On this week’s episode of ETF Prime, host Nate Geraci is joined by ETF Trends’ CIO and Director of Research, Dave Nadig, to discuss volatility, risk, and evolving market dynamics. This episode also features Onramp Invest’s co-founder Eric Ervine, who explains the importance of cryptoasset education and offers perspective on the recent pullback across the space. Lastly, ASYMmetric ETFs’ CEO, Darren Schuringa, spotlights the ASYMmetric 500 ETF (ASPY), which launched in March.
Picking up with Nadig, he spends time highlighting some points from his recent article, “Long Vol: It’s Always Different,” which features many points concerning the current state of the market, what regard to have for historical data, and what to expect regarding volatility.
As Nadig states, “From an academic perspective, really what we are concerned about is expected returns. As advisors/investors, expected returns are all we really care about – What to expect next year, what’s a normal year look like, and what does a normal investing cycle look like. The entire financial advisory industry is built on helping investors predict and manage that very tricky question,”
Additionally, something Nadig feels people have gotten hung up on for decades is focusing on what the prior state of things was like. Now, he has started to uncover that the very math and models used to manipulate those priors into a sense of expected returns are very suspect. The fact that much of the math and strategy stems from what made sense during the Industrial Revolution is a good signifier that things are outdated. Since then, people have learned a lot, and it’s time to turn things in an updated direction.
Updating The Models For The Better
With that in mind, knowing that it’s impossible to truly predict the future, it’s important to keep in mind how much risk there is and how it’s countered by sudden moves in the market. This is what makes it truly important for investors to understand how to position a portfolio.
As far as what investors should do, currently, Nadig makes note of volatility parity. Because volatility is generally bad for many, the idea is balancing short volatility bets with long bets. That means using the options market, which is essentially heading downside risk, as a way to provide an opportunity to participate in outsized upside. This effectively creates a convex set of returns.
“The decisions that are the correct decisions are actually probably going to make matters worse when they are put together collectively,” Nadig adds. “Many of the things that we’re doing, such as leaning on the options market and learning how to understand volatility and risk better, are going to accelerate this feature.”
Still, Nadig thinks it’s better to take certain risks than relying on sitting cash. As it is the nature of the market, it’s still best for investors to do the best for their clients and their client’s portfolios. It just seems important to start questioning the models.
Later in the episode, Ervine delves into how the Onramp team has built a bridge between traditional financial services and cryptoassets. It’s a big undertaking given how fast crypto moves and how slow traditional financial services can be. That said, there’s a status update that’s worthwhile, in addition to problems to be solved. Plus, Ervine delivers thoughts on bitcoin and crypto currently as he manages a multistrategy fund at Blockforce.
Finally, Schuringa and Geraci discuss ASYMmetric’s fairly recent launch of ASPY, the first ETF for the company. This ETF can go short the S&P 500, but it’s entirely rules-based, and the long component of this fund holds lower volatility stocks.
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