Scott and Emil reveal the new ebook for advisors the team has been working on, which will provide advisors with actionable tips to streamline the investment management process and improve portfolio outcomes and communications with clients. Financial advisors can request the ebook at logicly.finance/advisorsguide
Transcript
Intro:
Speaking Logicly is brought to you by ETFLogic, the leading provider of analytics and portfolio analysis tools for financial advisors. No information within this should be considered trading or investment advice.
Scott McKenna:
Hey, guys. And welcome back to Speaking Logicly. My name is Scott McKenna.
Emil Tarazi:
And I’m Emil Tarazi.
Scott McKenna:
Today, we wanted to talk about something that we’ve been working on for the past couple of months, and that is a special ebook that we’re putting out. So Emil, why don’t you tell us a little bit about the ebook and what you’re most excited about?
Emil Tarazi:
Yeah, look, the ebook, we’ve been working on it for a little bit now, and it’s a collection of different articles that our team has written essentially to guide advisors around how to use ETFs and find them on our platform.
Scott McKenna:
Awesome. Why do you think it’s so important that we’re putting this ebook out?
Emil Tarazi:
Well, I think there’s just a wealth of different choices out there when advisors are building portfolios or allocating assets for their clients. And there’s just a lot of gotchas around costs, total cost of ownership, taxes and tax loss harvesting. Obviously the backdrop of the markets is a massively shifting risk landscape. The markets economy that we’re in now is very different than the economy from nine months ago. So, how do you navigate this new world? How do you do it with the right tools?
Scott McKenna:
Let’s talk a little bit about the goals for the ebook, right? I think putting it out there, there’s a number of reasons that we’re doing it, but I think the most important one is to help teach. CE, continuing education credits, offering those through our webinars is an important aspect of what we’ve been doing lately, but we wanted to take it a bit further and create a resource for advisors to help out with some of the other stuff that maybe we haven’t gotten a chance to do on a webinar, that we haven’t dived too deep into.
Scott McKenna:
I recently saw a chart on Twitter the other day that says, you always want to out teach your competitors. And it was basically a chart saying, you can sell, you can sponsor, you can promote, but it’s never going to have the same impact as if you teach.
Scott McKenna:
I think the importance of that is really around creating value for your clients regardless of it being through your product. And so if you recreate value around this ebook, I think that’ll kind of drive a community that we’re looking to get through our platform.
Emil Tarazi:
Yeah. I mean, that’s spot on, Scott. I think we understand a lot about sort of the quantitative aspects of building portfolios, how to look at risk, how to look at returns, how to look at costs, and tax loss harvesting.
Emil Tarazi:
First and foremost, what you said, it’s an educational resource that we’re putting out there to help advisors navigate this world. Our obviously secondary goal is to let people know that a lot of the things that we’re talking about in managing your portfolio, you can do through the Logicly platform. We’re not telling you to use the platform, but it will make your life a lot easier when you’re thinking about all the different aspects of what it takes to manage a portfolio of assets of ETFs specifically.
Scott McKenna:
Let’s talk about the first article. It’s one that me and you had worked on a long time ago when I first came on and it kind of fell away, we forgot about it, and then just dusted it off recently, and that’s the true cost of ownership. Talking about the costs beyond the expense ratio of an ETF. So why don’t you just give us a little bit of background on that article?
Emil Tarazi:
Yeah. I mean, total cost of ownership, the way that we’ve put it forward is a way of explaining a lot of the times when people think about investing in an ETF, they think, okay, well, what’s the expense ratio. And immediately you’ll sort by lowest expense ratio to highest, and you’ll say, okay, the one with the lowest is the best. But let’s put that in context. You know, if you’re talking about a three basis points, large cap ETF versus a nine basis points, large cap ETF, sure, that’s a pretty big difference relatively speaking, six basis points. But on a $10,000 investment, we’re talking the difference between $3 and $9, which of course, over time, there’s a drag, but we need to put that $3 and $9 in context against all the other costs involved. So things like trading costs, around trip, paying the bid-ask spread could be already three or four basis points right there.
Emil Tarazi:
If you go for the three basis points expense ratio ETF, but your paying three basis points to get into the ETF, well, that’s six basis points right there. We can go through all the different costs, like taxes, and dividends, and also the fund management, for example, you know how the fund is managed and whether those dividend yields or capital distributions are properly being disseminated.
Emil Tarazi:
If the fund manager, for example, sends out a short-term long-term distribution, then if that ETF isn’t a taxable account, you will pay taxes on that, and you may not want that. A lot of people go to ETFs because of that innate, inherent, embedded tax advantage. So being aware of how the fund is being managed and whether it’s paid these special short-term long-term gains or distributions, you’d want to be aware of that.
Emil Tarazi:
Anyway, that’s part of the total cost of ownership. And I think what we’ve provided is a very easy to read checklist. You can go through and say, hey, does this ETF… Is there a green check mark next to each of these points?
Scott McKenna:
Yeah. Awesome. So for article two, the importance of choosing the right benchmark, obviously when you’re searching for ETFs a benchmark is one of the first things that you’re think about, but we dive a little bit deeper in it to talk a little bit about why it matters so much and not for just the regular reasons that you might think about, right?
Emil Tarazi:
Yeah. I mean, choosing a benchmark is always important, especially when you’re running a back test or you want to see how your portfolio is performing going forward. So we’ve done a lot of work on that on the platform with the ability to create customized benchmarks that really maybe suit the style of risk exposure that that portfolios policy is following. So I think there’s a lot of important details there.
Scott McKenna:
For the rest of the articles, we kind of dove more into the portfolio analysis tools and some of the topics around there. Obviously there’s so much to cover given almost every grid that we have in that tool is almost like its own software in itself.
Scott McKenna:
One of the other really important ones that I wanted to talk about was around tax loss harvesting. So obviously this year we saw a lot of volatility in the markets. Right now, the investment outcomes that clients might have might not be the most ideal ones that they thought they would be at right now, given at the beginning of the year, right?
Emil Tarazi:
Yeah. I mean, a properly tax managed account can boost after tax returns by substantial amount. Tax loss harvesting is a way of generating tax credits that you can use and carry forward to boost those future returns. With ETFs, because there are so many of them, there’s 2300 plus in the US and counting, there’s a lot of opportunities to take losses, basically do tax pairs trades, get out of one name, get in another, that’s basically very similar, maybe not identical, but similar, and maintain your policy, maintain your asset allocation exposures in a way that stays in line with the client’s risk profile or expectations.
Emil Tarazi:
Tax loss harvesting is something that people start to think about at the end of the year because of the tax year coming to a close. But in reality, it’s also something that you should be doing constantly whenever there’s any losses. Maybe below a certain threshold, you need to have tools that can go in and look at your portfolio and see that there may be potential tax credits and suggest potential tax trades or tax swap trades that you could do.
Emil Tarazi:
The article’s goal is to talk a little bit about how to use ETFs for this and how to leverage our platform for identifying these types of trades.
Scott McKenna:
Awesome. And you mentioned the risk profile before that kind of leads into the other article that we wrote, and that was all about the shifting risk landscape and whether or not you need to take more risks to maintain income target. So why don’t you tell us a little bit more about that article?
Emil Tarazi:
Yeah. I mean, we’re certainly not suggesting people take more risks, but what we are bringing to the forefront is that income yields have dropped substantially. We’re near zero rates. The Fed just announced near zero short-term rates until 2023. So we’re in certainly a low rate environment because of the way that the economy is progressing.
Emil Tarazi:
When you think about traditional like 60/40 portfolios, that 40% of fixed income exposure is no longer yielding what it did 10 or 15 years ago. And when you look at that sort of overall income generation from a portfolio based on risk of those different components you’re basically falling short a little bit from an income perspective. Sorry, let me do another take.
Emil Tarazi:
When you look at your portfolio from a 60/40 perspective, let’s say 60% equities, 40% fixed income, what you’ve seen is that 40% portion yielding a lot less, so to maintain sort of income expectations in the future, especially if you’re nearing retirement, you may want to think about higher yielding assets.
Emil Tarazi:
There are situations, for example, looking at some preferred shares, there’s ETFs that pool different preferred equities. Preferred are kind of hybrid equities and bonds in a way. And some of these preferred ETFs are yielding 5-6% with a lot less volatility than the S&P 500, maybe a fraction of that volatility and risk exposure.
Emil Tarazi:
May be possible to shift slightly your fixed income exposures towards preferred equities. And we have some other ideas in the article that we mention.
Scott McKenna:
Awesome. And another grid that I see a lot of traffic from advisors is the factor exposures, right? And so we did an article where we broke down the factor exposures and how they’ve performed over the past year, right? So year to date going back even before the pandemic. But we were really focusing in on how they reacted once the pandemic hit. Why do you think that advisors should be thinking about factor investing? I know some of them are, but-
Emil Tarazi:
Well, factor investing is something that’s been talked about for quite some time now. With ETFs, you have, maybe you can think of it like you have all these surgical tools where you can say, I want a drop of momentum and you can pick out one of the 10 plus different momentum ETFs, and add that to your portfolio. So you almost have like this toolbox of different things that you can put together.
Emil Tarazi:
Our factor view on the world is, first of all, you need to know what you have in that toolbox already. So for example, if you’re long the S&P 500, you’re already long growth because of sort of overweight tech exposure. You want to know that. So if you think to yourself, well, I’d like to have more growth in my portfolio, well you should probably already know that you’ve got already a substantial growth exposure and adding more may overexpose you to tech. That’s the first sort of aspect sort of understanding what you have.
Emil Tarazi:
The second aspect is okay, now that you know what you have, you want to be able to manipulate it. So if you think that value is going to make a comeback after it’s been beaten down so much in these past few quarters, then we have the ability to not only go and screen for those 15 different large cap ETFs and 10 different mid or small cap ETFs, but you can compare how they perform against each other.
Emil Tarazi:
They all have different levels or different exposures of value or growth. In turn, they also have different exposures on a sector basis, on a dividend yield basis, so you want to see how all those different interactions work. So, that’s kind of what our angle is, know what you have, and then be able to navigate all these different options once you decide you want to make a move.
Scott McKenna:
Moving on from some of the topics we covered that deal with our portfolio analysis tools. We also covered an article where we talked about model portfolios, right? And as many know, model portfolios are new, but they’re becoming more and more used by financial advisors for a number of different reasons. So we broke those down in that article, but Emil, what do you think is the biggest driver, in your opinion, of advisors leveraging model portfolios?
Emil Tarazi:
Yeah, I mean, I think that advisors need ways to streamline their workflows and the rise of models is really kind of two stories. One is that relentless focus on sort of optimizing and reducing the amount of time on, let’s say, portfolio asset allocation and increasing your time as an advisor with your client and focusing on their financial planning, which is maybe a much bigger task than just portfolio and asset allocation. That’s the first driver.
Emil Tarazi:
The second driver is obviously ETFs. Models have been around for decades, but ETF models have also been around for decades, but we’ve seen more and more of them, because, again, there’s 2300 ETFs and there’s just so many ways… The possible combinations are infinite of how to put these different things together. So it’s been a great way to take advantage of the low cost, the tradability diversification of ETFs, while also optimizing your workflows in advisory.
Scott McKenna:
Some of the other articles that we covered in the ebook were a little bit more practice management related, right? The first one being about how you can leverage technology. So, in this new world that we’re in, no longer can you go and take your client out to lunch or take them out to coffee, right? So everything is on Zoom, right? Everything is video screen-sharing or via telephone, right? And when you’re having so many Zoom meetings, if you’re like us, you’re probably pretty Zoomed out. So we talked about some ways that you can go ahead and leverage the visuals from our platform or from technology in general, to kind of spice up those meetings and keep your clients engaged.
Emil Tarazi:
Yeah. I mean, you mentioned it, it’s all about the charts and the numbers. The space can be overwhelming. There’s just a ton of stuff that… You feed some system your portfolio and you can get this flood of analysis, so we want to be careful. When we built and designed the platform we wanted to make sure that the most important things were brought to the front.
Emil Tarazi:
If you’re looking for a quick understanding of what the risk and return is on your portfolio, what just the expense ratio is on on a blended basis, you can get those numbers pretty snappy. If you’re a power user and you want to drill down and look at sharp ratios and Sortino ratios, we’ve got that too.
Emil Tarazi:
We have all these little bits of information, but we’ve also kept it all very highly visual. So you’ve got pretty bar charts and pretty line charts that look really good on an iPad if you’re on the road and you want to show someone what portfolio A looks like versus portfolio B, and all that stuff gets generated out in PDFs so you could print it out and have all those visuals, have all those charts, or even just select the charts you want, so you can customize that PDF.
Scott McKenna:
The other thing that we talked about too, which I think is super important and probably advisors are already doing it, figuring out what level of understanding a client has, right? And then being able to customize what you share with them.
Scott McKenna:
If you showed a client the full portfolio analysis, I’m sure a lot of them would just be completely overwhelmed. There’s so much stuff to look out, which is great for an advisor and especially when you’re diving deep into all the different aspects, but for a client it’s kind of overwhelming. So we talked a little bit about how you can parse through that.
Emil Tarazi:
Yeah, exactly. Spot on. That understanding of how to build those user interfaces and making sure the user experience is a positive one, comes through working with advisors, sitting with them, seeing how their existing tools are failing them and figuring out how to do better. And that’s kind of how we built Logicly.
Scott McKenna:
I agree with you 100%. The other article that we talked about that was a little more practice management was talking about technology. Obviously, being a tech company, we help to streamline a lot of the investment research and portfolio construction stuff for financial advisors, but we talked about some other tips as well to kind of go through time management, how to streamline basic tasks. And one of the most important things we talked about was procedures, right? And so curious, you’re take, Emil, what are some ways that advisors could create procedures around some of the aspects of the platform?
Emil Tarazi:
Great question, Scott. One of the things that we’ve done is make it easy to pull portfolios into the system. So you can do that in multiple ways. You can upload a portfolio manually, just type in a few tickers. You can upload a CSV. But then we also connect too your brokerage account to your account that allows you to pull that portfolio in in an automated manner.
Emil Tarazi:
Once you have that in, then you can compare that portfolio against anything. So you can run it through a portfolio analysis. You can take down a model portfolio from any one of the providers that we’ve partnered with that essentially they feed their models to our system, to the Logicly model marketplace, and now you can say, okay, I want to see how my custom portfolio compares versus so-and-so’s 80/20 moderately aggressive portfolio.
Emil Tarazi:
We have a tool called side-by-side, which essentially is a side-by-side portfolio analysis. So all the different risk metrics and down to the holdings level exposures are visualized in bar charts, pie charts, line charts, in a side-by-side fashion.
Emil Tarazi:
I think when you think about, again, the advisory workflow, if you’re an advisor, you’re speaking to a prospective client, this is a tool where you can very easily load up portfolios and show them maybe how your portfolios are better.
Scott McKenna:
That kind of wraps up all the articles. For advisors who are interested in any one of these articles, you can download the ebook by going to Logicly.finance/advisorsguide. Alternatively, if you wanted to talk a little bit further about any of these topics, you can also reach out to us via our website. There is a place to book a demo, and you can book a demo with our team.
Emil Tarazi:
Cool, Scott, thanks for your time today.
Scott McKenna:
Thanks, Emil, for coming on and super excited to be getting this ebook out.
Emil Tarazi:
Oh, I am too. It’s been a long time coming.
Scott McKenna:
Well, thanks again, guys, for listening as well to the Speaking Logicly podcast. For those who are listening, we are launching it via video as well, so super excited to be offering video through this Speaking Logicly series as well.
[/vc_column_text][/vc_column][/vc_row]
