Good afternoon. Hi, I'm Rusty Vanneman, I'm the chief investment strategist at Orion Portfolio solutions and welcome to our webinar. Today a new approach to risk management and today we're focusing on today's manage risk blueprint. It's unique story and quite frankly there's no strategy on the platform quite like it. Now a little bit of housekeeping before I use the speaker and hand the ball off on. The content is you should see on your screen a whole bunch of fun buttons to press. First of all, in the right hand corner you do have the ability to ask questions and we will definitely hit all those questions. And I have a bunch of questions myself as well. There will be a replay that will be sent out a couple hours afterwards. The slide deck you could download for your fun and pleasure right now. And with that, I'm going to hand the ball off to Phil Tayse, the founder. The CEO and portfolio Manager of Taste Corporation to talk about the TASE manage risk blueprint portfolio. And again, Phil, I have a lot of questions for you at the end. So have some fun because we have a lot of fun at the end too. OK, awesome. Thanks very much. Rusty. So this is a brand spanking new. Strategy on Orion platform, we were just added on the 1st of September and I wanna you know huge thanks to the whole Orion team, that's a pretty massive due diligence process and I a lot, a lot of strategies are added and as one of the things we were told along the way is that one of the reasons this strategy was added. Is it? It's the first of its kind at Orion and so, you know, we haven't, we've been Orion on Orion as the cheer on strategist since 2010. Many advisers know about us. We have a hedged equity strategy. That's a tactical strategy that moves into and out of the market. I don't know. Popular strategy on Orion is our tactical high yield. This is in the same vein in the sense that we're trying to mitigate risk with this strategy. But the way we're doing it is different than what we've done in the but before and I'm going to walk you through that. And then just we don't need to learn about me. So we're going to skip ahead to some some some of the slides here. You know in terms of like why risk management, I think in a year like this we don't need to. Belabor that a lot. There is one slide I wanted to talk about which is that. This rare event that happened has happened historically and is happening right now where stocks and bonds declined together. One of the things we've seen this year is the unique experience. You know, if you look at what happened during the Internet bubble burst, bonds rallied about over 20% during that three-year decline and it was really bolstered portfolios during the financial crisis, bonds rallied about 8% when stocks fell 58% and that helped bolster declines this year. We're not seeing that as both bonds and and stocks move down together and you know we've seen a rally. Recently, just in the last couple of days, we're back off again. But I think the real risk to advisors is that we see this market move down further, maybe another 20% loss next year and bonds move down further. So there's really little question, but that there's a need for risk management and portfolios. Yes, go ahead. I just want to interject one second. So right now, I just want to make sure I just want to invite again all the listeners to download the deck because some of those early slides. That still had quite frankly, I think should almost be on the short list of slides that advisors should consider showing to investors. So it really good slides, but you've got a lot of good slides in this deck, so the ball is back in your hands. And I just skipped right over those. So all those good and all that. But we're tempting, oh, so you know with our hedged equity is a strategy that moves all the way out of the market and obviously that's the hardest kind of risk management you can get. We also have a strategy defensive alpha that moves out of blend indices into defensive stocks. And in terms of the amount of sort of lack of participation in down markets, managed risk blueprint fits. In between those and I'm gonna walk you through how we're doing that. It's got multi level level risk management, just move ahead to a slide. So 80% of this strategy functions with option hedged equity and for that 80% of the market that we're going to spend more time talking about today. You're always invested in the markets, but you always have full options coverage for your positions that you hold. The other 20% operates with our more traditional unconstrained equity that can move entirely out of the market. So let's spend some time talking about the new part of this. And so for that 80% that's an option hedged equity that is always invested in the S&P 500 index, but always it has a put. Contract or put contracts for full notional value of what we're holding in the S&P 500. And so the way that works is we buy the put contract. That's two years out in every December. And if the market moves down, whenever it begins to move down, there's some level of offsetting appreciation from that put contract. And the way to think of that put contract is that the more the market moves down and the faster it moves down, the more appreciation you have in those put contracts. So let's think of it initially, we're only offsetting about 50% of the move down. Once we're 10% lower, you're offsetting maybe 60 or 70% of the move down and then if you get into a situation where the market is. In freefall, it's potentially potential at that point that you can move down. You know, get offsetting protection for everything that the markets moving down. So think of this as a couple of things, #1, something that at all times have layers of protection. But as the market level of crisis picks up, the amount of offsetting protection you're going to have increases. But what happens inside of this is a lot of things going on inside of the ETF. That's our core. Hedged equity position, the first is there's a cost to that put that we own and we help pay for that cost by writing some shorter dated calls and shorter dated put spreads. And we do that 60 and 90 days out and we roll that every 30 days. So if the strategy works as we'd like for it to work over the course of the time that we own it, you're going to be getting hopefully full payment for the cost of that put with some of the shorter dated calls and puts that. We're writing, but another thing is happening that is absolutely I think critical for this type of strategy and that is that we're dynamically managing that put protection. So what will happen is during the course of any year and that's what this slide represents, if the market moves up, let's say it's June now and the markets moved up 20% from where we started. At the year, well now that means that your strike price for the put that we bought at the end of the year has is a long ways away from the market. So what we can do is we can roll that put up mid year up to where the market is. So now if the market moves down, you're going to have some greater offsetting appreciation, but the same thing can happen in a big move lower. And so if the market plummets as it has this year or did in 2020 or 2018 then. We can roll that put down and what that allows us to do is it allows us to monetize. The gain some of the gains that we've seen in that and now if the market advances from there we should get better up market capture. So you know the way to think of this then on a very conceptual level is that. It's a full hedge. It's always in place. It doesn't require us to move out of the market. So we've been running this strategy managed risk blueprint since 2018 mid year and we have a decent track record that means more of your for more than four years of track record. And So what this shows is the return higher to lower and the drawdown right to left of the strategy. And so the strategy where it lives is that blue and gross and net and the yellow dot up in the upper right hand corner the S&P is the green dot. And then our index, which is the CBOE S&P 500 by Right index is down here. And so you can see that the returns have been very similar to the S&P 500 over its lifetime, but the Max drawdown is in the more of the 12% range relative to the S&P 500, more in the 25% Max drawdown range. And what's interesting is, you know where this lives is in the active space. So this is going to compete with. Equity strategies that are more active on the Orion platform and when you look at the return profile of many of those types of strategies, what you'll find is many of them live in the 7% to 4% return range, but most of those strategies have greater than 20% Max drawdown. So this is a way to introduce a strategy that has we think greater ability to defend against losses, but we hope has closer to just a full market return and the other slide I wanted to show because I kind of wanted to. Phase through these, so we could go over to more of a conversation with Rusty is that what we think you'll find is an advisor to this strategy is that you'll have more consistent up capture relative to the markets than what we've had with our traditional hedged equity. Although of course we love our traditional hedged equity. I have a lot of my money in that because you know I love about that traditional strategy you've been running is you can just be entirely out of the markets. So I'm just going to really end it right there. And then move it back over to Rusty and just go to rusty questions and any questions that the advisor team has. Awesome. All right. And I have questions. So again, other people can ask questions too. In the lower right hand corner, you should have a Q&A box. So, so fill the very first question, just in terms of I'm a financial advisor, I want to tell the story. So couple different terms. I just want you to compare and contrast and that is. How do you define a tactical strategy and how do you define a head strategy? How do you compare and contrast those two terms? Well, so we we refer to our, our strategy that is tactical is hedged equity. So it it's a little complicated to understand that but in not in the case of this strategy the difference is that we're never leaving the stock market. So at all times we're fully invested with that big 80% portion. The other 20% can leave and go entirely to cash. But by and large this strategy is fully invested in the markets where our tactical strategy that's also we refer to as hedge, but as tactic can be entirely on the sidelines and have no equities and I think what that does. And is that is a factor in? What we think will be greater average and consistency of up capture with this management blueprint strategy. Awesome. Hey, let's stay on this page here too, because it's related to another question they have. So, so again, this is really kind of unique for the OPS platform. But again, within the broader industry, there are some strategies that sound similar. So and there's some pretty successful fundraising asset gathering strategies that are hedged equity. How would you compare and contrast this strategy with some of those big names within the industry? Yeah. So one of the things that I guess one of our biggest competitors in this space for the ETF that we've launched is Buffer ETF which have become increasingly popular. And I think one of the key attributes of this strategies too actually one because we're doing some option selling, we hope to actually pay for the cost of that put protection. And so that will give you overall we think improved return profile. But the other difference is that we're dynamically managing the hedge and so by doing that. And the fact we're able to roll up the hedge if the market rallies a lot and roll down the hedge if the market falls a lot to monetize that is differentiated between US and a lot of the the people in this space. So if I heard that correctly and and correct me if I'm wrong. So it sounds as if when it comes to a head strategy sometimes their risk profiles can be, I don't know if erratics are at work, they can move around a lot more, but it sounds like this might be a little more stable risk profile over time. Did I get that right? I believe so. So I think I think you'll have more consistency of up capture just because you're always invested and one of the things that this does not have is just a cap on returns. You know if you if you take the cap and buffer on a buffer ETF and you put those numbers in you sometimes over the long range can dramatically underperform market benchmarks. And one of the reasons is because the cost of that just outright put protection and and so the fact that you've got a cap in there is a big factor in that. So this isn't cap like buffer ETF's are. Great. Now question here on benchmarks. So you do show first of all a benchmark and you also show sort of that that peer group as well. Why is the CBOE S&P 500 Buy Right index so much more risky? Is it because they're not doing the puts on it, they're just simply selling the calls? I mean why is that so much riskier than the manage? Yeah. So often when you're just when used to buy right index, a lot of that is just writing options section. I'll give you an example. There's a put writing ETF called put W launched by Wisdom Tree. And what that does is it just buys the nearest month or I'm sorry, it sells the nearest month put and it rolls out every 30 days. What that means is if the market is cascading lower, then you're pretty much moving lower with the market less premiums for those puts. So a lot of those options writing ETF's or strategies can generally move down with the market a lot and because we have this is different than that type of strategy where we're owning the S&P, but we've got a full hedge in place. So we would expect to see a lot less down capture than that type of a strategy. Gotcha. Alright, so another question when it comes to tactical or head strategies, well quite frankly any investment strategy is which market environment do you expect this to really thrive in, in which market environments do you expect that it may not do as well. So for instance you know one of the questions that has come in is just regarding volatility. So if we expected volatility to go down to the next year to how would that impact the strategies potential of making money? Well, so you know this is more or less an all seasons type of a strategy and I'll walk through different types of of markets and if you've got a market that's just moving up all year and ends up 20% higher, that's a relatively good market for this strategy because as I was describing earlier, we are we are paying for that leap put but because we're able to sell the call and put spread every month. We expect the premium is going to compensate for that that put and so generally we think we'll just move higher with the market. Let's a little bit of erosion is that that put depreciates, but that's a fairly good market for us. Similarly in a year like this year where let's say we go to the end of the third quarter where we've just been moving down pretty much all year, that's a relatively good environment for us as well because. We're not going to move down nearly as much of the market, although I will say that. We we did get some down capture. So if you look at the end of the third quarter, we were down around 11:12 on this strategy versus about 25 in the SNP. So it's not perfect or immediate meliorating all losses but less loss than the market. I think the the one potential challenging kind of market for this is where. We have some big moves higher or lower during the year and we're forced to exit that call that we've written or exit that put spread and you can see a little bit of performance erosion from that. So there is a kind of a little whipsaw risk with this strategy associated with big. Whipsaw you type of markets down mid year, but it's not nearly the type of whipsaw risk as as a tactical strategy. Yep, Yep, Yep. So next question is, given that these types of strategies are typically rules based and quite frankly, they perform exactly as they're expected to given their rules, many investors still buy and sell these strategies at the wrong time. So you've been doing this for a while. So if these strategies are appropriately used to perform as expected, what are some of your words of wisdom for advisors to use these strategies effectively? Overtime. Yeah. So I think this is really important like, so we do a lot of analysis for Orion advisors and we have our IT team and run morning stars with different strategies there and I will say categorically that. The one missing piece for most Orion Advisors is some kind of meaningful hedged equity position. People seem to be doing a pretty good job with their fixed income because of the popularity of both our strategy and Ocean Park. And so if you look at that and say how are people's fixed income allocated, I think they're in good shape because that's all adaptive as we know. But then if you look over to the equity portfolios, so many different strategies look alike and I would say. Few things, you've got just the fully invested things like Vanguard or State Street that's obviously just going to move right with the market. But in the active space most of those trade relatively with the market may they may have not have as much losses but they have some and you know Rusty we were all looking during the pandemic. At all the different strategies on the Rhine platform and when it was the worst case moment, when March of 2020, we were looking at all the different strategies. Much of it was moving down anything that had an equity orientation. So the thing I'd say to Orion Advisors is that. You know, do contingency planning especially for the consider the possibility of we're going to move down more next year or if this could turn into a two or three-year decline. You know, we were sort of sport spoiled in a way. Thinking that downturns just last nine months and then everything goes into a sharp V shape return. You know if if two or three years from now or or two years from now we're down another 20 or 30 or 40% that's going to start to really hurt our investors and advisors practices. So coming to finally answer your question Rusty, I promise, I think that I think that Orion advisors need a 50% allocation to something that's going to uncorrelated from the markets, right. And I think they need that at all times. And so just the, the, the, the, the challenge that we've had with our hedged equity strategy, the traditional one. Is that sometimes it can sub capture cannot be there and so then advisors have investor retention issues and because we think this is going to have a more reliable up capture story, it's something that we think advisers can just add to their portfolios and leave it there at all times. And even if it markets seem rosy and things like it's seems like things are not going to be dicey ahead, still keeping it there because you never know when something like the pandemic is going to come along and cause markets to really just completely free fall. Yeah. So many good points in there. So you're right and and Ryan, we obviously believe in thinking about scenarios. I mean you're right. What if we have like a 72 to 74 a dragged out bear market or even 20 years ago. I mean just think about all the people who their equity exposures, the S&P 500 and that's it. That's obviously pretty vulnerable. So in terms of thinking of different scenarios and having an allocation, these type of strategies could make sense now. So you just made an argument for why? Tactical, but it sounds very market based. There's obviously other reasons why people should consider tactical investment strategies as well. What are some of those? I'm not sure you're asking like like I I know how I would ask it, so I how I'd answer it. So I was kind of like I was, I was asking my own questions. So obviously it has sort of related to sort of the kind of the economic reason about sequence of returns why people would want to tackle strategy which completely tied into the comments you just made. But I also think that just working with investors over time and as you have is there is the behavioral aspect to it as well so. They will question. Well, there's the economic reason for tax gold, then there's behavioral as well, so. So obviously you could speak to that better than I can. No, no, I can't believe I didn't pick up on that. Yeah. I mean, I mean it's, it's. You know that one of our main points about investor behavior is that. You know, we frame it as investors behaving irrationally when they want to get out of the markets, when things go badly and when they want to get back in. It's not really rational behavior. It's actually quite rational. And what's happening is that investors legitimately are fearing for their livelihoods. And what's interesting, if you look at the broader course of history, you can find examples of times when the special, especially for retired investors who are taking distributions, people would run entirely out of money during different kinds of bear market scenarios. So it's rational. Have that fear but but by due putting these strategies in place, what you can do. Is instead of trying to downplay the possibility of declining markets, you actually talk about them and say like, yeah, markets could get really super bad from here. Here's what I've done in portfolios to address it. And so it's really a proactive way of addressing down markets by saying we don't really care if markets move down because of this strategy or these strategies and how we built them in. And this strategy can actually take advantage of it down market if it misses a majority, moves down and then and then participates in the recovery. Yeah, all right. So I am fascinated by an earlier comment you made, so. You said that investors should consider having 50% of their portfolios in uncorrelated strategies. Of course, it depends on every unique situation. So that's kind of a rough rule of thumb. Now when you say diversifying strategy, I assume you're talking more about tactical strategies as opposed to like alternatives or fixed income. So, but I'm fascinated 50%, why 50%? I'm sure there's an art in it's science to that number. Could you expand on that a little bit? Well, so to be exactly 50 is not as important as making sure that enough of your equities are in something that has the ability to attempt on correlate. To make a difference and you know we, we market a lot, we market across all different types of platforms including to a billion dollar RIAA. And their problem is, is that they'll look at a strategy and maybe make a 3% allocation to it if it goes through a one year due diligence process which does absolutely nothing. And so Russell, one of the things I'm talking about is this is specifically regarding the equity part of a portfolio. I think that I think that income should have the ability to be adaptive, but I think equity portfolios need to have. Around 50% allocated to this type of a strategy. To give enough. Offsetting you know appreciation and to limit your participation and declining market, what does that look like? So if you've got a 6040 portfolio and half of your equities are in this type of strategy that means that only 50% of your equities are participating with the market. And if you have some of that and things like maybe you main management or other types of things that maybe won't move down as much as the market. The 50% drawdown, you might only be down 15% overall in the portfolio. So that's the kind of thing that down market that investors likely are willing to tolerate relatively just feeling the full brunt of of an equity downturn. But we think around 50% is a good number to look at. It doesn't have to be exactly obviously that that percent. Let me just riff on this part for the wait for one more moment too. So kind of going back to our earlier comments about this strategy and kind of its risk characteristics relative to other head strategies. Again, our expectation is that it'll probably be a little more stable return risk profile than other hedge strategies. Generally speaking, if that's the case, could there be an argument for even a higher allocation than the 50%, you know what I'm saying? Yeah, I think so. I guess so. I mean I think that we we came up with that percent when you're thinking about our tactical strategies which you can be entirely out of the market. And the reason we haven't gone higher than that as a percent allocation is that we you want to make sure that investors do have up capture when the markets are rising or you can see significant investor retention issues. So you know what you don't want to do is have a portfolio that is flat when the markets are up 20% a year for two years in a row. That's you know being wrong alone is, is is one of the worst things you can do in this industry. So you know, I I think it is possible that overtime you know that could migrate higher. I'll give you an example of 1 investor that I'm intimately familiar with me and I have 100% of my equity portfolios in either this strategy or tactical hedged equity strategy because I have no risk, I have No Fear. Of investor retention, I don't think I'm going to leave my strategies, but but I like having the ability to not play like to largely be not participating in markets when they move lower. So yeah, I think it's possible to go higher than that percent. Please let me talk about the portfolio management strategy again. So as I understand, of course there are decisions that have to be made on market direction and there's decisions that are made on option pricing. Are there other active decisions made such as style, size and sector? Is there any other leverage you're polling on this? No. So we're sticking with. So if you look at how this is going to be allocated, it's going to be 50% to the S&P or I'm sorry 80% of the S&P and the hit option hedged equity. And there's a 10% unconstrained tactical allocation that's large cap between S&P and and triple Q NASDAQ and then a 10% in small and mid cap that'll be consistent throughout the only other management, you know what you mentioned decision around options, buying and selling options is a traded thing. And so there is some management decisions around trading the options and rolling those and buying them that are a part of this strategy. But largely it's it's system driven like our other strategies. OK. So in manage risk blueprint there is that 20% weight to unconstrained hedged equity. So again how does that impact the overall? Portfolio. Yeah. So that means that let's say you're so, so in initially you're not gonna have all offsetting appreciation from that put when the market moves down. So that you are going to be moving down somewhat with the market for that 80% the desire. The good thing about that having that 20% that can leave the market altogether is that in a market like we've seen this year it should lower your down capture. So now 20% can be entirely out of the market, 80% can be fully hedged and so it just means that you're going to have lower down. Capture when you're in these kind of big moves lower that are really you know just kind of grinding lower. And then as I said earlier, once you get into like kind of the crisis phase of decline, which frankly we haven't seen this year, VIX has been as high as 35, but we've never seen anything like a VIX spike of 60 or 80. We think we potentially will see that before full capitulation. I'm glad you mentioned that not enough. This is jumping ahead to another question you had. There is an advantage from a tax perspective of the way we're doing this. So largely with that 80% that's hedged equity that's remaining in the S&P at all times. And we're doing that through a very, very low cost S&P 500 ETF inside of our ETF's. And that means that that should largely be deferred. And what you'll be seeing then is is taxable gains from the other 20% and from just a portion of that. Hedged equity or if we have some options premium or dividends as a part of the strategy, but you can think of this as not tax efficient but tax aware. So comparing this to any other tactical strategy that's moving into entirely into or out of the markets, it's a little more favorable tax picture. If you're looking at non qualified dollars, well either you must get that question a lot or you read my mind or both because that was on my list to ask about the tax friendliness of the strategy. So that's great the OK. So it's rules. Based and so. However, are there any situations where you have a qualitative override on in your signals and, and if so, what would that situation be? No, we we don't. So we're just following those, those singles with a little bit of decision making around the execution of them. OK, great. Now just when it comes to options in general, I know just working on some advisor, just the whole concept of options and derivatives sounds scary to some people. Sure. You know the question before, how do you comfort people in the use of options and derivatives? Well, so the the we have a very straightforward if you if you'll chat here we can send it out to you. Just the most simple level of explanation of this type of strategy which is that most strategies have an accelerator and a steering wheel, but no brakes. And what you're doing is a strategy is you're adding brakes in an airbag. To this strategy, and that's just as simple and and. So what are options? Put options are a way to help provide the breaks. But that that's on its simplest form. The other thing I'd say is if you're worried about the word derivatives or derived risk is always remember that. There's where what we're doing with this strategy is, is we're buying options that attempt to defend against down markets. So in comparison to just buying an S&P 500 ETF. You're reducing risk, so in in all cases with this strategy. We're using options to carve off risks not to add to it. So I just those are the two things I'd say for advisors to think about how do I communicate this and you know what kind of issues are there around derivatives? So I've asked a bunch of questions so far. When you are presenting, you know, this strategy, what have been the most common obstacles so far? Have I already addressed them or is there something that I'm missing? Like what is like, you know, people ask the question, they push back or what is, what is the top questions they ask and and what is your rebuttal to those questions? I think, I think the top question we're asked and I don't have a lot of investor interaction, but I do have a lot of advisor interactions. And the top thing that people are concerned about is like, well, what is the app capture going to be, how much you're going to look like the markets when it's rising. And and and I feel that's a pretty favorable story. And that because we're fully invested but we do have the hedge in place at all times. We are going to tend to just move pretty much with the market. And so think of this as just a part of your equity portfolios and and you know that's that's the concern people have. But I think it's I think it's a pretty going to be a pretty satisfying answer and it has been if you look at the track record so far. So teams has a really great job of education. So where can investors find more information on, you know, the strategy? How to think about option strategies, how to think about tactical strategies, where can they go and find out more? Yeah. So two things. You can go to tavescorp.com website and you'll find information on all the strategies there. But one of the things that we'd recommend for any advice, any Orion advisor that's on the line is to take a step to actually do it. I think that the real risk here, as I was saying earlier, is that. You know we we kind of, we kind of think that we may even though we've had down market for the last couple of days, we may rally through the end of the quarter because it's a favorable season. We've seen rates come in a little bit but we haven't yet realized the full brunt of the the shock to growth in earnings. And we think that there's also the issue of around liquidity risks ahead and so if we bottom out here or if we call the what we where we bottomed earlier the the the outright bottom we'd be higher in terms of valuations than any major bear market that we've seen. So we expect to see it move down further. So I think that advisors main thing that they need to do other than being impressed with your humor as always and and you know I I was telling rusty the the lighting I have makes me look like a. Hot dog for my hot dog work. Other than have those questions from this, from this webinar is to take a step and that step would be get in touch with us to have just running a morning star to see how this strategy looks alongside of the other Orion strategies. So you can get a real comfort level and then execute. And I think you should execute soon within the next month or so because a lot of people including big strategists are expecting a downturn probably in the first one queue. Of 2023, even if we do rally in the fourth quarter? So just do a chat here, get in touch with us through through our website. There's also another website, BI coaching and you can go right in there and enter a calendar link and schedule a portfolio review. So that would be another way. And that's BI coaching.com. Awesome. Feel anything I forgot to ask. I don't believe so. I just. I just feel like this is something that. Every Orion advisor should have in their portfolio. And I think what I said earlier is true about how you know I I think it's I think it's a missing piece in many Orion advisors portfolios. Yeah. Well, great. Well, I'm glad you flipped to this next page on resources. So again, not only does taste have a lot of resource, but of course that Orion portfolio solutions, we also have a lot. If you go to orionportfoliosolutions.com, you will find the resource drop down menu and there you'll find a whole bunch of content including a lot of these various bullet points, including a whole section of behavioral finance as well. So, Phil, this is great. Any closing comments? You already had a heck of a closing comment already, I know. You know the the best looking hot dog that I've seen one of these webinars yet. So nice work. OK, excellent. Well, thanks everybody for your time and trust and Ryan portfolio solutions. Thank you, Phil and we will talk to you later. Excellent. Thanks. _1732307023558