Maximizing Returns: The Strategy of Return Stacking

Du Charme Wealth Management Podcast

Corey Hoffstein breaks down the strategy of "return stacking," which allows investors to maintain core portfolio exposure while adding diversifying alternative investments on top without the traditional funding problem. The concept revolutionizes portfolio construction by using capital efficiency to potentially enhance returns and reduce overall risk.
• Return stacking originated as "portable alpha" pioneered by PIMCO in the 1980s
• Traditional diversification requires selling stocks or bonds to make room for alternatives
• Investors typically abandon diversifiers during periods of underperformance, creating a behavioral gap
• Return stacking uses capital-efficient instruments like leveraged ETFs to maintain core exposures
• Freed-up capital can be deployed into uncorrelated assets like managed futures, gold, and hedge fund strategies
• Similar to putting 20% down on a house and investing the remaining 80% elsewhere
• Leverage used for diversification can be defensive, while leverage for concentration increases risk
• Uncorrelated doesn't mean negatively correlated – diversifiers can still decline simultaneously
• The strategy may increase short-term volatility but potentially enhances long-term returns
• Focus on beating the cash rate rather than the S&P 500 as your hurdle for diversifiers
Guest: Corey Hoffstein is the CEO and CIO of Newfound Research and portfolio manager of the Return Stacked® ETF Suite. Corey is an active researcher and his work has been published in the Journal of Indexing and the Journal of Alternative Investments. He is also the host of the popular quantitative investing podcast Flirting with Models. Corey holds a Master of Science in Computational Finance from Carnegie Mellon University and a Bachelor of Science in Computer Science, cum laude, from Cornell University.
Visit Corey's Podcast, 'Flirting with Models':
https://www.youtube.com/@flirtingwithmodels
Find Du Charme Wealth Management here:
https://ducharmewealth.com/contact-us/
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[00:00:00] Intro.
[00:01:53] Understanding Return Stacking and Portable Alpha.
[00:04:03] Corey Hoffstein's Journey in Finance.
[00:08:19] The Funding Problem in Diversification.
[00:13:45] Housing Analogy for Return Stacking.
[00:22:14] Alternative Asset Classes and Strategies.
[00:26:35] Trend Following as a Diversification Tool.
[00:35:43] Implementation Through Capital Efficient ETFs.
[00:44:43] Correlation and Portfolio Construction.
[00:50:01] Long-Term Investing vs Short-Term Volatility.
DISCLAIMER:
Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Encompass More Asset Management LLC is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC) and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.