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- [00:00]
Ben Carlson
Today's Animal Spirits Talk youk Book is presented by Halo Investing. Go to HaloInvesting.com to learn more about their structured note platform and also their brand new SMA marketplace. If you're a financial advisor, go check out HaloInvesting.com to learn more.
- [00:16]
Michael Batnik
Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholz Wealth Management is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [00:46]
Matthew Ratkowski
Welcome to Animal Spirits with Michael and Ben. On today's show, we're joined by Matthew Ratkowski. Matthew is the CEO of Halo. Ben, one of the things that's exploding in popularity or access, I should say, in the wealth management industry is customization at scale. And those things might sound like they're like contradictory because how do you, how do you achieve such a feat? Well, luckily there are now platforms like Halo that are as much technology platforms as there are financial platforms. Back in the day, creating a, a portfolio of structured notes would have been laborious as all get out. I like that phrase, all get out. Don't say that too often, but you.
- [01:26]
Ben Carlson
Should see how big the, the private placement memorandums are for an individual structure. Not if you went straight to a bank. Like 200 pages of legalese. And it's a lot. Yeah, it's a lot. No. Yeah. But I do think there was this shift for simplicity in financial advisor space. Going from active management to index funds that mission accounts.
- [01:49]
Matthew Ratkowski
Check the box. Done.
- [01:50]
Ben Carlson
Yes. But then people realized like we, we have to be more customized to the circumstances, needs and desires of our clients. And that is where things are going. I think that's the 2000 and twenties decade to me is advisors learning how to customize for their clients, whether it's taxes, investments, income, downside protection, whatever it is, customization.
- [02:10]
Matthew Ratkowski
So we've had Halo on a couple times in the past to talk about how structured notes work. The downside, the upside, the soft protection, the hard protection. On today's episode, we expand a little bit more into some of the new things that they're getting into. So hope you enjoy this conversation with Matthew Wadowski. Matt, welcome back to the show.
- [02:29]
Thank you. Yeah. Appreciate the chance to get back here. Hope has been well.
- [02:32]
All has been well. Thank you for asking. So we've had your predecessor Jason on a few times. You've been on once before. But for people that might be new to your platform, remind the listener, who is Halo? What do you do and who do you serve?
- [02:45]
So Halo is a investment technology and marketplace for protective investments. So we offer the ability for financial advisors to find and buy structured notes, fee based annuities and other protective investment products. We'll talk about our SMAs today, but we connect the manufacturers, manufacturer of those products to the consumer, which is the advisor who uses them in their client portfolios. Offering a wide range of access to investment banks on the structured note side, insurers on the annuity side.
- [03:15]
Ben Carlson
These types of products seem to be exploding in popularity and not only from your side of things, but also on the ETF space, there's a lot of other option type strategies. Michael and I have talked to a number of different managers that have these type of strategies and we get questions all the time from our listeners asking what do you think about them? Because I think people really like the sort of defined outcome nature of these things. Right. They, they, they don't know exactly what their outcome's going to be, but they have a couple of different paths to go depending on what happens. Right. And so it's a little easier to understand for people, I think, especially for older investors who don't want as much risk and want to have things be a little more certain. So how do you all separate yourselves from the ETF space that's coming in and having these more options based strategies? What would you say the biggest differences are?
- [04:01]
Matthew Ratkowski
Yeah, so it really comes down to it's balancing out, I'll say, the ease of purchase versus the ability to tailor and customize. And so the buffers that you're talking about, buffered ETFs do offer the ability to provide protection to the investor through the purchase of that etf. It's tickered, so it's easy. I would say the structured notes do offer the ability. We think about personalization as a key dynamic in the industry today. The structured note, you're given the individual, individual nature of that note, the bond that it is, it does allow the ability to increase the personalization of that strategy on the ETF.
- [04:40]
So I think the ETFs are complete garbage. Hot garbage.
- [04:44]
No, no, not at all. I think about it in the spectrum of needs.
- [04:47]
Unknown
Right.
- [04:47]
Matthew Ratkowski
So as far as like ease of implementation and liquidity.
- [04:51]
Unknown
Right.
- [04:51]
Matthew Ratkowski
So certainly the ETF is, you have, it has the highest level of ease of implementation and liquidity, giving up some of that ease of implementation, you gain, right? And so it's all about trade offs. You know, I think I'm actually personally excited about the fact that more people are interested in defined outcome investments that offer the appreciation with the protection as well as income. And so I think for the industry it's good that we're paying more attention to these products. We believe that the structured node is a great mousetrap, quite frankly. And we're trying to build better technology to make it easier to access and manage these types of strategies.
- [05:29]
The concept of protection in a portfolio. And Jason speaks about this, like he said, you insure your house, why wouldn't you insure your portfolio? And I think the purists would say anything that's going to put a floor on your downside, right. Is going to eliminate some of the upside. To which I would say, yeah, okay, fine, if you are a young person, not like Ben, but like myself, if you are, if you are a young vibrant person and you've got a long time horizon and you've got the ability to still stomach 50% drawdowns, why would you cut off, why would you cut off any of your upside? However, this is a behavioral science, a behavioral exercise, and not everybody can handle all the smoke. So what I am, what I find intriguing about these products that might sound antithetical to like the buy and hold type of, of ethos that I have is that not everybody can handle all of the downside. And so what these give you is a way to define. Matt, you said personalize so you can say, okay, this downside, that upside. Nah, I don't like that. This. No. Okay. Oh, that one I like. Like you could, you could define your terms.
- [06:34]
Absolutely. You know, I've spent a lot of time in career building glide paths, right? So if we kind of think about it, you know, into the future, you know, are. We'll talk about some of the technology we're building later. But if you think about the traditional glide path, you know, you mentioned earlier, investors, right, have more long term horizons and they can afford some of that volat utility. The way we're thinking about structured notes is along that protection path, right? So as you move through time, your ability to withstand those downside events grows less and less, right? And so traditionally we've taken equity risk off the table, put it into fixed income. Now that just creates a different risk, right? Just in terms of shortfall into the future, there's inflation risk and things of that nature. So you're trading risks. And so for us, as you move through time. Your ability to dial up the protection while maintaining that equity exposure is absolutely critical to success in terms of building you the wealth you need and then quite frankly making sure it can sustain your needs through retirement as well.
- [07:34]
Ben Carlson
One of the things that we've talked about over the years is just the fact that the pricing on these things can and will change depending on market dynamics. Right. It's interest rates and volatility and sometimes the timing on these things and the type of environment you're in can dictate the types of yields that you're able to earn on these structured notes. So maybe you could take us through where we are today with being in a bull market but also having rates much higher than they were in the past, maybe than the first few times we talked to Jason when rates were much lower.
- [08:00]
Matthew Ratkowski
Yeah. So I think what tends to happen is the use of the product, the type of the product tends to change given the rate environment. As you think about use and implementation, I think volatility is obviously a key driver in the pricing of the notes as well. And so, you know, a couple things I'd say there, you know, obviously. Well, maybe not obviously, but recent spikes in volatility, you'll see activity grow. We'll talk about why using a professional manager inside our structured owed SMAs can be helpful as far as some of that timing. But if we look at on a year over year basis, as rates increased and maybe some of the income oriented users of the product, you start to wane growth notes.
- [08:41]
Right.
- [08:41]
Where you're participating in the market on the appreciation side with downside risk protection, those products certainly come into play. Yes, it impacts pricing, but overall. Right. If you think about the impact in terms of maintained participation on the upside, but downside protection, they're still a valuable tool even in the rate market, even in the interest rate market we have today. You'll also see from an income perspective what tends to happen is more creativity in terms of the underliers. You'll see different indexes used, different underlying individual equities that try and again help maintain the income exposure that that client is seeking. So yes, there is dynamics around pricing, but all in still feel there's valuable use regardless quite frankly of the current situation around volatility and interest rates.
- [09:36]
So Matt, you guys built the platform based around the idea of protection, structure, notes, customization technology, all that good stuff. What else have you been, what's new on the platform?
- [09:49]
Yeah, so the structured note SMAs. So separately managed accounts, this is a program we're super Excited about it offers the ability for advisors to use structured notes in their practices and portfolios, but similar to models and other separate account strategies, it allows them to utilize a professional money manager to do so. And so excited about the launch of the program. We've had some recent news in terms of expansion of access through places like Envestnet and SmartX, but we're super excited about the program and what it offers.
- [10:24]
Ben Carlson
So what exactly does that mean? Is this like a best ideas collection? Like what does the SMA look like?
- [10:31]
Matthew Ratkowski
Yeah, and so, you know, the Halo platform, you think of the Halo platform as, quite frankly, you know, think of Halo as a traditional separate account program sponsor. And so what does that mean? And we act a lot like a TAMP in terms of the implementation and ongoing management of the strategies. And so we provide all of the operational infrastructure for the investment manager. Right. So they need to source, build and manage their portfolios of structured notes. We offer them our platform to do that. We have investment expertise in house to curate. So it's a curated list of managers. Today we can talk about who they are and the strategy types, but it's not a full blown marketplace, at least today it is a curated list of managers. And then on the investor side, it's really all of the infrastructure that they need to, you know, evaluate, select and then monitor those separately managed account allocations within their portfolios as well.
- [11:26]
Ben Carlson
So is this, I'm curious, did you build this? Because although some people really love the customization piece, other people would rather just have the sort of access or the exposure to structured notes and want to pick a certain style. Is it one style? Are there multiple? Is it, you know, a conservative, a moderate and aggressive, whatever it is, Are there different styles that you can choose or is it one whole strategy?
- [11:50]
Matthew Ratkowski
Yeah, so let's jump in a little bit on the strategies, then we can talk about who's using them, why and how. And so today we actually, we have five structured note strategies that are available from three different managers. So New Edge, Piton and WisdomTree. In terms of the strategy types, they do differ. They really follow along, I'll say two main lines, income. So those that are looking to utilize the Structured Note to generate periodic income within their portfolios and they can do that to replace fixed income or they can do that to basically try and drive equity like returns, but using those periodic, those coupons and then growth, growth oriented investment strategies from both New Edge and WisdomTree that are really focused on participating in the market upside, but also providing that downside risk Mitigation. If we dig even a little further into that, you have WisdomTree, right. Unique investment strategy that really follows along their ETF models. So if you're an user of an ETF strategy, you can use this to replace your equity side equity growth oriented investments, but provide that downside protection. And so we also, it's interesting, as we traveled with our advisors, we received some asks around fixed income. So we have an intermediate fixed income strategy as well as an ultra short. So when coupons are paid or when capital is ready to deploy, we talked a little bit about pricing and the movement of. We have an ultra short strategy that allows you to keep your cash while you're looking for those opportunities. And so yeah, really trying to make sure the objective.
- [13:26]
Unknown
Right.
- [13:26]
Matthew Ratkowski
So are you seeking appreciation, preservation or consumption? And how are you thinking about balancing those things? And then the investment strategies align, we curate them to align with those objectives. And so interestingly, from a user perspective, it's a combination of those that we go out that are new to notes and basically say, love the concept, just not ready to build and manage strategies on my own. And so they can use this to get themselves into the product using a professional manager. And then those quite frankly that are experts that say, my practice, my structure, I want to build scale and efficiency. Again, love the product, I want to use that manager. I know how to integrate it into my portfolio and want to use that professional manager for scale and implementation.
- [14:13]
I'm trying to wrap my head around this. So walk me through this. So WisdomTree has a model portfolio. They and others have been in that business forever working with advisors that are more planning oriented and say we'll get the investment side. So they're doing that, but they're using Halo to build a model portfolio based on structured notes.
- [14:36]
That's exactly correct. So if we think about the growth strategy offered by New Edge and the growth strategy offered by WisdomTree, the whole idea there is to align with your equity allocation. Right. So take a portion of that equity allocation, put it in that growth portfolio that has downside risk protections for the notes. Why would you do that?
- [14:57]
Right, yeah, that's what I'm trying to figure out.
- [14:59]
Yeah, yeah. So it really back to the core principles of the note. It is meant to maintain that equity exposure but reduce that downside volatility. And so I'll say a super practical use case. There's two super practical use cases that effectively illustrate why you should have these in the portfolio all the time. But you have individuals that are looking to put money to work Are not sure if it's the right time to do so so they have money to put to work. The advisor is trying to convince that investor to get into the market. The structure note allocation can really help get money off the sidelines. Right.
- [15:35]
It's providing that I buy that.
- [15:37]
Ben Carlson
Yep. Providing the.
- [15:38]
Matthew Ratkowski
Yep. And so when it's there then.
- [15:40]
Unknown
Right.
- [15:40]
Matthew Ratkowski
So it's getting that money to work, get it in the market. Because obviously, as we know you need that you need equity investments to get to where you want to go. Obviously unless you're you know, ultra, ultra high net worth once they're in that strategy.
- [15:52]
Unknown
Right.
- [15:52]
Matthew Ratkowski
Our, our feeling is that it, it also helps maintain consistency.
- [15:56]
Unknown
Right.
- [15:57]
Matthew Ratkowski
So because you have right those, that downside buffer in the portfolio itself when things do get volatile and the investor begins to question the flight out of strategies when stuff hits the fan, it does offer the ability to keep them in that strategy. So the whole idea is to get them invested in the market and keep them in that model based on an allocation to the structured node sma.
- [16:23]
So that part of it resonates with me. As I said earlier, if we're all cyborgs, nobody would in any insurance. We just ride all the downside. Right. All the upside. But of course that's not real life. So I've actually had a couple of conversations in the last weeks. Even with like younger people that have way too much cash that are waiting for a pullback, who knows when it's going to come. Who knows how it's going to, how they're going to behave when it actually does come.
- [16:45]
Right.
- [16:45]
Maybe like I can knock it by now, wait for a deeper pullback. So for people that are like trying to dip a toe in the water, Matt, you look at your salivating. So, so for people that like need an entrance into the market but are, but are uncomfortable just buying today, this is a potentially really good option. So talk about how this works. Is this all right, we get into the portfolio and there's there these are, these are six month maturities or two years or like how do. So how does this work? And then how do we get them? I know this is not to your benefit but as an advisor, how do we, how would we get somebody out of this and into the. I'm looking at a better metaphor but like a raw dog exposure where they're fully in. Forgive me.
- [17:29]
I love it. So yes, you know, and you saw me salivating there. It really is, you know, in terms of, you know, focusing on the investor, the outcome that they desire that cash Right. There's a lot of it today.
- [17:41]
Unknown
Right.
- [17:41]
Matthew Ratkowski
Sitting on the sideline, tons of it.
- [17:43]
Unknown
Right.
- [17:43]
Matthew Ratkowski
And so you're exactly correct. Right. So the structure note does offer the ability for them to say, okay, get into the market.
- [17:51]
Unknown
Right.
- [17:52]
Matthew Ratkowski
We don't know when that, you know, when that next pullback's going to happen. You don't know if you're going to miss the run up. And so, you know, now is always the best time. But what we're also saying is we understand your concerns. Right. Whether they're, you know, whether they're, they're behavioral or whether they're from a horizon perspective. If you don't have, you know, the luxury of losing money now or if you're just super concerned about it, the note definitely again allows you to invest in a broad based index exposure. You can create notes that are again, associated with individual equities, but again, it entices them to do what they need to do, which is get that money to work and do it now. And so you mentioned. Right. When do you move from the structured note SMA to the individual? It really, quite frankly, don't say never. Yeah, yeah, right. So of course. But you know, I look at them as valuable. Again, back to the question. First around using buffered ETFs versus using structured notes, I think there's the ability to use both of them effectively in practice as well as individual notes. Individual notes and the structured note sma. And so I think of that structured note SMA as more of a core integrated allocation that should remain so depending on the risk type of the investor, the size of that investment, and hence the protections that it offers. You want to allocate in size, but keep it in there.
- [19:18]
Unknown
Right.
- [19:18]
Matthew Ratkowski
Now, how about this?
- [19:19]
Matt, sorry to cut you off, but how about, how about somebody's like, all right, I've got whatever this pile of cash and I'm nervous. So what if. Okay, I. Okay, I understand. Right. I get nervous too.
- [19:30]
Yeah.
- [19:30]
What if we're going to take, I'm making this up 40% of the money. We're going to put it in these, in this structure note model wrapper. We're going to take the remaining 60% and put it on with no protection. And this way, you know, if your worst fears come to fruition, at least we've got, we've got you some insurance.
- [19:46]
That's it. That's absolutely correct.
- [19:48]
Unknown
Right.
- [19:49]
Matthew Ratkowski
And then I would say the pivot to when you start using the individual notes. Right. So as your experience grows, well, taking a big step back, like we are super focused on integration of these products into the portfolio allocation process. They can't hang off the side of the desk. They need to be part of that core allocation model. So now you've gained exposure to the structured note through our professional managers. Now you see in your own practice, whether it's from a valuations perspective, from a macroeconomic or geopolitical, you see some dislocation in a sector, in an asset class, in an exposure, you then once you have that expertise, for instance, if you want international exposure these days, let's go China.
- [20:34]
Talk about China, because China was probably blown out last year. You probably had great opportunities there, for sure.
- [20:39]
And so those are situations where if you as an advisor either think there is, from a valuation perspective, dislocation to the low side.
- [20:49]
Unknown
Right.
- [20:50]
Matthew Ratkowski
So undervalued. Right. Or overvalued. If you still want to again, express or maintain an exposure that you have in your model, but you want to do it in a highly, I'll say, tactical way, though, aligned with your core allocation strategy. The note's perfect. So we have a ton of interest today. You mentioned China, but also Euro stocks. So international exposure, Europe in particular, the participation in some of those notes are absolutely phenomenal, with decent downside protection as well. Strong downside protection, I should say. And so again, as you become that note expert, whether it's China, whether it's Tesla, whether it's euro stocks, whether it's small caps, you can use that structured note in collaboration with your other allocations, whether the Structured Note SMA or your core portfolio. And that's the whole idea of Halo though, is to teach advisors, educate them not only on what they are. Education sometimes is around deep dark infrastructure, around how the node is built. But it's as important to us to show how do you actually put this in a portfolio, what's its role? And then how do you again adjust it over time based on these market Dynamics?
- [22:02]
Ben Carlson
For the SMAs, is there any difference between in the liquidity structure or the fees or anything? Tell us how that works compared to the other platform where you're creating them yourself.
- [22:12]
Matthew Ratkowski
Yeah, so there is. So as with any externally managed strategy, so sma.
- [22:19]
Unknown
Right.
- [22:19]
Matthew Ratkowski
There are advisory fees associated with them.
- [22:22]
Unknown
Right.
- [22:22]
Matthew Ratkowski
And so they vary by the strategy and strategy type, but you're looking for anywhere from 40 to 80 basis points in terms of the advisory fee that's associated. So that's the fees you're paying for the professional management by those new Edge Piton or WisdomTree. And so you get very similar to using other SMAs across other asset classes. But that gives you some sense from an advisory fees perspective. So if you're managing them on your own, you come to our platform, you source a note, you're only paying, I'll say, a transaction fee on the note itself. We've talked about pricing structure for notes. Typically these are sold in advisory accounts, so the advisor still charges what they charge from an advisory perspective. And then the cost of issuance and the cost of delivery of that note is embedded in the re offer the bond.
- [23:20]
What about implementation? Is this something where they click a button and all the notes are bought? Or is it like, I have to go, I have to do this part and then this part and then that part?
- [23:28]
Yeah, that's the beauty of the platform. And so you can go out to HaloInvesting.com, if you're onboarded with the platform. And similar, as you would see in a typical SMA infrastructure, you have access to information about the strategy, what is its objective, who is the manager?
- [23:48]
Unknown
Right.
- [23:48]
Matthew Ratkowski
You know, historical information about the strategy itself. You then basically, yes, as you point out, you click to buy the note. Now it's, I will say it's just as simple or just as it's, it's similar to buying a, you know, separate account strategy as a, as a custodian, as you would at a custodian today. And so from an operational lift, you have to make sure obviously you have an account open at the custodian and then there's the investment management agreement. And then with the Advisor, we have our platform services agreement. So again, nothing out of line with what they would expect to see and engage on a traditional tamp like infrastructure in a separate account strategy.
- [24:31]
So the customization is fantastic. Advisors love that, clients love that. But how does that contrast with like scaling? Right, like the ability to do this at scale is, does the customization, like, make it, make that tricky?
- [24:47]
Well, so customization at scale, right? This is the, you know, this has been, you know, industry focus across all products for a long time. You've seen the, you know, the advent of model portfolios to really try and help address that.
- [24:59]
Unknown
Right.
- [25:00]
Matthew Ratkowski
So create models that have objectives such that they can be used in different sizes at different times to personalize and customize. The whole idea of the technology infrastructure is to basically make this easy for the advisor to do at scale. And so they have note types, so the platform itself allows them to curate notes, create watch lists for notes so that they can monitor pricing or pricing or terms. And so the whole idea of the Platform is to easily buy them and deliver them back into the client portfolio. Now, when you talk about that integration at scale, we're launching a tool called Aura. And the whole idea of Aura is to demonstrate the impact of that structured note inside the client's portfolio. And in the case of an advisor that uses models, we demonstrate the impact of that model or that impacted the occlusion of the structured Note SMA or individual Note in that diversified asset allocation. And so back to scaling.
- [26:04]
Unknown
Right.
- [26:04]
Matthew Ratkowski
So in order to drive the adoption of that across their investor base, or in the case where there's models used at the home office level, you can demonstrate to that investor what is the impact that the note is having, why is it there?
- [26:19]
Unknown
Right.
- [26:19]
Matthew Ratkowski
And so in terms of easing the adoption of the product, it becomes for us, we're convinced it's much more seamless when you can show, right, here's the impact on risk, here's the impact on negative returns, here's the impact on income. If that's your focus of the notes in a. You kind of think about it in a traditional TAMP investment proposal framework. You know, I worked at Morningstar for a long time. You think about the Advisor workstation or other investment proposal tools, the Advisor or the tamp, the Tampa investment proposal proposal. It's so core to that client engagement and showing them. Right. Why this is happening. And we are convinced that if we can help the advisor do that, the ease of getting clients into the portfolios, but also then again, the management of it over time given Aura and then the core platform can really drive that scale.
- [27:11]
Ben Carlson
So your, your Aura platform is essentially a portfolio modeling and analytics that allows you to do some scenario analysis of. Here's our current allocation. If we put a 10% allocation into these structured notes, here's what it does to the drawdown potential for the portfolio or whatever it is, or the upside or any of that stuff, it just kind of allows you to integrate better with the rest of your portfolio.
- [27:31]
Matthew Ratkowski
That's it. Yep. Yeah. Show the impact it has.
- [27:34]
Unknown
Right.
- [27:34]
Matthew Ratkowski
What is its place?
- [27:35]
Unknown
Right.
- [27:35]
Matthew Ratkowski
Because it's very important to make sure it is appropriate.
- [27:38]
Unknown
Right.
- [27:39]
Matthew Ratkowski
We don't want you again, you want the product to be used. Used. Effectively used. Right. But you've nailed it.
- [27:43]
Unknown
Right?
- [27:43]
Matthew Ratkowski
That's exactly what it does. It shows them why. Why is this note, why is this Structured Note SMA in that client's allocation.
- [27:52]
Ben Carlson
And what is its role for most advisors and clients? Obviously the downside protection. Michael keeps talking about the behavioral thing. I tend to think that the income is a really important piece for people too, do you think, just for clients, just the safety and comfort of feeling and knowing that income is coming in, whatever the percentage is. I'm getting 6% a quarter or 10 or 8 or whatever the number is. Is that income piece just as good for the psyche as the downside protection?
- [28:17]
Matthew Ratkowski
Absolutely.
- [28:18]
Unknown
Right.
- [28:19]
Matthew Ratkowski
It's, it's a, it's another form of security, as you point out. Right. And so you know, that steady stream of income is extremely attractive to a lot of advisors and investors. Right. Where they can just show the periodic nature of that cash flow. Right. So many are using it to, is a way to try and replicate the equity returns, you know, based on those underliers. But also some are, you're heavily focused. So if you think about the Piton strategy that we offer, it's a high income strategy that uses individual security, individual equity notes to drive higher yields.
- [28:52]
Unknown
Right.
- [28:53]
Matthew Ratkowski
And so you absolutely agree behaviorally.
- [28:55]
Unknown
Right.
- [28:56]
Matthew Ratkowski
Having that defined protection in the portfolio is critical. And some want again to kind of manifest that in the secured and periodic income as well.
- [29:07]
When did peloton get into the structured note game?
- [29:11]
Well, who's Peton? Peton. Piton. So Piton is an investment manager on our platform. So in terms of the expertise, I think two things to know. Annaly Capital, if you recall a very large fixed income manager that's the predecessor of the firm. And so you just in terms of sophisticated utilization of fixed income instruments, they've been at this for quite a long time. So it's Piton for those, it's not Peloton for those that are listening. And so, you know, in terms of their portfolio management capabilities, they also have a lot of exposure building custom portfolios for high net worth and ultra high net worth individuals. And so structured notes have always been a part of the investment strategies that they build and manage for both their own portfolios and that of their clients. And so we're basically leveraging that. Chris Conrad is the portfolio manager on it, leveraging that expertise in the single name. Right. Single stock income note strategy to again drive high income yields through the allocation portfolio.
- [30:18]
So Matt, Ben mentioned that income is one of the easiest things for advisors to sell because clients love it. And that's, in my opinion, one of the reasons that private credit has exploded because clients are able to get that 10% coupon, whatever it is. What sort of yields can we generate using these strategies? Ish.
- [30:43]
Yeah. So you know, it's you, that 10 yield that you mentioned can certainly be replicated inside of the structure. Note it Really?
- [30:50]
I mean, how, how, how that sounds. Yeah, it sounds too. So tell me why it's not.
- [30:55]
Yeah, so typically in that case you're looking at either. I mentioned some of the single stock notes and those yields can actually push even higher than that. Obviously it's subject to all the market conditions we talked about.
- [31:07]
Ben Carlson
Jason showed us some Tesla yields back in the day. They were very high. Obviously with a more volatile stock like that, you would expect to have higher yields.
- [31:13]
Matthew Ratkowski
Yeah, but the trade off there is that you can get knocked in.
- [31:16]
That's exactly right. So you want to make sure it's balanced. Right. And so I'll say today, typically you're going to see a three index worst of. So think about Russell, two NASDAQ S and P5 note. So based on the worst performance of those three generating, I'd have to look to see what the price is. Actually this morning I should have done that. But if you take that worst of basket and convert that into an income note, again, you can create accessibility to yields. I'll say in line similar to what you're seeing there now, if you want to take on more risk, as we mentioned, you can push those yields higher. Single stocks obviously can drive higher income given their volatility than the broad based indexes. The fewer indexes you have associated with that income note, the higher your yield's going to be as well.
- [32:07]
All right, give me, give me. I want to know it on micro strategy this afternoon. What are we looking at?
- [32:10]
Yeah, I'll go ahead and have the crew price that up for you, but.
- [32:16]
I guess I'm joking obviously. But the thing is that you really, there is flexibility in the platform to do more or less, whatever you want.
- [32:22]
More or less, whatever you want. Absolutely right. So as long as it can be hedged. Right. The issuing bank or your issuing banks will of course price up the note real time. And that's the whole again, the beauty of the platform itself is access to multiple issuers, multiple banks to price up that note. So yeah, the platform, quite frankly it's in some cases curse of choice. Right. There's basically infinite combinations of underliers, protection duration. And so that's kind of back to the point of the sma. It does allow for a streamlining of that. But the other thing too is just the ability to kind of set filters and screen define your objective. It will help you curate. And we have humans.
- [33:07]
Unknown
Right.
- [33:08]
Matthew Ratkowski
It's always helpful. We have a team that's at the ready to help advisors hone in on the note that they need as well. And so I don't want to, I'm going to sneak back right to the SMA because one of the things I do think is important is, you know, credit risk is always something people talk about, you know, within the, the structured note world. Obviously the, the bank is issuing the note, it's based on their credit. One of the additional dimensions that could be important to investors is that the managers can, you know, through the platform they can see their ex, you know, their issuer level exposure and so they can balance their exposures across the banks to make sure there's not too much concentration in a single bank as well. And again, it's something that's taken off of their plate. The manager themselves is again making sure they're, they're diversified across the issuers as well.
- [33:55]
Ben Carlson
If financial advisors want to learn more where we send them at.
- [33:58]
Matthew Ratkowski
Yeah. So send them to haloinvesting.com There's a lot of resources that are there. The Halo journal is not password protected. Ton of great thought leadership education and certainly you can, you can find information about the platform and how you sign up for. Sign up for it there.
- [34:14]
Ben Carlson
Perfect. Thanks for coming on, Matt.
- [34:15]
Matthew Ratkowski
Yeah, thank you very much. Appreciate it.
- [34:19]
Ben Carlson
Okay, thanks to Matt. Remember, check out haloinvesting.com to learn more. Email us animalspiritscompoundnews.com.