In a recent episode of "Behind the Ticker," Bob Elliott, founder of Unlimited and former employee at Bridgewater Associates, shares insights into his journey and the innovative approach his firm takes in the hedge fund industry. Elliott's experience at Bridgewater and overseeing a venture fund shaped his understanding of the limitations of traditional hedge fund fees, leading him to create Unlimited. The firm leverages modern machine learning to replicate hedge fund strategies at lower costs, making these strategies accessible and tax-efficient for a broader audience.Elliott discusses the potential of hedge fund strategies when stripped of exorbitant fees. He explains that these strategies typically offer solid returns with lower volatility compared to the equity market, but the traditional fee structure significantly dampens their attractiveness. At Unlimited, Elliott aims to harness these strategies' intrinsic value through a low-cost, diversified indexing approach that mimics the broad hedge fund market without the typical fee burden.The podcast delves into Unlimited's flagship ETF, HFND, which embodies the firm's philosophy of making hedge fund returns accessible. Elliott describes the ETF's construction using a machine learning model that analyzes current hedge fund manager positions to replicate their strategies. This model ensures the ETF reflects an accurate, up-to-date representation of the hedge fund landscape. Through this innovative approach, Unlimited not only democratizes access to hedge fund strategies but also enhances transparency and tax efficiency for investors.Elliott concludes the discussion by emphasizing the importance of including hedge fund-like strategies within diversified portfolios, suggesting a blend of such strategies can significantly enhance risk-adjusted returns. He envisions HFND as a core component of investors' alternative allocations, ideally complementing other investment strategies within a well-rounded portfolio. The conversation highlights Elliott's commitment to breaking down the barriers to sophisticated investment strategies, making them accessible to investors of all scales.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Bob Elliott covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
Today we have on Bob Elliott from Unlimited, and we are talking about their multi-strategy return tracker ETF, Ticker HFND. It takes all the different facets of hedge funds and combines them into a single index, and looks to track their return profiles, the use machine learning in order to build a probabilistic asset allocation that will mirror multi-strategy hedge fund performance, and they package it all up in a nice cost-efficient way. So I think you will find this conversation extremely interesting with Mr.
And so there is a real craft in between my co-founder and I we have almost 50 years of experience in this business, building head proprietary hedge funds strategies and that that shows in how and that is in critically important terms of how we build the approaches. But from that craft, what we do is we build a systematic process that is running on a day-to-day basis, taking in manager performance information, asset return information, allocation information and basically saying given that set of information in the sort of decision rules and design that we've created, what is the highest probabilistic portfolio that's describing the returns that we're seeing in the most recent period.
Market Context and Positioning
And so, what is it about hedge fund return profiles that investors find appealing? We hear a lot about hedge funds and this shows tailored to financial advisors in RIA. So, what is it about that hedge fund return profile and the risk return of them that makes them appealing or that they should be a part of more of a diversified portfolio? Well, I think for most people, they look at, they can look at, say, net returns, indices and they certainly aren't screaming off the chart that that's something that you want in your portfolio.
In many ways, I'm benefited, and many products are benefited from his more than a decade of pushing and bringing these ideas to the forefront for the benefit of investors. Managed futures, you could just think about managed futures just one hedge fund strategy that exists. Out there in the market, there's a lot of different hedge fund strategies, equity-long short, global macro, fixed income strategies, managers that are focused on the emerging markets, maybe event-focused M&A type strategies that are out there.
Well, functionally, if you think about there's five trillion dollars of assets and hedge funds, basically what that means is that hedge funds are invested in or exposed to the 70-ish largest liquid markets in the world. And so our opportunity set is essentially the 70-ish largest liquid markets in the world. And that may adjust over time as certain markets emerge and others no longer are as large. But in general, that opportunity set exists through time and then we just express those views in them in what we believe to be the most efficient security possible, whether it's in ETFs or cash equities or futures in any cases.
Notable Insights
"And the challenge with most of those approaches is that they're often adding to the fee problem, rather than increasing access and reducing the fee problem."
"And that's why I've found at least in my years of gardening that much much better to plant a whole bunch of different stuff and see what comes and take joy in that and not stress too much about, you know, hoping to get one particular plant or one particular crop to come out the way you'd like."
Key Takeaways
- He explains that these strategies typically offer solid returns with lower volatility compared to the equity market, but the traditional fee structure significantly dampens their attractiveness.
- The conversation explores important themes in international markets relevant to today's advisor landscape.
- The conversation explores important themes in income investing relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Bob Elliott highlights important considerations around quantitative investing. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of quantitative investing and international markets discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Bob Elliott, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.