Animal Spirits Podcast Summary: "Talk Your Book: A Better 60/40 Portfolio"

Release Date: March 10, 2025

Host: Michael Batnik
Guest: JD Gardner, CIO and Founder of Aptis Capital Advisors
Podcast Description: Animal Spirits explores markets, life, and investing with insights from Michael Batnik and Ben Carlson. This episode delves into innovative portfolio strategies, particularly focusing on Aptis Capital Advisors' approach to enhancing the traditional 60/40 portfolio through options-based ETFs.

1. Introduction to Aptis Capital Advisors

[00:47] Michael Batnik introduces JD Gardner, highlighting Aptis Capital Advisors' evolution from launching high-tracking-error momentum strategies to becoming a leading active ETF provider with over $4 billion in assets under management. The conversation sets the stage for understanding how Aptis balances sophisticated options strategies with practical investor needs.

2. Evolution of Aptis' Investment Strategies

[01:36] JD Gardner adds a crucial point about the importance of not only sticking with a strategy but also ensuring that investors are willing to buy into it from the outset.
[02:20] Michael Batnik recounts the initial challenges Aptis faced when pitching aggressive momentum strategies to advisors, emphasizing that exceptional returns are meaningless without investor commitment. This led Aptis to pivot towards more user-friendly and sustainable strategies.

3. DeRisk Strategy Detailed

[16:49] JD Gardner and [16:53] Ben Carlson discuss their flagship ETF, DeRisk (Ticker: DRSK), which serves as a fixed income replacement.
[16:53] Ben Carlson explains, "DeRisk is what we would call a replacement for fixed income. … it’s one of the best expressions of long volatility out there." The strategy combines investment-grade corporate bonds with long options positions to enhance returns while managing risk.
[18:22] Ben Carlson clarifies that DeRisk is a long volatility strategy, not one that sells options for premium income.
[20:06] Michael Batnik inquires about the dynamic nature of managing these option strategies, to which [20:32] Ben Carlson responds, "We are actively managing this stuff every single day," highlighting the active management required to optimize performance.

4. Equity Strategies: ACO

[24:59] Ben Carlson introduces ACO (Ticker: ACO), their larger equity-focused strategy designed to outperform traditional hedged equity models.
[26:42] Ben Carlson details ACO's structure: "We are long calls and long puts on single names," allowing for more tailored risk management compared to standard index-based collars. This active approach enables Aptis to offer a higher upside potential with controlled downside risk.

5. Managing Option Strategies

[20:32] Ben Carlson emphasizes the active management aspect of their options strategies: "We are actively managing this stuff every single day."
[21:58] Ben Carlson reassures advisors about the risk management in DeRisk, stating, "Our worst case scenario is very, very manageable. The worst case scenario is just not going to get us fired."

6. Adoption by Advisors

[07:54] Ben Carlson discusses how Aptis educates advisors on complex options strategies using simple language and analogies to make the concepts accessible.
[24:20] Ben Carlson notes that many advisors initially dip their toes into Aptis' strategies and, upon witnessing strong performance, opt to completely replace traditional fixed income allocations with Aptis' solutions.

7. Misconceptions about Option-Based ETFs

[29:54] Ben Carlson addresses common misconceptions, criticizing passive, high-fee options strategies:
"… active options based strategies that do one trade annually and charge 80 basis points a year for it … there's all types of path dependency … paying way too much for it."
[30:35] Michael Batnik concurs, emphasizing the necessity of active management to fully realize the benefits of options strategies.

8. Tax Implications in ETF Wrapper

[34:09] Michael Batnik prompts a discussion on the tax advantages of using an ETF wrapper for option strategies.
[34:18] Ben Carlson explains, "Our ETFs … allow you to access an inherently tax inefficient option based strategies much more… reduce the tax drag." By consolidating strategies within an ETF, Aptis minimizes capital gains distributions, enhancing after-tax returns.

9. Final Thoughts and How Advisors Can Connect

[35:16] Ben Carlson encourages advisors to visit aptiscapitaladvisors.com for more information, content resources, and to engage with their offerings.
[35:39] Michael Batnik reiterates the call to action, ensuring listeners know where to find more details and connect with Aptis.

Notable Quotes

• Michael Batnik [01:36]:
  "The greatest investment product or strategy in the world means nothing if investors or advisors can't or won't stick with it."

• Ben Carlson [16:53]:
  "DeRisk is to me, and keep in mind, I'm biased, so to me it's one of the best expressions of long volatility out there."

• Ben Carlson [20:32]:
  "We are actively managing this stuff every single day."

• Ben Carlson [29:54]:
  "Active options based strategies that do one trade annually and charge 80 basis points a year for it … there's all types of path dependency … paying way too much for it."

• Ben Carlson [34:18]:
  "Our ETFs … allow you to access an inherently tax inefficient option based strategies much more… reduce the tax drag."

Conclusion

In this episode of Animal Spirits, Michael Batnik and Ben Carlson engage with JD Gardner to unpack how Aptis Capital Advisors is revolutionizing the traditional 60/40 portfolio through innovative, options-based ETFs. By actively managing options strategies within an ETF framework, Aptis offers advisors and their clients enhanced returns, managed risk, and tax-efficient investment solutions. The discussion underscores the importance of adaptability, active management, and deep advisor collaboration in creating sustainable investment products that meet evolving market demands.

For more information, visit aptiscapitaladvisors.com or email animalspiritscompoundnews@ritholtzwealth.com.