Taylor Krystkowiak

Just started the firm in the last year and really excited about the strategies that we're bringing to market, especially at some of the more competitive price points relative to the competition.

Across the board, our products are about 40% cheaper than the category average. And we saw that this was an opportunity to lower that price point for investors since we all know that over the course of the long run, those fees are going to eat into your total returns. And in an environment where total market returns may be a little bit more muted going forward, that's going to ultimately give you a windfall in the terms of the overall portfolio performance you can expect from some of these strategies. But ultimately, at the end of the day, one of the things that we're trying to do is provide a menu of options, a buffet bar of sorts that give investors access to whatever strategy, whatever trade they want to play in the current market.

So like I said, the first batch of ETFs that we launched, we have 13 live right now that all focus primarily on thematics as well as some fundamental strategies. But in our next round of products, we're also going to have a number of leveraged inverse on single names, as well as some derivative strategies as well. So really running the entire spectrum from just plain vanilla equity to more complex derivative strategies.

Which we'll discuss at length today. But looking at a combination of both where existing assets are and where we might be able to offer a similar strategy at a lower price point, or offering a strategy that has not yet been brought to market, because we believe that there is some credibility to that investment methodology that has potential for total return that may not yet be tapped by current issuers.

So when the supervisory and regulatory authorities got together, what they realized was, look, we need to identify some of these big institutions, those that have systematic importance to the global financial system, and ultimately hold these banks and these institutions to a higher regulatory requirement. So over that, again, these, 15 years that that has been in place, we've seen these banks ultimately thrive, they've had been subject to higher capital and liquidity requirements, such that they can absorb losses in the event of a significant financial event. And over time, and what we've really seen over the last couple years is that these banks specifically have really benefited from the macroeconomic environment.

And some of the things that have been really dragging down some of their smaller counterparts since central banks started raising interest rates two years ago. And when we put all of this together, what we've really seen is that these banks are actually posting performance that is rivaling even the biggest tech stocks, Magnificent Seven stocks, and many of which are actually up higher than those Magnificent Seven stocks so far year to date. We'll unpack that in a little bit more detail. But that is essentially what we're looking at in investing in those 28 publicly traded global systemically important banks. Really, like I said, it's a bit of a mouthful of an acronym, but it's really the too big to fail banks that we're looking at and investing in those banks specifically, and excluding smaller

And regional banks. And we'll explain in more detail why we think that that's important, both historically and going forward in the future.

And there are a few great both anecdotal reasons for that, as well as some analytical reasons. And so as we know, back in March 2023, we saw that banking crisis, right? So we had a number of big names go under Silicon Valley Bank, First Republic Bank. And it really caused some shockwaves to go through the system because these smaller banks were succumbing to the impact of higher rates, but higher rates that were implemented very, very quickly as the Federal Reserve and other central banks felt like they had to play catch up to get back in front of inflation. And ultimately, these smaller institutions proved incapable of weathering the increase in interest rates, both the magnitude and the pace of those rate increases.

And ultimately, the larger banks not only weathered that storm, but they were the ones that were some of the beneficiaries of the collapses of those smaller banks. So for example, JP Morgan was able to buy out the assets of First Republic at distressed pricing. And we've seen that actually be a windfall in the overall performance of JP Morgan since that date. So this is the specific answer to your question in short. So instead of buying a broad based index, which includes some of these smaller regional banks that ultimately found themselves on the wrong end of this macroeconomic dynamic, where they were feeling the pinch from these higher rates, these bigger guys ultimately fared a lot better.

So this is one of those instances where selecting those big banks and flocking towards quality did, in fact, make a difference. And in this case, the bigger the institution, the better the outcome was, generally speaking, across the board. And focusing your exposure on just those big guys ultimately had a really big impact. So to put a couple of numbers around this, so if we take a look at how those global systemically important banks did, starting in January 2022, when the Fed first started announcing that it was going to start hiking interest rates, through today's date, those names are up over 35%. Just for comparison, banks in general over that same time period, the entire sector down 7%. So really significant differential there. And just another point of reference,

Over that same time period, Nasdaq and S&P up just 21% and 20% respectively. So we're seeing GSIBs outperforming not only their regional and peers in the banking industry, but also the broader market as well in general, because of this dynamic and because they have been insulated from this wave of higher interest rates. And they've ultimately benefited from this environment for a number of different reasons.

Stocks that were driving the majors and predominance of the growth in the market. So to your point, beyond just diversifying risk in the financial sector specifically, more broad based actually being able to diversify your growth beyond some of the tech heavy names that have been historically the significant sources of return over the course of the last year. And just to put some numbers here, some of the you normally don't associate these big banks, some of which are, 300 year institutions like Barclays with double digit returns, yet that's the sort of returns that some of these banks are putting up. So just to round out a couple of them, year to date through the end of July, Barclays, a bank like Barclays is up 56%. That's trouncing six of the seven magnificent stocks,

For example. So just, again, I think contextualizing how this performance is comparing to some of the bigger household names, the magnificent seven names, as an important way to diversify your portfolio exposure away from some of those names that may have, become a bit of a concentration risk across indices and across portfolios.

And the thing that everyone I think, fails to, I think, really appreciate in terms of how the interest rate dynamic currently impacts the commercial real estate market is, even though we got, some some good data this month, and after the press conference from the Fed this week, it seems all all, systems are go for a cut in September, and then ultimately, incremental cuts after that. The thing is, is that the Fed still has not started cutting interest rate, and everyone is starting to price in the impacts of falling rates. But the reality is, that as all of these commercial real estate loans come due, they still have to be refinanced at the prevailing rates of interest. So we have over $800 billion of commercial real estate exposure

Out there, that has to get refinanced at these high interest rates, because the Fed still has not cut yet. And as a result, we're seeing losses mount in that particular sector of the market. And this is where GSIBs really stand out, to get, kind of into the weeds, technically, on a relative basis, GSIBs have four times lower exposure to commercial real estate relative to their smaller regional peers. And this is where that quality and those regulatory requirements for these big banks are really making them stand out. And as a result of that, they have higher capitalization, they have higher liquidity, and they have lower exposure to this commercial real estate time bomb that I think is just kind of a car crash in slow motion, that's really been dragging some of these

Smaller banks. And we've seen that in the performance. So there's been a flight to quality, I think, over the course of the entire banking sector, moving into these bigger names, these GSIB names, and away from these smaller regional names, because they continue to get dragged down, due to their both commercial real estate exposure, as well as their inability to weather some of the losses associated with these higher rates. And then finally, back to your point about where we stand kind of in the dynamics of interest rates, we have to remember that we've been in an inverted curve environment for a long while now, the short end of the curve has been significantly higher than the long end of the curve, which generally speaking, is bad news for banking at its most fundamental level, we know that

Banks revolve around what's known as a carry trade, right? They ultimately take deposits and loan that money out at theoretically higher rates of interest, further out on the curve. And, and because of the inversion of the curve right now, that that's not possible. So it's, it's, and because of that, it's been hurting some of these smaller banks that haven't been able to weather that dynamic as well as the G-SIP banks have. And the other thing that's interesting about G-SIPs is that not only have they attracted more customer deposits, their deposits are up 30% relative to their pre-pandemic levels. And we've seen more customers gravitate towards banking with these larger banks.

We've also seen things like their non-interest income, things like their investment banking revenues, things like their wealth management revenues that they've collected from fees on asset under management, and cost cutting measures. You put all of those together, it's ultimately led to this better performance of the G-SIP names. And importantly, it's also insulated from a lot of this, I think, pressure that we've seen on tech lately. So finally, to wrap this all up with some numbers, year to date, we've seen our G-SIP fund up 21%, handily outperforming both the Nasdaq only up 15%, the S&P up 16% through the end of July so far this year. So that, I think, is really where the rubber meets the road. And you see all of these underlying dynamics translated into performance.

So again, outperforming not only the peer group of other banks, but outperforming the market in general.

Very well as a result.

So that's, I think, an example of one of the rare cases where we did see a change in that list. Apart from that, this list is generally a pretty, tried and true list of the banks that we all know that have been around for a long, long time. And that list is not necessarily prone to significant changes over time.

That, there is a place for G-SIP in a portfolio to diversify that growth. again, I think the numbers speak for themselves, the fact that the funds outperforming the market, year to date, by a pretty significant margin makes this a candidate to diversify growth beyond some of these more volatile tech names, and obviously dependent upon individual risk tolerance and time horizon, you can see how, putting big, established banks at a larger percentage of a portfolio may be appealing, especially for clients and investors that may be closer to retirement and may not be able to stomach some of the more significant volatility that we've seen out of some of the more growthy areas of the market, tech being one that comes to mind, and being able to at

Least diversify your sources of growth. And this is where I think G-SIP could be a real shining example of ways that you can obtain growth in other parts of the market beyond tech.

Traditional distribution models that ordinarily require significantly higher head count, we're able to run a leaner shop and a leaner organization. And because of that, we're able to pass on those savings directly to investors in the form of lower fees. So that's really where I think the rubber hits the road in terms of we're trying to implement a pretty lean business model and, again, pass those savings on to investors. And beyond that, we have also seen a tremendous, tremendous uptake, I think, in some of these points, specifically, in some of our research that we've published, highlighting this commercial real estate dynamic, given the fact that we're the only fund right now, that focuses purely on these GSIB banks, we've seen get a lot of traction, because there's just not a strategy out there like it

Right now. So both the novelty of the strategy itself, as well as its relevance in the current macro economic environment, I think has led to some of the traction that we've seen in the flows in the fund. And again, with a much more efficient distribution mechanism, we're able to, I think, get in front of more people with fewer heads at our organization.