Bob Elliott spent 15 years at Bridgewater Associates working as Ray Dalio’s right hand man, creating investment strategies across all major asset classes. Today, he is the CEO and Chief Investment Officer of Unlimited, which uses machine learning to replicate some of the same hedge fund strategies but does so in a more cost-effective way. He joins the ETF Think Tank to talk about the challenges of entrepreneurship and why he believes the 2/20 strategies should be available to more investors.
The overall problem that Unlimited is looking to solve is how do you find a way to marry the investment returns of hedge fund managers to an investment vehicle that manages to lower fees and creates tax efficiencies for everyday investors. He found ETFs to be the ideal vehicle for this and wants to bring low-cost index ETFs to the 2/20 world.
Elliott is essentially trying to solve two problems – how do you lower fees and how do you lower taxes. The traditional hedge fund is very expensive to mine alpha. His company uses technology to “look over the shoulder” of analysts and build long/short positions in his own portfolios. He believes that his company can offer 2/20 style returns to retail investors at a cost of under 100 basis points. His goal is to reduce fees by ¾ and reduce tax liabilities by half.
What was the lightbulb moment that made Elliott take the plunge? He believed that creating access in a better structure was better than creating more wealth for wealthy people. His goal was always about bringing that understanding and making it available to everyone. His company actually started building that strategy before it even knew the benefits of the ETF structure. They looked for the best wrapper after they had the strategy.
What about positioning in today’s markets? Elliott’s systematic process looks back 30 years. He finds this period interesting because hedge fund managers have as low confidence today as they ever have. They are running low risk and low leverage. Having low risk in a highly uncertain environment is itself an inherently alpha-generating process. They have low risk equity positions. They have low duration risk in fixed income. They are adding some gold and commodities. Some are shorting tech stocks, but there is a general trend of expanding outside of mega-cap tech.
Other key takeaways:
- What are Bridgewater investment committee meetings like? The process is centered around the fundamental rules that drive markets. Then, the ideas are tested and assessed to see 1) if it works and 2) if it is repeatable. We needed a rigorous approach that is durable and viable over time.
- Alternatives do not work all the time, but Elliott believes that retail investors shouldn’t necessarily be locked out of access to them. These strategies have traditionally only been available to endowments or sovereign wealth funds. It is about access to these strategies.
- Elliott emphasizes one main point – He is not worried about the return piece of these strategies. He’s focused on the tax and fee piece of it. Hedge funds do not have a performance problem. They have a fee problem and a tax problem.
- Why does Elliott focus on Vanguard funds? They’ve made it easy to get exposure to sectors, indices, or factors for almost no cost. You also get the benefit of the efficiency and liquidity of those funds. We think investors are better off using those ETFs than trying to build up the securities ourselves.
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