that allows us that three-month period. If that's extended volatility, it allows us to readjust to that volatility because we have a more opportunistic reset to the portfolio than having to sit around for 12 months and wait for it.
So let's talk about, you talked a little bit about how you would maybe utilize these products with, a series of buffered ladders and trying to create really like a defined outcome type portfolio. But if I'm an advisor, I've got your typical model portfolio, 60-40 that's holding low-cost passive ETFs, how would you advise on them kind of incorporating these? Would you have them have one or the other in the portfolio at all time?
If so, like how much? I know that that's going to be a total risk-related question and maybe that's a loaded and bad question. But, how do you see kind of using them as a traditional advisor who would be listening to this show?
And it comes down to conviction on market direction, right? So if you're purely establishing a risk tolerance and you've got a 60-40 or some other asset allocation that is meant to be an all-weather portfolio, you own both. You want a little bit in both because what you're doing is you're covering both tails. And if the market's up, it's going to magnify your right tail. The market's down, it would ideally, if the market's down as a dramatic move, you're going to create a positive return on the left tail. All right, so adding it into your low-risk sleeve, your treasury risk sleeve is going to give you some convexity on both tails in a positive way.
So if that's your goal, if it's, listen, we like to build portfolios that are all-weather, we have an expected return, expected risk tolerance, and we can blend this in without corrupting our risk tolerance and potentially add some convexity to the positive return in the portfolio, then that's great. if you have more conviction on the direction of the market, then that will dictate, say you started 50-50, Q bull and Q bear, maybe 75-25, matching up with whatever your directional conviction is. So the beauty of having both in the portfolio, you can toggle back and forth to match up with your risk tolerance or your expected market return.
And that's, that's the reason behind both, right? Giving the ability to own both, toggle back and forth between the two, or own one standalone if your portfolio requires that based on your expected return to risk tolerance.
Yeah, for me, personally, this is a perfect product for the types of strategies that we run, right? And, when we get in a risk-off mode, we're sitting in treasuries, right? And we are going, and there's a lot of managers that manage a long-only active book like that, where you're, you're moving into treasuries, you're moving into money markets. To me, it makes a heck of a lot more sense to be rotating that exposure into Q bull if you're wrong, waiting for that momentum or those signals to change to start cutting that Q bull exposure and get long the other assets that you want to get long. I think some of the traditional buffers could theoretically work for that, but some of the caps can sometimes interfere.
But this, I think, is a perfect product for any long-only active manager that tends to move into treasuries, money markets, or short duration when, they have a negative view on the market.
Right. Yeah, I think you're spot on. And then when you talk about the buffer ETFs with the caps, for example, Q bull mixing it in with those buffer ETFs, it can uncap the caps buffer, right? Right. And it's going to have that effect to give you some convexity to the upside. So you can fill some gaps, right, with existing product using these two. And, but again, I think your understanding of this is pretty spot on. Yeah.
Well, Mike, I really appreciate you spending some time with me. I think they're really unique and you're going to, you've given me personally something to think about. But before I let you go, where can people learn more about TrueShares and your entire suite of products?
As always, True-Shares.com is your best source of information. And you can reach us through that website if you want to contact anybody on our team. But it's chock full of information on all of our products. Best place to start. You and I know in the ETF business, 60 or 70% of your investors never talk to you anyway. So we like to put as much information as we can at their fingertips. And once they get comfortable with what they want to discuss, then they can reach out to us as necessary. But that's the place to start, True-Shares.com.
Well, again, Mike, thank you so much for spending some time with me. I appreciate being here.
Yeah, pleasure, Brad. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
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