Insights from Eric Metz
Eric Metz: The strategy hinges on my background in trading volatility via listed options. RNBWX is a quantitative strategy that employs common option trades (Buywrites, Collars, Protective Puts) predicated on the opportunity set in the volatility landscape as opposed to a typical “stock first, options second” approach targeting a S&P 500 beta of .3. The portfolio construction typically consists of 100-150 securities or ETF’s that have the best risk-adjusted return expectations from a volatility perspective. This diversification inherently obtains a mix of large cap, mid cap, dividend paying, growth and value securities.
MutualFunds.com: In trying to monitor your allocation, what determines how much of the fund is going to offer exposure to ETFs and individual stocks?
Eric Metz: The determining factor of allocation to single securities vs ETFs is solely determined by the volatility opportunity set. This is a proprietary methodology, but it is an opportunistic allocation.
MutualFunds.com: You also have exposure to international markets. Can you tell us which geographic regions you see offering the best risk/reward opportunities?
Eric Metz: The international exposures that RNBWX has are via the ADR ETF market. These allocations, again, are determined by the volatility opportunity set. Brazil, Russia, China, Emerging Markets (collectively), have all provided opportunity since the fund’s inception, and looking forward we think opportunities will come and go as volatility presents itself.
MutualFunds.com: Do you have any sectors right now that you are simply staying away from?
Eric Metz: RNBWX sector allocation has its target allocation, but again is largely a function of the volatility landscape. From that perspective, the Utility sector is least attractive, while energy and financials have the most opportunity.
MutualFunds.com: What are some of the biggest lessons you have learned in running your fund?
Eric Metz: The fund is just over 2 years old, and given that we bucket ourselves as an “alternative,” fund/strategy education is paramount to ensuring the advisor/client expectations are met. Option strategies have garnered a lot of attention as yields in the fixed arena have fallen, so understanding that an options- based fund that is not levered, such as RNBWX, can give a fixed income like volatility while being correlated to equity markets is at the forefront of this education.
MutualFunds.com: Finally, What are the main themes you feel investors should pay attention to as we head into 2015?
Eric Metz: If there is any theme that RNBWX harnesses it is the notion that markets do not go straight up indefinitely, and that volatility is a mean reverting asset class. With the equity markets having such large appreciation from the 2008/2011 lows, and fixed income facing the headwinds of credit spreads and rates near historic lows; where does one allocate in today’s environment? Moreover, with the global and domestic QE programs being altered, the one thing that I think surfaces, regardless of asset price direction, is market volatility. Given the low equity beta that RNBWX targets, combined with the ability to capitalize on the dislocations in the volatility landscape, 2015 sets up nicely for RNBWX as a core position for both advisors and allocators alike.