David Cohen

Came. So you ran around with the originals of the ETF industry, it sounds like. you've been in the game for a very long time.

Yeah. There's so many people who were in this business in a long time. yeah, I rang the bell at the American Stock Exchange a few times. So yeah, so a lot of us did. And there are a lot of people out there and a lot of us are still in the game. And a lot of the innovation you're seeing is coming from those people and the people I worked with in those times. Yes. So yeah, it was pretty dynamic business a long time ago. And it's grown up quite fast.

Yeah. So what about personally? What do you like to do when you're not working? What are some of your hobbies and things you like to do?

Well, I've taken up, as I was telling you before we started, we recently kind of bought a little gentleman's farm in the middle of Long Island. And we're redoing that. We're raising birds and animals and things and rescuing cats and dogs and things. It's a very peaceful existence, a little bit more relaxed than working on Wall Street.

Yeah. Well, it's funny you say birds. My mother-in-law, two weeks ago, a baby crow fell out of a nest and now she's raising it. I'm like, are you sure you can raise a crow? And the thing still comes back. Yeah. I don't go rescuing birds out in the middle of the wilderness and certainly not crows. Yeah, exactly. That's what I said. I said, you're nuts.

There are some crazy crows, but it's more like Long Island has a lot of feral cats that get re-housed and things like that. So the outdoor cat issues. So it's a nice way to kind of get in touch with me.

Sure. Well, that's great. Good for you. So let's pivot a little bit to handles. So how did the indexes come about and were you running strategies or were you running money on these strategies before they came? Indexes? Can you talk about the story of how this came about?

To be clear, my partner, Matt, and I come from the product development side. He's a securities lawyer. I worked in product development and came up with new ideas and concepts and new ways about how to bring. And a lot of what we did back in the Claymore days was closed-end funds. And we came out of the closed-end fund market. And handles was really... And closed-end fund markets, it's an interesting nuanced part of the business where a big company like BlackRock or Eaton Vance or whatever will bring a fund to market and syndicate it through advisors and they'll distribute it. And then boom, they manage the money and they believe that, in fact, they have the money in perpetuity and they provide. Essentially, most of them are leveraged income strategies or a large

Used to drive income strategy. But to be clear, we never ran money. We didn't run the money. We were

Not portfolio managers. We are not portfolio managers now. We create indexes. And there's a reason why we

Created it. Yeah. So can you talk a little bit about the strategy behind handles and how it operates?

Yeah. I'd be happy to. And let me just go back to what I was saying. Just finish what I was saying there, which was there's a reason why we like indexes. And that's because indexes have rules. And rules can't... And they don't change. They don't deviate. There is an argument in the world for active management for your product, your THLV, which I love. Fantastic, fun, very well thought out, nicely done. And there is a room for that in the market. There's a place for that. There are also people who are true believers in passive strategies, things like the S&P 500 or just buying the market. And then there's room for things in between. And handles tries to be in between, right? It's kind of in the middle. And the strategy is based on the fact that sometimes passives are right and sometimes

An ETF. And it's actually funny. We were working on this idea called Stactical, which would combine static holdings like the SPY and some other things with tacticals, but very similar to what you do. It wasn't a yield play, but it was more of a take on when there's times where you should be strategic, there's times when you should be tactical. And how do you find when that time period is, which is a very hard thing to do, but it's something we've been working on.

It's really hard. You're right. And it's really hard to do that. Not only to do that, but to do that and create something that people invest in a timely manner. Because there's so much of the effect on going into something when it feels good, which is usually not the time you should go into something. But in fact, you should go into it when it doesn't feel good. And investors do the same things when they go in and out of our products and the funds and things that they buy. Some things are designed to be long-term holdings and they're designed to look over the long-term and smooth performance over a long time. And when you trade, you're actually working against yourself because you can be right, you can be wrong, or you can be dead.

Yeah. Yeah. I found that out early when I thought day trading was fun until you blow up an account or two in college. And then you're like, all right, let's find a way to be invested more often than not. But back to Handles. So Handles 7 is an index that runs an ETF with a ticker HNDL. Can you talk about that strategy in particular? Because there's over a billion dollars in that ETF.

Yes, that's correct. It was our first ETF. And it's really... The idea behind Handles is we don't fancy ourselves to be stock pickers or things of that nature. That's not what we do. That's not what we're stocking. We look at the market. And if you look at markets, Harry Markowitz, who was the father of modern portfolio theory, basically showed that diversification is the only free launch in investing. And so what we were looking to do when we created this index that is tracked by the HNDL ETF is to have a very diversified portfolio. So we used other ETFs, which gives us, in essence, somewhere in the neighborhood of exposure to 20,000 individual securities. I think we counted up one day. We were sitting around and saying, okay, how many are we?

Want to touch base on and ask some follow-ups. So how does the leverage component work? I understand what you're doing in terms of leveraging and deleveraging, but this is a rules-based index. So what triggers a leveraging event and what triggers a deleveraging event?

There is no triggering on the leverage. The number, the number of the handle triggers the leverage. The five handle is the base index. It's unlevered. The seven handle is levered at one point. It's 23% of leverage, essentially, because it's a 1.3X version. And then the 10 handle is 2X. So that's two times left. So the numbers work proportionally. It's just, it's, it's mostly just math.

The whole thing is just math. Got it. That makes sense. Now the, the distribution or the yield side. So I read somewhere that there could be a more favorable tax treatment with the type of distribution that you're doing. I read that somewhere on the website. I'm sure that's very situational, but could you explain that or how the distribution works?

Well, the way the distribution, and again, return of capital just in general is, is an account. Okay. It's, it's, it's a measurement of accounting term, accounting. And again, this is something else we learned from the closed end fund industry, which is, being able to distribute, distributing return of, treating things as return of capital. MLPs have done this for years. It's a way of, of, of passing back or returning your principle. This has happens to be a side effect of ETFs that I think a lot of people maybe are overlooking, which is an ETF can basically, because of the way that the, the, the rebalancing aspect works, you can shift your long-term capital gains. You don't have to recognize them. You, you, you defer them, right? And that's why investors

Are just attractive from a tax perspective. Got it. No, thanks for that. That I was trying to dig through the perspectives and understand that a little bit, but that was, uh, thanks for clarifying

That. Yeah. So I think it's, it's, you have to, look, the, the, the, the issue of return to capital, it's, it's, it's very individual, very, but it's also not as scary as people think it should be. It's really, it's again, total return is what matters. If your fund is making, if your fund, whatever fund or your index, whatever it is that you're looking at is earning more than your district, you, than you're distributing, then you are doing well. If you're not, you're not, it doesn't matter. How they treat it from a tax perspective, it doesn't make any difference.

So you briefly touched on the explore side of the portfolio, which is, which is run by, uh, Dorsey Wright. Um, is that a go anywhere sleeve or is, is there certain parameters of how that

Explore portfolio work? Uh, no, the, the, the, the, the, the different, uh, categories of the explore portfolio that were chosen, which include, but there, there are areas that people, income investors tend to like to invest. So there's things in there like high yield bond, uh, there's investment grade corporates. There's, uh, uh, uh, uh, build America bonds, which are taxable munis. Um, there are, uh, uh, covered call funds, uh, Jeppe is, is, is, is in there. There's a growth and income fund. Um, uh, so there's different things that people like to invest in. The part of having Dorsey, right. Uh, select them is that it's based on momentum within the market, which has actually been pretty good because they overweighted like MLPs in the last, the last, the last year who called that, it was good. It was a good

To the total overtime. Yeah. over with any, tactical strategy, you hope what in over three and five year cycle periods are delivering close to the benchmark with a smoother return and better sharp as you put it. Uh, and if they're doing that, then, that's, that's all you can ask for. So you briefly touched on this as well, as far as the rebalance period. So you re you rebalance the strategic side, as you said, on a monthly basis, does the entire index is rebalanced on a monthly basis. Okay. So that's a rebalance within your buckets and then also a rebalance of the buckets. Yeah. Uh, yes. Okay.

But not a change in the constituents change on an end once a year, but, and the, and the constituent selection process is really only geared towards, um, finding the least cost representatives of each of the various it's, it's, it's not overly robust in the selection process. Uh, but it did lead to some good find, some good funds that, in the index

Process, we've got some good. Yeah. So if you're sitting down, um, with someone talking about the handle suite, where do you see this fitting inside an overall model portfolio? And can it be just a

Standalone strategy of one size fits all? Well, theoretically, uh, it's like the market. It's basically representative in the market. It's a 70% fixed income, the 30% equity strategy that gives you most of the market representation. Um, that's, but, but portfolios are personal. They're not, they're not, uh, one size fits all. Uh, but the product or the, the, the concept, the handles concept was designed to deliver a high, um, level of, of current income. it's basically designed to give you high income. Um, that's it. That's what it's, if you're, if you want to depend on something delivering you income, because it's defined by rules, these are the rules that delivers one 12th of one, one, one 12th of 7% on a monthly

So is there a, is there an environment or market environment? I would assume, uh, environment like 2022 might be a little bit difficult on the strategy is, is there certain environments where this works, really well and it's easier to make.

You're absolutely right. 2022 was a really bad environment for this, for the product. And it was a bad environment for a lot of products. And, and, and what I take comfort in is the fact that over, I think it's what I hear once in 50 years that they, they, they, they both acted like that. Okay. I don't know. It's like the, the market's kind of pre-disastered once in 50 years, we got it last. Um, that was the, that was, that was a really, that, that was probably the worst. Um, it tends to do, we're looking over a period of time. We would, we would, if you look over the longer periods of time, balanced portfolios tend to outperform on a risk adjusted basis. It's just how it's just, they always do. Um, and it doesn't

Only free lunch. So let's, uh, pivot just a little bit. Um, let's talk about the marketing side of the index and the fun. Um, how, how do you guys go about marketing and how are you out there kind of distributing? I know you're not involved with the portfolio management of, the actual product or the, or the ETF itself, you're the index provider. Um, but you guys have done a really wonderful job, uh, I think with marketing and getting this out there. the AUM tells the story. So how, um, how are you guys out there marketing and telling the story and,

And raising those assets? Yeah. Uh, well, we have excellent, uh, excellent partners on the fun, fun side, uh, strategy shares. Um, the, these are, uh, the gentlemen, uh, uh, David Miller, uh, Michael Schoenover and, uh, Jerry Szilagyi, uh, who have built, uh, kind of a, a really impressive fun group, uh, through catalysts and, and strategy shares and, and they're very sensitive to yourself. And they've done a lot of the, they, they do the, they're primarily responsible for marketing distribution and things of that nature. And they've done a really great job. I think it's a testament, uh, but it's a testament to finding the right product and, and fitting it with the right firm. Okay. You, one of the things you asked

That kind of, kind of diligence in the process. Yeah. It's, it's funny you say you've seen active managers deviate from the process. One thing I've never understood, like our, everything we do is rules-based, our indexes is passion rules-based. And I've never understood why an active manager would create a process and then deviate from the process if they've done all the due diligence and testing on the front end to make sure that it was robust. It just, it never ceases to amaze me how many times they want to go in and tweak things or change things just because maybe they had a bad run for a month or two months. it's just human nature.

I think it's the same thing that affects everybody else in the market and that's fear and greed. And, it's, or in this time, it's different. Those are the big dangerous words. This time it's different. It's just not. Over time, it's not. Okay. Last year was unusual. It's an unusual year forever. it's a mix. The one thing that, my partner, Matt, at least points out and he goes, hey, it makes a much better entry point, and it's true. The truth of the matter is, is corrections are good for the market because they make good entry. Um, and, and if you enter at a proper time, you're, you're, you're in good shape.

Well, David, I, um, I really appreciate your time. Uh, I could talk to you for a long time, but I, I, we'd like to keep these to about 30 minutes if someone can listen to them on the way to work. Um, but I would, I would love, uh, an opportunity to continue to dialogue with you and, uh, uh, continue to, to pick your brain on certain things. But before we go, uh, where can people learn more about your firm and where can people learn more about the Handles ETF?

Um, well, uh, we have, um, we put out a monthly, just a monthly report, uh, that, that, uh, just takes all the constituents and shows the performances. It's pretty straightforward and simple to read. Uh, you can get that either on Catalyst Insights or Nasdaq or through our LinkedIn page, um, which is Handles Indexes. Um, we have Handles Indexes.com as a website that goes through and shows a lot of the things that we published and wrote about it. And we wrote those things six and seven years ago. Those were not just written like now, we wrote those in advance of the concept and, and, and, and it's nice that it proved out, but thank you very much. So Handles Indexes, which is H-A-N-D-L-S-I-N-D-E-X-E-S.com. The nightmare of a spell. Unbelievably available.

Well, David, again, thank you very much for joining us. I appreciate your time. And, uh, again, I hope to, I hope to run into you some point in future and, uh, thanks for, thanks for taking some time with me. Thank you, Brad. Thanks for the time. Appreciate it. We'll see you next time.