Animal Spirits Podcast: Talk Your Book - Custom Portfolio Protection

Episode Details:

• Title: Talk Your Book: Custom Portfolio Protection
• Hosts: Michael Batnick and Ben Carlson
• Guest: Matthew Ratkowski, CEO of Halo Investing
• Release Date: March 3, 2025

1. Introduction to Customized Portfolio Protection

The episode kicks off with host Ben Carlson introducing the topic of customization in the wealth management industry, highlighting its rising popularity. Michael Batnick and Ben Carlson are joined by Matthew Ratkowski, CEO of Halo Investing, to delve into the intricacies of custom portfolio protection.

Notable Quote:

• Ben Carlson [00:15]: "One of the things that's exploding in popularity or access, I should say, in the wealth management industry is customization at scale."

2. Understanding Halo Investing and Structured Notes

Matthew Ratkowski provides an overview of Halo Investing, describing it as an investment technology and marketplace specializing in protective investments. Halo connects financial advisors with structured notes, fee-based annuities, and other protective investment products, facilitating access to various investment banks and insurers.

Notable Quote:

• Matthew Ratkowski [02:45]: "Halo is an investment technology and marketplace for protective investments... we connect the manufacturers of those products to the consumer, which is the advisor who uses them in their client portfolios."

3. Structured Notes vs. ETFs: Customization and Ease of Use

The discussion shifts to comparing structured notes with ETFs, particularly buffered ETFs. While ETFs offer ease of purchase and liquidity, structured notes provide higher levels of personalization, allowing advisors to tailor investment strategies to individual client needs.

Notable Quotes:

• Matthew Ratkowski [04:40]: "Structured notes do offer the ability... to increase the personalization of that strategy on the ETF."
• Ben Carlson [04:00]: "These types of products seem to be exploding in popularity... it's a little easier to understand for people, especially for older investors who don't want as much risk."

4. The Role of Portfolio Protection in Investing

Matthew elaborates on the importance of protecting a portfolio, likening it to insuring a house. He emphasizes that not all investors can handle significant downside risks, making structured notes a valuable tool for defining acceptable levels of risk and maintaining investment discipline.

Notable Quote:

• Matthew Ratkowski [05:28]: "It's a behavioral science, a behavioral exercise, and not everybody can handle all of the downside... these give you a way to define your terms."

5. Adapting to Market Dynamics: Interest Rates and Volatility

The conversation addresses how structured notes adapt to varying market conditions, such as rising interest rates and increased volatility. Matthew explains that while high rates can impact pricing, structured notes remain valuable by maintaining participation in market upside while offering downside protection.

Notable Quotes:

• Ben Carlson [07:34]: "The pricing on these things can and will change depending on market dynamics... interest rates and volatility."
• Matthew Ratkowski [07:59]: "We believe that the structured note is a great mousetrap... valuable use regardless of the current situation around volatility and interest rates."

6. Introducing Halo’s Structured Note SMAs

Matthew introduces Halo's Structured Note Separately Managed Accounts (SMAs), which enable financial advisors to incorporate structured notes into their practice seamlessly. These SMAs offer curated strategies from multiple managers, providing both income and growth-oriented options.

Notable Quote:

• Matthew Ratkowski [09:49]: "Separately managed accounts... allow [advisors] to utilize a professional money manager to do so."

7. Customization at Scale with Halo’s Platform

The discussion highlights how Halo's technology facilitates customization at scale. The platform allows advisors to create and monitor tailored structured note portfolios efficiently, supported by tools like Aura—a portfolio modeling and analytics tool that demonstrates the impact of structured notes on overall portfolio performance.

Notable Quotes:

• Matthew Ratkowski [24:59]: "The whole idea of the technology infrastructure is to basically make this easy for the advisor to do at scale."
• Ben Carlson [27:11]: "Your Aura platform is essentially a portfolio modeling and analytics that allows you to do some scenario analysis..."

8. Behavioral and Income Benefits of Structured Notes

Matthew emphasizes the dual benefits of structured notes: downside protection and steady income. These features not only safeguard portfolios but also provide psychological comfort to investors, encouraging consistent investment behavior even during volatile market periods.

Notable Quotes:

• Ben Carlson [27:43]: "The downside protection... is just as good for the psyche as the income."
• Matthew Ratkowski [28:17]: "It's another form of security... steady stream of income is extremely attractive."

9. Yield Generation and Market Conditions

The episode explores the potential yields from structured notes, noting that while higher yields are possible with more volatile underlying assets, there are trade-offs such as increased risk of being knocked in. Matthew discusses how Halo's platform offers flexibility in structuring notes to align with different investment objectives and market conditions.

Notable Quotes:

• Matthew Ratkowski [30:42]: "So typically you're going to see a three index worst of... converting that into an income note."
• Ben Carlson [30:17]: "Clients are able to get that 10% coupon... what sort of yields can we generate using these strategies?"

10. Managing Credit Risk and Diversification

Addressing credit risk, Matthew explains that Halo's platform allows managers to monitor issuer-level exposure, ensuring diversification across multiple banks to mitigate concentration risks. This feature is crucial for maintaining the integrity and safety of structured note investments.

Notable Quote:

• Matthew Ratkowski [33:07]: "Credit risk is always something people talk about within the structured note world... diversify across the issuers as well."

11. Getting Started with Halo Investing

For financial advisors interested in integrating structured notes into their practice, Matthew directs them to HaloInvesting.com, where they can access educational resources and sign up for the platform. The Halo Journal is highlighted as a valuable resource for thought leadership and educational materials.

Notable Quote:

• Matthew Ratkowski [33:58]: "Send them to haloinvesting.com... a lot of great thought leadership education."

12. Closing Remarks

The episode concludes with hosts Michael Batnick and Ben Carlson thanking Matthew Ratkowski for his insights. They encourage listeners to visit HaloInvesting.com for more information and resources on structured portfolio protection.

Notable Quote:

• Ben Carlson [34:14]: "Perfect. Thanks for coming on, Matt."

Key Takeaways:

• Customization at Scale: Modern platforms like Halo Investing enable highly customized portfolio protection strategies without the traditional laborious processes.
• Structured Notes vs. ETFs: While ETFs offer ease and liquidity, structured notes provide deeper personalization, crucial for tailoring to individual client needs.
• Behavioral Benefits: Structured notes help mitigate behavioral biases by offering downside protection and steady income, promoting disciplined investing.
• Adaptability: Structured notes remain valuable across different market conditions, adapting to changes in interest rates and volatility.
• Technology Integration: Tools like Halo’s Aura enhance advisors' ability to model, analyze, and integrate structured notes seamlessly into client portfolios.
• Risk Management: Diversification and credit risk monitoring are integral to maintaining the safety and effectiveness of structured note investments.

For financial advisors and investors seeking to enhance portfolio protection through customizable strategies, this episode provides a comprehensive overview of how structured notes, facilitated by platforms like Halo Investing, can play a pivotal role in modern wealth management.