In Episode 18, we're joined by John Davi and Frank Tedesco from Astoria Advisors, who have just introduced their second ETF, ROE - US Quality Kings. We delve deep into the current state of the U.S. stock market and explore the intricacies of the ROE strategy.Astoria's US Quality Kings ETF is an actively managed Exchange Traded Fund (ETF) designed to pursue long-term capital growth. It achieves this by investing in a well-diversified portfolio of 100 high-quality U.S. large-cap and mid-cap stocks. What's unique is that each of these stocks is equally weighted, mitigating the potential challenges associated with market cap-weighted indices.Furthermore, the fund optimizes its allocation within sectors, meticulously selecting the highest quality stocks in each sector, mirroring their weight in the S&P 500.To gain further insights into Astoria Advisors and their innovative ROE approach, be sure to check out their website at astoriaadvisors.com.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and John Davi & Frank Tedesco covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
So, like you said, when you started a story, or since you started a story or rather, quality has been the ballast of our core U.S. equity position, and yet concentration risk is a hot topic this year, but the reason that it's impacted are portfolio positioning, it's because so many ETFs are market-tapped-weighted, quality ETFs are market-tapped-weighted, so you may not even realize, but your quality exposure may also be 20%, the stocks that are leading the S&P 500 itself right now, because they are a quality company.
So that's the one premise that this ETF is grounded on. In quality is shown through the research of the factors who have a higher circle ratio, which means that per unit of risk you're taking, you're getting a better return comparatively to the other factors. It may not achieve the same level of compound annual growth rate, and it's not the most volatile, but you get better predictability and higher quality companies outperform the market and lower quality companies outperform the market.
Market Context and Positioning
But before we transition over there, I think one of the things I find interesting, I'm not sure how many retail investors you really get to talk to. I get to talk to a good bit of them, and they just seem tired. And they seem like, now where rates are where they're at, they're very happy to be packing money into money market funds and to treasuries and getting their five to five and a half percent yield. And just saying, hey, look, I'm good with this.
You can look at the former French data, but those are the two premise premises that this fund is based on. So now the construction, it's 100 of the highest quality US stock, and we sector optimized to the broader large cap universe. So what that means is if the market has 28% tech for example, we'll also have 28% tech in our ETF, but instead of three stocks making up 16 or 17% of that 20, we'll have 28 different tech stocks each making up 1% of the total ETF.
So we want liquid stocks, we want stocks above 5 billion, so we'll have some midcaps in there too, and from those initial screens, we get down to around 800 stocks. And then from there, we use the quality metrics that best define each sector based on historical research. So the mainly it's ROI, ROI, and return on invested capital, but different combinations of those through different periods such as one year or five year, best define each sector. So we still through the best quality stock for each sector, and that's how we make those selections into this sector optimization.
Notable Insights
"If you didn't have the opportunity to listen to the last episode about their inflation ETF, we talked a lot about the firm and some of the different offerings they have."
"And so, that's why I think you have this, like, virtuous circular, you know, kind of feedback loop."
Key Takeaways
- stock market and explore the intricacies of the ROE strategy.Astoria's US Quality Kings ETF is an actively managed Exchange Traded Fund (ETF) designed to pursue long-term capital growth.
- The conversation explores important themes in portfolio construction relevant to today's advisor landscape.
- The conversation explores important themes in fixed income relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with John Davi & Frank Tedesco 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 portfolio construction 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 John Davi & Frank Tedesco, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.