September 28, 2020

Finding Alpha: A Fund Manager Explains How He Uses ETFs To Crush The Market (Podcast) (MUTF:ATACX)

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By Jonathan Liss

Michael Gayed has been investing for long enough to know that his current, incredible outperformance isn’t something to be taken for granted. The ATAC Rotation Fund (ATACX) (ATCIX) he serves as lead manager on is up an incredible 58% YTD, making it one of the best performing funds in any asset category. Gayed is making sure to keep an even keel when contemplating the blowout year his fund has had so far: “Every asset class or strategy has a cycle it does better or worse in. I always tell people it’s not about me or the strategy but rather the cycle favoring the strategy [right now]… it’s an important point in thinking about how to invest and keeping humility at the forefront.”

Having authored four award-winning scholarly papers on managing risk while magnifying returns, Gayed has taken his pioneering work on leading indicators of volatility – everything from Utilities and Treasuries to the Lumber-Gold price ratio – and put theory into action. The analogy he uses to explain his approach to investing is deceptively simple: “I may not know the exact mile marker where I’ll crash my car but I do know the conditions that will potentially lead to an accident. I know when it’s raining to slow down and play risk off and when it’s sunny, I can speed up and go risk on.” Behind such seemingly simple statements though are reams of mathematical equations and data analysis. As Gayed explains, “I try to remove emotion from my investing and give voice to math.”

Ever the investing renaissance man, in addition to running the ATAC Rotation Fund, Gayed runs The Lead-Lag Report at The Seeking Alpha Marketplace. Subscribers to The Lead-Lag Report receive daily detailed risk analysis reports that utilize the same proprietary data models Michael uses to position ATAC Rotation, alongside tactical investment opportunities. Gayed is also a gifted macro analyst – we get into his diagnosis of what’s currently plaguing American capitalism in great detail during our conversation (He laid out his current thesis on “The Greatest Disconnect Between Stocks And The Economy here and here). As if all of this isn’t enough, Michael is a social media investing superstar with more than 180,000 Twitter followers.

With the VIX jumping from 22 to 32 over the past week and a half and markets again flailing, investors would do well to heed Gayed’s central message: Ignore gathering storm clouds at your own peril. Or at the very least, if you’re going to step out into a rain storm, make sure you’re carrying an umbrella.

Show Notes

  • 3:30 – How does the strategy underlying the ATAC Rotation Fund work and how did Michael come up with it?
  • 10:45 – What has driven the impressive returns so far in 2020?
  • 20:00 – Effect of the COVID-19 pandemic on investor sentiment
  • 23:00 – The 2020 effect: Making sense of one of the craziest years for investors in recent memory
  • 29:00 – Diagnosing the problem: The disease plaguing American capitalism?
  • 41:00 – Fund basics: Why hold 4 different small-cap ETFs, (IJR), (SCHA), (URTY) and (SPSM)? What does ATAC’s ETF selection process look like?
  • 48:30 – 2,000% turnover: How do you tax manage a fund like this?
  • 53:00 – The Lead-Lag Report: Michael’s outlook for equities?
  • 55:00 – Dos and Don’ts of the ETF screening process

Disclosure: I am/we are long VOO, QQQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Michael Gayed is lead manager of the ATAC Rotation Fund (tickers: ATACX and ATCIX). He may currently own some of the funds we discussed.

Jonathan Liss is long VOO and QQQ.

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