Chief Investment Officer & Managing Partner
Recon Capital Partners
Can you tell us about your firm’s history with managing risk?
Our firm has long been focused on managing risk in clients’ portfolios, and that’s not just in the conception and construction of the exposure that they have to the marketplace, but also the application.
So we like ETFs because it’s a great application to get exposure and access to certain strategies that people want – certain sectors – certain geographies. ETFs are a great way to manage risk and rotate your exposures in your portfolio.
Now one of the reasons why we launched this ETF is because we actually rebalance our ETF monthly so we can, through rebalancing, lower risk in a client’s portfolio on the rebalancing and trading aspects.
What drew you to the ETF structure for this strategy?
One of the reasons why we looked at an ETF structure for this particular strategy is we wanted access to all investors whether it’s the individual investor, an RIA, an institutional investor to get access to a strategy that could really complement their portfolio, and especially gain access to a strategy that could help rebalance their portfolio on a monthly basis. And that’s what we’re really looking to do. We’re really looking to give them a complement and an alternative to the current holdings they have which may just be large cap market exposure. We looked at the strategy, and it not only participates in up markets but also outperforms in falling markets. And that’s one of the key aspects – why we wanted to use an ETF to give all investors access to a strategy like that.
What is your outlook on low volatility strategies?
Right now the market is focused on low volatility strategies. There are worries and concerns about crowding issues, as well as overexposure. The low volatility strategies have been around for a very long time. One of the reasons why is because there can be behavioral biases in certain stocks in the market. So you can think about high flying stocks that are hot but may not be well valued on a fundamental basis; they may have a high valuation compared to their peers.
So low valuation investing is here today, and it will be here tomorrow because you can allocate into great brand names that have top positions. They may not be as sexy as certain names in the market but they can provide a good value proposition to invest in.
Factor-based indices have seen huge growth in demand for ETFs. Do you foresee this continuing?
I see one of the biggest waves of investing in the future is focusing on factors. We’ve seen one of the largest factors that people have invested in is large cap equities, and that’s just the overall market in general.
But a way to get exposure to certain factors, whether it’s value – growth – momentum, is on the horizon and expanding. So we’re coming out with more and more products as an ETF universe, whether it’s providers or users to get exposure to those certain factors.
What we’ve done today, is we look at all those factors, and our product combines 7 different factors into one product. And we try to have the lowest risk among all those factors.
What are “smarter” indices, and are you seeing greater interest in them?
One of the fascinating aspects of the market right now is everyone is very focused on passive indices, and they’re seeing them as beta plays meaning they’re just the market. But that’s not necessarily true and so you’re starting to see a big focus on smarter indices. They’re not necessarily smarter but they just focus on different aspects of the market whether its value, growth, dividend yield, income, and even technical sides of the market.
What’s fascinating about it is they’re not smarter; they’re just giving better access to certain factors in the market that investors are wanting and demanding.
How does it feel to ring the Closing Bell at the New York Stock Exchange?
It’s an exciting time for us to ring the bell at the New York Stock Exchange. One, because the team here and the people here at the New York Stock Exchange have been monumental in helping us grow and develop our business and look at the marketplace in new and innovative ways. And two, they’ve been truly supportive. It’s great to partner with like-minded people who don’t only care that we’re partners but also about the larger ETF community in general.
Being here, and ringing the bell, and celebrating being listed on the Exchange which has such rich history is a tremendous experience for us – and we’re grateful, honored, and looking for many more successful years in partnership with the New York Stock Exchange.
Listen to Recon Capital Partners’ CIO Kevin Kelly Discuss Low Volatility Strategies