VIDEO: ETF of the Week: HFGM

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week. Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, Head of Research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor, and to dig into the details on the new newsworthy, trending, and timely ETFs that we discuss here.

Todd Rosenbluth, great to chat with you again.

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The Unlimited HFGM Global Macro ETF. That ticker is HFGM.

Chuck Jaffe: HFGM, the Unlimited HFGM Global Macro ETF. You know, in that description as we open this up, I say new and unique and timely, et cetera. Well, this is new! Like, it’s ETF of the Week in its second or third week out of the box. And it’s also timely, because it’s global macro. But it’s got to be more than that, that makes this fund get on our radar screen this early.

Todd Rosenbluth: Yeah, so Unlimited was founded by Bob Elliott, who some folks might know the name of. To me, he’s a legendary investor and he was [a Senior Executive] at Bridgewater Associates, the largest hedge fund around. If you’re looking for alternative investments, you want to go with somebody that has experience. 

This fund, this ETF, is a slice of the overall hedge fund universe, focused on global macro. It’s an alternative that can fit in nicely to zag when your portfolio is zigging. Or the other way around, I guess, given the volatility and the equity in the fixed income marketplace. We’ll talk about what it does in a moment. 

But, it’s really a smart way of getting hedge fund exposure. A hedge fund-like exposure, hedge fund-like returns for a reasonable fee, considering hedge funds tend to cost a lot of money and are hard to get into.

Chuck Jaffe: Yeah, so let’s actually start on the fee front, because we don’t normally do it, but we always do when we talk about fees, say fees are guaranteed and returns are not. This is a fund that has a 1% flat — 1.0% expense ratio, which on the ETF front, for a fund that has some equity exposure, et cetera, would be considered high.

But again, you’re looking at a hedge fund strategy, and a hedge fund’s expense ratio would normally be 2 and 20, so 2% of the total assets and 20% of the profits. So as you look at this, start there. Like, can you justify paying a higher than normal ETF expense ratio because you want the strategy.

Todd Rosenbluth: So, if you want an alternative and you want global macro exposure, then you’re going to pay up for global macro exposure. It’s going to perform differently than your single basis point S&P 500 or Bloomberg Aggregate bond index based ETF. Why? Because it’s a go-anywhere fund that’s long and short, that has exposure to the full gamut. 

It’s got commodities exposure. It’s reduced its gold exposure. It’s short the Canadian dollar. Those are things that are hard to do and hard to do in a low cost manner. So this is a cheap way to get exposure to the hedge fund world. Just broadening it into your portfolio. 

And yet, you mentioned 2 in 20. That’s if you can get in. So, people who want to get into a hedge fund, for their clients or if they’re an individual investor, are hard pressed to do so. The team at Unlimited has made that possible, and they’ve done so using machine learning techniques. So, what they’re trying to do is replicate the returns of a hedge fund index. So, a collection of hedge funds, the smart money collectively how they are positioned. And doing so on a month to month basis. And there’s changes that are made, but it’s done in an efficient way to get exposure to the whole suite of tools that are available using ETFs and using derivative contracts. It’s a smart way of doing it. It caught our eye when it came to market. We wanted to make sure we highlighted it.

Chuck Jaffe: I’m a big fan of Bob Elliott. He’s been on Money Life in the past. He, by the way, is a huge University of Michigan fan. If you did not know that.

The fund’s came out, I was looking at the Unlimited funds as well. And when this fund opened, one of the things that they made clear is that this fund is not a hedge fund.

It is not investing in hedge fund strategies or positions. It does not buy hedge funds. It’s not trying to replicate the direct holdings of any hedge fund. It’s got all that in its paperwork. So, you can’t expect it to be a full on hedge fund. What is the role you want this to play, and is there something special about how they’re achieving it that sets it apart for you?

Todd Rosenbluth: So, you’re right. You touched on what it isn’t, so what it is, is giving you exposure to a number of different investment styles or asset classes, both long and short. It’s doing so in an efficient manner, using, as I mentioned, machine learning techniques. We think that many advisors, many investors are looking to have, instead of the traditional 60% equity, 40% fixed income, especially in 2025, given how the markets are performed, they’re looking for a slice of the portfolio that is something different that’s an alternative. 

We’ve talked in the past about commodity strategies. We’ve talked about gold strategies. I don’t think we talk about currency strategies, but you get that all within this portfolio, plus exposure to equities as appropriate and to fixed income as appropriate. So we think this can be for some investors, a mid-single digit slice of a portfolio that’s dedicated to alternatives.

And this is just one of those new tools that you can get with the benefits of an ETF. It trades like an ETF. It’s liquid like an ETF. You know what the exposure is like an ETF as opposed to a hedge fund, which is none of those things.

Chuck Jaffe: This fund is brand new. Like we said, three weeks out, and it does not yet have much in the way of assets. Like a couple million dollars, which is a lot for you and me, but not a lot for a fund that’s a new ETF. 

That said, I know you like the fund sponsors, so you’re not going to say, oh, I’m worried about it necessarily, but I’m going to ask this question in a different way. With traditional mutual funds, there is a thing called new fund phenomenon. When you get a new fund run by managers who are well schooled, et cetera, and they start to go, the funds have a tendency in their infancy to take off.

Is there any new fund phenomenon that happens with ETFs, that would make people want to be extra excited that they find out they’re getting, you know, Bob Elliott in one of his two new ETFs?

Todd Rosenbluth: So, we’re increasingly seeing some well-known people, either from the firms that they’re with or that they’ve set up their own shop, that have come into the ETF marketplace. And that’s a great opportunity. You’re right, this fund is small. This is the second fund from Unlimited. They have a more broadly diversified hedge fund-like strategy that they launched a couple of years ago that has a bit more in assets.

We think this is a strong manager — a team that builds something in a smart way. We think the Unlimited strategy makes sense to consider as part of your global macro part of your portfolio, if you believe it’s appropriate to have an alternative within there. Yeah, I mean, Bob Elliott’s track record is certainly known within the industry.

I think people will gravitate towards this based in part on what he’s done in the past and what their belief of what he can do in the future.

Chuck Jaffe: How big a portion of a portfolio are you willing to let this be? That’s different from how much should an investor have? But given that this strategy is very different, you know what portion of a portfolio is the max that you would allow to have something that is looking this hedge fund like in a portfolio?

Todd Rosenbluth: So, I think I stated that single digits is where we tend to find people having alternative exposure within a broadly diversified portfolio. You know, I’m a big believer in having diversification across stocks and bonds within the portfolio and doing regular awareness of how those strategies are performed. So, if you’re lucky, this fund does very well and can grow in size and allocation within your portfolio.

You probably want to make sure that you’re managing that, and making sure that this does not become too large a slice of the portfolio. It’s an alternative. So, you still want to have your core in order to have your alternative to that core.

Chuck Jaffe: Because this fund is going to be so different. Because it’s going to have really no correlation with anything that you’ve got in there, or if it has correlation, it’s more coincidental. Then on purpose, as alternatives go, when people are otherwise looking at things like gold funds and what have you, do you want to have this as a portion of your alternatives, or do you want to make this the core of your alternatives?

Todd Rosenbluth: So, it really depends upon how diversified someone’s portfolio happens to be. We find that probably the most common of those alternatives is something that is in the commodity space or in gold space, or I guess it could be Bitcoin. You know, depending upon how people have it, within their overall portfolio and what they’re willing to own and not willing to own.

So, I do think you can have multiple alternatives within a diversified portfolio if you want to make sure you spread that reward, that risk around, and have greater opportunities for work, for reward, because alternatives are going to do what they’re supposed to do. As you mentioned in less correlated assets, this strategy can lag behind if we are in a bullish equity marketplace. Because of the global macro strategy, you’re going to have more than just equities, you’re going to have other asset classes.

This can fit in nicely into a diversified portfolio with other alternatives. It probably is not going to be the only way forward, because it’s a new fund. But it certainly could be the only way to get exposure because of its diversification.

Chuck Jaffe: It’s the HFGM, the Unlimited HFGM Global Macro ETF. A couple of weeks old, and already ETF of the Week from Todd Rosenbluth. Todd great stuff, thanks as always. We’ll see you again next week.

Todd Rosenbluth: Good to see you, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe, and I’d love it if you check out my hourlong weekday podcast, which just celebrated its 30th anniversary, which you can find on your favorite podcast app, or at MoneyLifeShow.com. 

But if you want to get more information on your favorite ETFs or the things like today’s fund that might become your favorite ETF, go to VettaFi.com, where they’ve got a full suite of tools that will help you out. They’re on X at @Vetta_Fi. Todd Rosenbluth, their Head of Research, my guest here on ETF of the Week, he’s on X too, at @ToddRosenbluth. 

The ETF of the Week is here for you every Thursday. And we’ll be back next week with another ETF for you to consider. Until then, happy investing everybody!

For more news, information, and analysis, visit our Portfolio Strategies Channel.