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Published on:

27th Jul 2026

Managing Risk Through Long-Short ETFs

From the “Adjusted for Risk” podcast, host Ryan Nauman interviews Wayne Penello, founder and CEO of NextGen EMP, about practical risk management for investors and advisors. Penello shares his background as a NYMEX options market maker and commodity risk consultant, emphasizing translating risk into meaningful metrics like budget outcomes and drawdowns rather than simple volatility. He argues advisors often diversify but don’t actively manage risk, and recommends using high-watermark/drawdown analysis to improve tactical entry decisions. Penello discusses why market timing fails and frames the opportunity as an allocation problem, advocating long/short strategies—especially in an ETF wrapper—for downside control, potential tax efficiency, and scalability for smaller accounts. He critiques buffered products for embedded costs, addresses misconceptions about long/short funds, and points listeners to the EMPB ETF and nextgenemp.com for more information.

Connect with Ryan Nauman:

LinkedIn: https://www.linkedin.com/in/ryannauman1/

X: https://twitter.com/LkTahoeBadger

Learn more about NextGenEMP: https://nextgenemp.com/

00:00 Podcast Kickoff

01:10 Meet Wayne Penello

01:46 Wayne’s Risk Journey

05:26 Defining Investment Risk

06:47 Drawdowns and Timing

09:20 Buy Hold Hope

11:22 Advisors and Risk Gaps

14:13 Process Over Timing

18:22 Why Long Short Works

23:40 Long Short Myths

27:14 Market Cycles and AI

32:42 Core Portfolio Role

37:26 Advisor Practice Benefits

40:42 Where to Learn More

42:07 Closing Thanks

Transcript
Speaker:

Go

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Ryan Nauman Host Adjusted for Risk:

Welcome everyone to Zephyr's

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Adjusted for Risk podcast

from the shores of Lake Tahoe.

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I'm Ryan Nauman, the market

strategist here at Zephyr.

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Risk management is arguably one

of the most important jobs for

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a financial advisor, but it can

often be an afterthought when

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markets continue to rip higher.

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I have on an industry expert to

discuss the most important aspects of

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risk management and some investment

strategies to consider when

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implementing risk management strategies.

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But first, this episode is sponsored

by the award-winning Zephyr, which

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helps investment professionals

make more informed investment

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decisions on behalf of their clients.

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All right, enough from me.

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I have already talked enough.

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Let's go ahead and bring

on the star of the show.

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I'd like to give a very warm

welcome to Wayne Pinello.

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Wayne is the founder, president,

and CEO of Next Gen EMP.

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Wayne, thank you so much

for coming on the show.

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It's an honor to have you on.

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Really excited about this conversation.

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I'm a big proponent of risk management,

hence the name of the podcast,

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so really like talking about risk

and risk management strategies.

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Thank you for coming on.

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Can you please tell us a little bit

more about yourself and Next Gen EMP?

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Wayne Penello Founder, President, & CEO NextGenEMP:

Well I agree with you.

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Risk management is a skill set that,

Isn't taught, generally speaking,

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and it's poorly understood at best.

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I've focused on it my entire career.

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I, I think, you know, I came

into the equities industry

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about six, seven years ago.

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Prior to that, I was on the

commodity side of the business.

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I was a floor trader on the New York

Mercantile Exchange for 10 years.

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I was ring chairman of options.

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Being a market maker in options, you

have incredibly complex portfolio,

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both vertically in terms of all

the strike prices you've got, but

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also horizontally in terms of the

timeframe at which you put them out.

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And learning how to balance that

and understanding the nuances and

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the strengths of the Black-Scholes

and Cox-Rubinstein models and

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using them to your advantage were

very important to my success.

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I, I left the floor, started to advise

because I was on the Mercantile Exchange,

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specialized in oil and gas trading,

started to advise oil and gas companies

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on how to manage their commodity price

risk as an employee, and then eventually

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moved out and started a, a consultancy,

a, a hedge consultancy business.

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Over that 20 years that I ran that

business, we advised over 300 companies

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on how to manage commodity price risk.

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We converted risk into budgetary

terms, and this is something that

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will come up later in this call.

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But y- you…

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If I tell you that something has

a standard deviation of one or two

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or three, that doesn't help you.

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You need to understand risk in the terms

that are the metrics of your success.

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And so I converted commodity

price risk into budgetary terms.

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So whether the firm was focused on pure

cash flow or debt-to-EBITDA ratios,

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we could express risk at a ninety-five

percent confidence level for them so

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they knew how much risk they had and how

much risk they needed to take off the

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table to get into their comfort zone.

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Forbes found out that I'd built this

product and had patented it and asked me

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to write a book, which you may be able

to see behind me here, Risk Is An Asset.

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And there I disclosed the, the process

that we used on the commodity side.

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With that, one of my competitors

decided that he needed to own that,

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and so he bought me out, and that

was my, if you will, pushed off the

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diving board into equity trading.

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And and so I started looking what

managers do and account advisors

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do in the equity space, and they're

very good at diversifying risk,

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but few are prepared to manage it.

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And so I, for the last six years,

set out to come up with a better

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process and built an algorithm that

helps us manage risk, to cut risk

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to less than half of what you would

expect to have if you own the S&P 500.

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And and to match or outperform it.

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Just to put that in real terms, if

you own the S&P 500, you have a 95%

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confidence that you will not be down more

than 25%, but that means you have a 5%

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confidence you will be down more than 25%.

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With risk management, we believe we've

gotten that down to a 95% confidence

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you will not be down more than 10%.

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Why is that important?

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Because now you can allocate more money

to equities, which are generating 10, 12%

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returns, and less money to bonds and other

assets that are generating lower returns

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Ryan: Yeah, Wayne, that's

really interesting.

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I love that you mentioned, I found it

interesting you mentioned financial

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advisors are good at diversifying

risk, but not managing risk.

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So that's really interesting.

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I think we'll get into that more.

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So how do you view investment risk?

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Some people view investment

risk, you mentioned like standard

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deviations or volatility of returns.

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Some more recently are talking about

drawdown risk or the risk of losing money.

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That's how I view risk.

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Then there's systematic risk, right?

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So how do you view investment risk?

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Wayne: It's more than

just volatility by itself.

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It's, it's, if you will,

it's relative volatility.

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How, how much volatility can I stand?

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I mean, you, you, you can't make

outsized returns without taking

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additional risk, but that doesn't mean

that you have to take it on face value.

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You can manage it.

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So you know, we can…

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if we want, you know, for example take

a sixty-forty equity bond portfolio.

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If we assume the bond has zero

risk and you put sixty percent into

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equities, which I s- just said a

moment ago, has a, has a ninety-five

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percent confidence that you won't have

more than twenty-five percent risk.

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Well, that sixty-forty split gets you

down to a ninety-five percent confidence

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that you won't have fifteen percent risk.

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That's effective on managing risk, but

not effective on achieving portfolio

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objectives, which is I'd like to make

equity-style returns on the entire

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amount of capital that I've saved.

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So what we really wanna focus on

is controlling that downside risk.

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And the first place I would recommend

investors do, and, and I'll, I'll

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put this out there now, you c- you

can reach out to me after this.

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I've built a spreadsheet that I'm

happy to share with anybody, that

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you just drop in the stock symbol,

and it will track the high watermark

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of that stock, and then it, it will

also identify all of the drawdowns.

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And you can do this on daily,

weekly, or monthly data, you know.

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But it allows you to see what kind of

drawdowns, because you may get the idea

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that I love this stock and I wanna own it,

but it's currently trading at its highs.

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And, and if you know that it might

have a fifty percent pullback, well,

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you certainly should buy some of it

because I-- we don't know if it's

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gonna go higher or lower tomorrow.

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But, but knowing that you could

lose fifty percent of your money,

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you're probably not gonna go all in.

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You're probably gonna reduce that

and look for opportunities to have

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drawdowns so that the moment it

gives you the opportunity to buy with

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better location at a lower price,

y- you're in a position to do that

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and have the confidence to do that.

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Because, for example, back to the

twenty-five percent in the S&P.

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If the S&P is down ten percent

when you're making your entry into

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the market, well, now you only

have fifteen percent risk, right?

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Because it's gonna fall twenty-five

percent from the high, not twenty-five

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percent from your entry point.

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And so we want to manage…

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You've g- you've got to g- make

good decisions about what to own,

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but you've also got to understand

the volatility of the beast, how

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that relates to your tolerance for

risk, and use that information to

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get yourself better entry location.

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Ryan: That's a very good point.

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And, at Zephyr we use

the drawdown graph a lot.

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think there's a lot of information

there, and it's interesting that you

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use it in terms of maybe, is this a

good time to buy or a good time to sell?

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Yeah I love that way of using that

graph to make investment decisions.

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Very important.

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Do

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Wayne: And l-l-let me

rephrase that s-slightly.

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So strategically, you decide what

you want to own, but then tactically

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you use that graph to help you make

better entry and exit decisions.

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And you have to put the

combination together

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Ryan: Yeah, like a lot of things

in this industry, you can't just

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it together in a silo, right?

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You gotta put all the data, all the

information together to make, better,

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more informed investment decisions.

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Wayne: Well, you know what, what

you have, if, if you don't mind,

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I'm sorry to interrupt you,

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but but buy, hold, and

what I like to call hope.

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Buy, hold, and hope works because the

market in itself has three tailwinds.

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All right?

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And I, I like to call them the three wins.

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You, you have increased population, you

have inflation, and you have innovation.

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All of these things drive

company prices higher, right?

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So even when you enter at a, a bad

moment, you know, the, the industry

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standard is, well, just hang in

there because it will come back.

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And it will come back

because of those three wins.

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And what we're trying to do in

this conversation, Ryan, between

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you and I, is to help people

say you want to lean on that.

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That is a very important

part of equity investing.

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I mean, one of the reasons real

estate keeps going is because they're

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not making any more of it, and

you have more people that want it.

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So equities are kind of the same way.

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The advantage that you have in equities is

that there's much less slippage, it's…

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and they're much more liquid.

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So you have access to your money, so

when you have those personal crises in

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your life, you know that the money that

you need is there when you need it,

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instead of, "Well, I, I need to sell

that rental property that I bought, but

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it's gonna take me six months to find

a buyer, and I hope I like the price."

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Ryan: Very good point.

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And like you said, when you look at…

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They're very popular,

those long-term graphs.

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Again, we're talking about graphs.

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That's a P-500.

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It just continues to go up

and to the right, right?

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And like you said, those three

primary drivers are powerful.

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So you think financial advisors need to

rethink how they view investment risks?

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Like you said, we talk a lot.

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Historically, I think people are

understanding the drawbacks of

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standard deviation and volatility.

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still use it just

because it's it's simple.

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But do you think it's time for

them to rethink how they view

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investment risk and take more of a

broader holistic pic- picture of it?

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Wayne: Well if-- financial

advisors have a very difficult job.

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One, because each client has a specific

net set of needs and risk tolerances.

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That, that complicates the

job just to begin with.

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But during periods of strong bull

markets like the one that we've

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recently had, you know, it's easy

to become complacent and just say,

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"Well, I'll just wait this one out,

and I hope I'm buying at a good time."

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I'm a, I'm a…

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You know, I mean, just, just

take the, the Tesla IPO, right?

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It, it immediately jumps from one

thirty-five to one seventy, and in

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a couple days it gets to two ten.

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Then yesterday, it dropped

down into the one forties.

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It's probably trading

around one sixty now.

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It's probably a great stock to own.

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The guy is a genius, and and he,

he owns something like two-thirds

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of all the satellites in space.

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I mean, if-- A friend of mine calls

Elon Musk an alien from the future.

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I think that's a pretty

good description, you know.

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But what you-- what, what…

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Where I'd like to help RIAs is

that, yes, you need to take risk

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management more seriously, but

you're not really trained to do that.

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And in all fairness, I'm not

trained to do what you do.

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I don't-- I, I, I just

can't do what you do.

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What I'm trying to do is provide

you a, a single resource that can

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be the foundation of, of providing

a stable growth environment for

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your clients' investment dollars.

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And then there are tax efficiencies

and special opportunities that you may

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identify that you want your customers in,

some more than others because they have

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a higher or lower tolerance for risk.

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That's your job, is to find this.

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My job is to come up with a portfolio

that you can have complete confidence

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in, that it's being managed by a team

of experts, and with a focus on risk

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management without compromising the

kinds of returns investors deserve.

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Ryan: Wayne, that, that's spot on,

and such a good way of putting it.

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Like you said, financial advisors,

they have a very hard job.

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They have to manage so many different

aspects of their clients' affairs,

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and, at this point too, it's getting

more competitive to outsource some

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of this risk management, outsource

some of this investment management,

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portfolio management pieces so they

can maybe focus on more important

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things like building relationships and

building their assets under management.

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So speaking of that, you mentioned,

a lot of people, not just financial

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advisors in this industry, they're

really good at diversifying risk.

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like you said, they're not

as good at managing risk.

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What is the most important aspect

to really successfully managing

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risk in an investment portfolio

versus, say, diversifying it?

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Wayne: You have to develop a disciplined,

repeatable process that allows you to

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adjust to regime change to begin with.

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You know, strong markets versus weak

markets or even bearish markets.

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It's you know, it's how do you

manage the risk when, when, when

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the market isn't Doing well.

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And, and you know, it's people

would like to think that, that,

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"Oh, I can do risk on, risk off.

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If I'm, I'm not comfortable with the

market, I'm gonna lower-- increase my cash

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position by lowering my equity exposure."

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Well, I think any one of you listening

to this, you look in the mirror, you'll

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agree with me, your timing sucks.

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And I'm-- I say it with complete

confidence 'cause my timing sucks.

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All right?

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You can't time the market.

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Charles Ellis, who was on the chairman

of the Yale Endowment Committee

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and wrote a book called Winning the

Loser's Game, one of my favorite books.

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There's a short paragraph in on

page, I believe, twenty-five, maybe

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twenty-three, but twenty-five.

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It says, "If I bought and held

the S&P for ten years, my dollar

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grew by five and a half dollars.

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But if I miss the best ninety

days," that's ninety out of two

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thousand five hundred plus days.

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"Miss the best ninety days, my

dollar shrank by twenty-two cents."

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You can't miss those days.

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But he also went on to say that,

"If I miss the worst ninety days, my

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dollar grew by forty-three dollars."

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Not, not five and a half,

forty-three dollars.

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And so I looked at this and s- and

said to myself, "Well, he's clearly

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identified the low-hanging fruit.

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C-characterizing this as a timing

problem, which he's clearly

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proved you can't time the market."

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And, and I decided this

is an allocation problem.

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How do I allocate my funds more

aggressively so that I can take advantage

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of the portions of the market that

are weak in a way that protects me

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on the downside without compromising

my ability to earn on the upside?

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And so you can imagine that if, if this

was a horse race and you knew which horses

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were gonna be in the front and back half

of the pack, and so you apply 100% of

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your capital to the horses you think are

gonna be in the front half of the pack.

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And then on a reduced basis, and we

use a fifty percent ratio, you, you

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actually sell the, the bets on the horses

that are in the back half of the pack.

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Well, every once in a while, one of

those horses is gonna surprise you,

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and that bet is gonna cost you money.

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But you're probably gonna be very right

about all the ones that you already own.

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And if for no other reason, you've got

the three tailwinds, and you bought them

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because they have been performing well.

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So when you put that package together, now

all of a sudden, you- you've got something

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that is diversified, so it's protecting

you against idiosyncratic or company risk.

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You have allocated across industry

sectors based on your p- view of what

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will be strong and what won't be.

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So now you're managing the systematic

risk, but those shorts is the only

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way you can manage the systemic risk.

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And, and I, I appreciate that this is

very difficult for the individual investor

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to do, but inside an ETF wrapper, it

becomes an asset in a, in a very big way.

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Ryan: Yeah, that's interesting, Wayne,

and I am a firm believer, and I'm glad

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you brought it up, the importance of

asset allocation versus market timing.

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I agree with you.

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I'm the worst timer in every part of…

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Not just investment management, right?

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I don't even attempt, I don't

look at markets, very often,

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at least once a week maybe.

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It's just one of those things where

I'm not gonna win by market timing.

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And there's studies show that asset

allocation, makes up, 95 to 90, pr-

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Wayne: Yes

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Ryan: of the returns

of a portfolio, right?

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So it just shows you how important asset

allocation is for an investment portfolio.

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I'm glad you brought that

up too about shorting.

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Like you said, it's hard for financial

advisors to gain access to that strategy.

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So can you provide us with, a

little bit more information on

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that and one investment strategy

that you feel can help manage risk?

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Wayne: Well, lo-long short

strategy is the only way to go.

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It's, Because if you buy any of these

buffered funds, the first problem you

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have with those buffered funds is some

of the big Wall Street houses, I don't

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wanna throw anybody under the bus,

but huge names that have very bright

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financial engineers and market makers,

they put this package together, that

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they deliver it to a secondary source

that finally delivers it to you.

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Each of those is taking a slice of the

pie that, believe it or not, winds up

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being about six percent of the returns.

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So by the time you get it to your

customer, he's already taken a six percent

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hickey just to have this protection.

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And, and I think if you were to do the

analysis and said, rather, rather than

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take this risk that, that is pay these

guys to give me this package, if, if I

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were to rightsize my portfolio so that

I get the risk to the same level, you'd,

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you'd, you'd find that at the, at the very

least you'll do as well and, and more,

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and all likely you'll probably do better.

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I'm not a big fan of these things.

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And, and as a one-time ring chairman

of options on the New York Mercantile

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Exchange, I was the guy that at

the end of the day would sit down

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and settle all of the options.

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And and this was back in the '80s,

so we didn't have laptop computers.

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You used the God-given

talents to do that math.

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And and so I love to take these, these

packages apart and say, "Okay, if I

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were to recreate that, what would I do?"

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And and the, the…

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It's not very complicated.

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It's basically relies on algebra.

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So the benefit of a long short program

is that you're eliminating people

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that you really don't need to pay

to do this, but as an individual,

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it's very hard for you to do that.

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And And the industry makes it hard because

if you in your individual account go short

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something, you get the cash from those

short sales, it sits in your account.

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You can see it, but you can't use

it, and you get no credit for it.

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When we do this as an ETF, we

bas-basically get broker-dealer status.

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So yes, the cash sits in our account,

and we're making about three and a

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half percent interest on that money,

which goes directly to the investors.

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So in an ETF wrapper, now we can go short

and, and have that, that benefit of that

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short from an interest rate perspective go

completely to, to the investors and offset

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our management fees and stuff like that.

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The other thing that it does is you've,

you've got a team of people watching

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this, making all those decisions for

you, which requires rebalancing and

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updating the portfolio and adjusting

to regime change in the market.

341

:

If you did that, that's gonna

trigger a taxable event.

342

:

When it's done inside an ETF wrapper,

it doesn't, because we use 531 exchanges

343

:

to harvest losses and defer gains.

344

:

So the holding period for an individual

of an ETF, unlike a mutual fund,

345

:

but in an ETF, the holding period

for an ETF is when the investor

346

:

bought it and when they sold it.

347

:

So it's much easier to get

long-term capital gains treatment.

348

:

So you put that together with the

protection that you're getting by having

349

:

shorts in your portfolio, it's, it's a

huge win for the individual investor.

350

:

And, and I might add, one of the things

that RIAs have trouble with is every

351

:

time I go to Exchange or one of these

big conferences, RIAs generally don't

352

:

wanna talk to anybody who's got less

than a, a million dollars to invest.

353

:

And I understand that

scalability is impossible.

354

:

You can only have four or five

hundred clients, and even that you

355

:

can't service them all properly.

356

:

A package like my product, which

is the ETF is EMPB, Efficient

357

:

Market Portfolio Balanced.

358

:

But you, you can put somebody into

that with as little as $35, 'cause

359

:

that's what it's trading per share.

360

:

And so you're in a position where your

smaller accounts that you would normally

361

:

turn away, that you don't have the

time to discuss what you're going to

362

:

do, and these are the kind of people

that when the market has a shakeout,

363

:

a big drawdown, they get shaken out,

and that's the worst time to get out.

364

:

We all know that's the

worst time to get out.

365

:

You can put them into a product like

this that you know that it's safe.

366

:

You know that everyone at that

AUM category has exactly the same

367

:

portfolio, so when they call you,

you don't need to look anything up.

368

:

You know exactly where you are.

369

:

Huge time saver.

370

:

So you put all of this together,

you're helping the customer

371

:

and you're helping yourselves.

372

:

And it's a, it's just a great package.

373

:

Ryan: Yeah.

374

:

Wayne, I agree, and about p- buffered

products, they're interesting.

375

:

I have a firm belief that y- a lot of

these new products, I don't know i-

376

:

it's investment management, whether it's

ETF or whatever it is, when they are

377

:

produced and created and launched in

a bear market, or I'm sorry, in a bull

378

:

market, everything looks good, right?

379

:

Markets have been ripping higher, so

we haven't had a really big drawdown,

380

:

as, a deep correction since a lot of

these buffer products have been created.

381

:

So how do we know if they work, right?

382

:

We don't really know if they work.

383

:

We don't know how they're

gonna react when down 20%.

384

:

So it is gonna be interesting there.

385

:

What are some misconceptions

of long-short strategies?

386

:

Wayne, I'm gonna age myself here.

387

:

When I started 20 years ago, long-short

strategies, they were pretty p-

388

:

they were very popular back then.

389

:

Then all of a sudden

the popularity died off.

390

:

Now they're picking up some more.

391

:

W- Are there some misconceptions

there, long-short strategies,

392

:

and why maybe the popularity died

off following, the early:

393

:

Wayne: The big-- I, I think the, you know,

one misconception is, is that long short

394

:

strategies only work in bear markets,

that they're bearish, and that's not true.

395

:

If they're designed properly, they

should outperform in all markets.

396

:

And what I mean by that is in, in,

in a down market, you should suffer

397

:

thirty to fifty percent of the losses.

398

:

In an up market, you should participate

in sixty-five to eighty-five

399

:

percent of the gains, right?

400

:

So the, obviously, the volatility

cone has shrunk, right?

401

:

Because the lows are higher

and the highs are lower.

402

:

But you're, you're capturing more

than two-thirds of, of the gain on

403

:

the upside, but you're only suffering

less than half of the losses.

404

:

So, you know, the fact that they only

work in bearish strategies is misleading.

405

:

The fact that, you know, they're

excessively risky because the

406

:

short positions can go to zero.

407

:

You know, in our funds, we're

only fifty percent short, so…

408

:

And, and things are reasonably correlated.

409

:

So if the whole market's gonna go

up, the short positions we have are

410

:

going to lose money, and they're

gonna go up with the market.

411

:

But I own twice as much stuff that

I'm making money on than, than I have

412

:

shorted stuff that I'm losing money on.

413

:

So you don't have open-ended

losses, which is, again, a, a

414

:

huge misconception for many.

415

:

And, and then, you know, the-- I guess

the other misconception, I, I don't wanna

416

:

overbuild long short strategies, that

they'll always outperform in down markets.

417

:

That's not necessarily true.

418

:

I mean, every, every trading strategy is

built on having an edge that it's going

419

:

to capture over a long period of time.

420

:

But at any given Sorry about that.

421

:

On any given day, noise can overwhelm it.

422

:

So, like, our particular strategy,

we, we have about eight or nine basis

423

:

points a day edge in a market that has

seventy basis points of noise, right?

424

:

So on any given day, you know, if, if the,

if the noise and our edge are in the same

425

:

direction, we're gonna look like geniuses

because we just made so much money.

426

:

But on a day where the, the noise

is against us, we're still making

427

:

our edge, we dampen that noise,

but it still looks terrible.

428

:

So you, you want to be in a position

that you focus on your primary objective.

429

:

You have to-- understanding that I need

to give this enough time to work out.

430

:

But you-- basically, you wanna let the

market go through a full cycle, an up

431

:

cycle and a down cycle, which in today's

markets, I, I would, I would argue that

432

:

until you've been in something six months,

you don't really know how it's working.

433

:

Y- I could make the argument that

it's a year, but, but six months in,

434

:

in my mind, if, if, if you've got a,

a, a viable edge in the market, you

435

:

should start seeing that in six months.

436

:

Maybe not in terms of total returns,

but in terms of relative c- returns.

437

:

If the market is down and you're

down a lot less, then, then it worked

438

:

Ryan: Yeah.

439

:

Yeah, exactly.

440

:

Wayne, that's fantastic, and I'm

really glad you brought that out

441

:

up about a full market cycle.

442

:

To be honest, w- when have we

had a full market cycle, right?

443

:

It seems like it's been a while.

444

:

Sure, we had, during the, the trade

war tariff tantrum, there was a steep

445

:

sell-off, but it recovered quickly.

446

:

Like, when have we really

experienced a full market cycle?

447

:

Wayne: That's a really great question.

448

:

And obviously we, we, we had the mortgage

meltdown in:

449

:

pretty much been on a tear since then.

450

:

Although it has had a couple

of 25% pullbacks since then.

451

:

And, and depending upon your

timeframe, one might argue that that's

452

:

enough to be a full market cycle.

453

:

One thing that is important is to, is to

understand that with tech- technology has

454

:

compressed time, so that where it used

to take 10 or 15 years for the market

455

:

to have a full economic cycle, I don't

think that that timeframe has changed

456

:

because that's based on human nature.

457

:

However, short-term reactions like to

the COVID experience or this problem

458

:

we're having in the Middle East right

now, that stuff gets compressed.

459

:

Because that is financial traders

responding to immediate information

460

:

that, that they've got in the market.

461

:

So I would say that as you, you know,

if-- like if I, if I, if I look at

462

:

the S&P over, over the last, you

know fifteen years, it's had several

463

:

twenty-five percent pullbacks.

464

:

And, and so-- and, and but it's had

many more ten percent pullbacks.

465

:

And, and so what you want to do is

see how whatever, whatever you're

466

:

doing performs in those cycles.

467

:

You know, what does it do

when the market goes down?

468

:

What does it do when the market goes up?

469

:

And, and you can't just say, you know,

today the, the market's up or down,

470

:

and I did this, and I'm gonna make my

decision based on what I see today.

471

:

This is where I go back to you

have to have enough data to

472

:

have a meaningful sample set.

473

:

So to-- that's a long-winded way of saying

that I think market cycles can be as short

474

:

as eighteen months now, and that's why

you need to give at least six months of

475

:

inf- data to figure out what's going on.

476

:

But, but there are shorter-term cycles

that we as humans live with, and then

477

:

there are longer-term cycles that

it's very hard for us to comprehend.

478

:

But as, as I…

479

:

I wanna close this discussion with

the fact that investors need to

480

:

appreciate how dramatically the market

has changed in the last five years,

481

:

not just ten or fifteen, twenty years.

482

:

But when I, when I read some analytics and

somebody says, "I backtested this back to

483

:

nineteen fifty or nineteen twenty-nine,"

I read it for amusement only.

484

:

I would never take that person's

advice because the way the market

485

:

behaved in, in two thousand and ten

has nothing to do with the way it

486

:

behaves today, because technology

has had that big an impact on it.

487

:

And, and I, I just you know, I'm

very bullish on the American economy.

488

:

As you and I were discussing earlier

before we, we started taping this,

489

:

I, I, I think that the bull market

we're entering is gonna be bigger

490

:

than the bull market from nineteen

twenty to nineteen twenty-nine that

491

:

was the bubble that that burst.

492

:

And AI is, is going to bring efficiencies

in, in ways that it's hard for the

493

:

average person to fully comprehend.

494

:

But if I personally, I- On a good week,

it saves me 30, 40 hours of time, which

495

:

means I'm doubling my productivity.

496

:

On a, on a casual week, it

certainly saves me 10 or 15, and

497

:

even if it doesn't save me time,

it's, it's, it's making me better.

498

:

And when I talk to people about AI,

they're always talking to me about how

499

:

they're using it and, and asking me

how I use it and experimenting and, you

500

:

know, what else can I do with this thing?

501

:

And that's why I think there's

so much upside on this.

502

:

Whereas when we would look at the

bubble in:

503

:

comparison, what caused that, that

growth in the stock market was a

504

:

fellow by the name of Alfred E.

505

:

Loomis connected electricity between

all the cities east of the Mississippi,

506

:

which all the manufacturing facilities

between the cities now were no longer

507

:

using horsepower or water mill power.

508

:

They were using electricity.

509

:

We're 10 times more productive.

510

:

And everybody said, "Wow, they're

producing 10 times the product

511

:

for the same amount of overhead,"

thinking what a, what a gift this

512

:

is, except there was no buyers.

513

:

We didn't have 10 times the

demand, hence the bubble.

514

:

I don't think we're anywhere near

that close to a bubble in AI and,

515

:

and I'm not gonna be worried about

it until people start telling

516

:

me which AI companies to buy.

517

:

When they start telling me

which ones to buy, then I'm

518

:

gonna be a lot more cautious.

519

:

But right now, they're just telling me

how to use it and asking me how I use it,

520

:

and I think that is going to continue this

explosive growth that we've seen for the,

521

:

the at least the next three or four years

522

:

Ryan: Yeah.

523

:

I love that you brought up, Wayne,

about s- it's so hard, impossible

524

:

to compare today's market to ju-

like you said, just:

525

:

Which really wasn't that long ago.

526

:

It's just, you're exactly right.

527

:

Markets move quicker than ever.

528

:

This isn't the markets

from our grandparents.

529

:

This is a new type of market and

market cycles, like you said, it

530

:

could be three-month, six-month

cycle, i- isn't unnor- unusual really.

531

:

So back to long-short

strategies real quickly.

532

:

We'll finish this conversation

up going back there.

533

:

What role do long-short strategies

play in investment por- portfolio?

534

:

Should they be like a, risk,

obviously a risk management

535

:

strategy, but like a core holding?

536

:

Wayne: I know people think of

them as being innovative, but the

537

:

reality of it is a-a-another let me

think of his name right now, Alford

538

:

Winslow Jones.

539

:

Sorry about that.

540

:

Alfred Winslow Jones started the first

und, first long short fund in:

541

:

and over his 35-year career generated

a compounded rate of return of 23% a

542

:

year, even after charging two and 20.

543

:

2% management fee, 20% of the profits.

544

:

Generated 23% compounded

rate of return over 35 years.

545

:

Had three losing years

546

:

With when that was published in

Finance Magazine in the '60s, there

547

:

were lots of copycats, and firms

have been doing that ever since.

548

:

But because of the rebalancing and the

tax exposure, they've been doing it

549

:

for 501[c][3]s like college endowments

and, and, and things like that.

550

:

So now they're going to be available

not just from me, but from other ETF

551

:

providers that you've got me with

forty years experience putting together

552

:

the best long-short portfolio that

I can design, and I've invested…

553

:

This is a fund of funds.

554

:

I've invested in funds that are run by

fund managers that each and every one of

555

:

them manages more than a billion dollars.

556

:

So trust me, they're some of the

most talented people on Wall Street.

557

:

So now you've got this incredible coaching

team from the top Overall coach to the

558

:

offensive and defensive coaches and

individual, you know, linebacker coaches,

559

:

tackle coaches, receiver coaches, all

working for you to produce this great

560

:

portfolio in a tax-efficient package.

561

:

I may be on the cutting edge of that

technology and bring this to the

562

:

public, but in five years, I promise

you, it's gonna be everywhere.

563

:

Why?

564

:

Because it should be the

foundation of your portfolio.

565

:

If you can get equity returns of ten

to fourteen percent a year with half

566

:

the risk that you have to take today,

it's, it's going to be very powerful.

567

:

It's gonna be a great opportunity.

568

:

And by the way, there's a huge untapped

market for that because there are a

569

:

hundred and fifty American households that

have retirement accounts, IRAs, 401plans.

570

:

The median value of those

accounts, ninety thousand dollars.

571

:

Nobody's helping those people

'cause the accounts are too small.

572

:

You, you, you-- It's, it's a

very difficult situation because

573

:

you can't scale yourself, so you

have to use a scalable product.

574

:

This product is completely scalable.

575

:

It'll help even the smallest of

accounts, and that's why in years

576

:

to come, there'll be many copycats.

577

:

I hope some of them are better than me.

578

:

Some will be better, some won't.

579

:

But this is-- this wrapper to the public

is literally the best deal that an

580

:

investor's gonna get because you have

the three Ns, inflation innovation, and

581

:

increased population working for you.

582

:

Then even passive funds, ETFs,

are rebalanced quarterly.

583

:

And what they're doing is they're

throwing out the dogs, and

584

:

they're bringing in companies

that they believe will be better.

585

:

They're not always gonna be right,

but they are gonna be right a lot.

586

:

And just to help you understand how

important that is, in two thousand

587

:

and one, the S&P dropped Enron

when it went bankrupt, just pulled

588

:

it out of the S&P five hundred.

589

:

They replaced it with a company

nobody had ever heard of before,

590

:

Nvidia, which is now up forty-seven

thousand percent since that time.

591

:

So ask yourself, how did that one company

lift the value of the S&P all by itself?

592

:

Because none of the other companies

did that, or a few of them, right?

593

:

So I think that this long-short strategy

is a, is a packaged investment strategy

594

:

that is going to help investment advisors

help their clients by making this the

595

:

foundation of their portfolio, and

then with their expertise, plugging

596

:

in the other tax-efficient strategies

and perhaps the special situation

597

:

strategies that they identify that

the, the client should be invested in.

598

:

And it's also gonna help them by

helping their million-dollar AUM

599

:

client help its other family members

that doesn't have much money.

600

:

And heretofore, they'd be embarrassed to

ask you for help, but now they're gonna

601

:

know I can go to you and you can help me.

602

:

Ryan: Yeah, Wayne, that's great.

603

:

And I love that you brought up a scalable

package, a scalable investment strategy

604

:

for risk management because like we--

going back to what you said at the

605

:

beginning, Wayne, is that, being a

financial advisor is very difficult today.

606

:

Being able to offer risk management

strategies that are scalable a

607

:

huge value to financial advisors.

608

:

Are there any other value…

609

:

you brought up y- a lot right there.

610

:

What other values do you think,

or value do you think long

611

:

short strategies bring advisors?

612

:

Do they offer some other

benefits just to their practice?

613

:

Wayne: To, to me, it's it's a

great substitute for the S&P 500.

614

:

I mean, I, you know, I, I don't know…

615

:

I, I know a handful of, of financial

advisors personally from the country

616

:

club and things like that, and

they're always very reticent to talk

617

:

about precisely what they're doing.

618

:

And, and so I, it's hard for me to answer

that question directly, but my vision

619

:

is that you do wanna help your clients.

620

:

It's in your-- it's obviously

it's in your long-term interest to

621

:

do a great job for your clients.

622

:

And and so if you can, if you can

help them have the confidence that I'm

623

:

gonna put you in these things and, and,

and, and the-these are plug and play.

624

:

And really what we're doing from

time to time is allocating b- how

625

:

much goes into bucket A, B, and C.

626

:

But we want to own all three

of these things, and, and based

627

:

on your risk profile, that

allocation will be specific to you.

628

:

But in reality, you're, you're

probably gonna have three

629

:

categories of risk profile.

630

:

You're, you're gonna have new start outs

with no money, you're gonna have start

631

:

outs with twenty years of earning power,

and you got people at or near retirement.

632

:

And, you know, just simplify it,

and you have plan A, B, C depending

633

:

upon which bucket they fall into.

634

:

And, and as I say, there's

always room in a portfolio.

635

:

Client comes up, like e-even our

clients we, we only put them in

636

:

EMPB and some level of treasuries

depending upon their risk tolerance.

637

:

Unless they say, "Oh, but I want to own.

638

:

I s- I have this vision that

this company is gonna do well."

639

:

I love it when they do that

because, one, I can say, "Listen,

640

:

w-we'll do that with 5% or 2%.

641

:

We'll pick a number."

642

:

But when we go back next year and look at

what the customer picked, and rarely does

643

:

it do well, they're like, "Okay, let me,

let me, let me, let me think about not

644

:

being a stock picker, which I'm lousy at.

645

:

Let me think about a portfolio strategy

that my advisor is helping with, so that

646

:

every year I have the confidence that

I'm gonna get the kind of returns that

647

:

will allow me to achieve my retirement

goals on schedule, if not early."

648

:

Ryan: Wayne, that is awesome.

649

:

I think that's a great way to end

this conversation of so much insight

650

:

you brought, so much information.

651

:

I loved it.

652

:

I'm gonna have to go back and re-listen,

I think, just to soak it all in, Wayne.

653

:

Great job.

654

:

Where…

655

:

Thank you so much for coming on.

656

:

Where can our audience get more

information about Next Gen EMP?

657

:

Wayne: Well, thank you.

658

:

So our-- you, you can start by researching

our ETF, which the symbol is EMPB,

659

:

Extra Mushy Peanut Butter or Echo Mike

Papa Bravo, but Extra Mushy Peanut

660

:

Butter seems to stick, pun intended.

661

:

And then and then our website

is www.nextgenemp.com.

662

:

N-E-X-T-G-E-N-E-M-P.com.

663

:

On, on that website I strongly encourage

you to look at our pitch deck, and there

664

:

is a brief history on, on long-short

funds that will help you understand why

665

:

these are so powerful and, and why they

really weren't available to you until we

666

:

could bundle them into an ET-ETF package.

667

:

So it's, it's really great.

668

:

And, and my personal contact information

is there, so if you want to learn more

669

:

or earlier in the broadcast, I podcast,

I alluded that there's a spreadsheet

670

:

that you just plug in the symbol and

it'll, it will track your high watermark

671

:

versus drawdowns so that you can analyze

a-any publicly traded asset that you're

672

:

interested in getting a, a drawdown

perspective on how much risk you've got.

673

:

Ha-happy to send that along to you.

674

:

It'd be my pleasure.

675

:

Ryan: Awesome, Wayne.

676

:

Fantastic.

677

:

Fantastic conversation.

678

:

I really enjoyed it.

679

:

Thank you so much.

680

:

And thank you everyone for

listening to this episode of

681

:

Zephyr's Adjusted for Risk podcast.

682

:

You can watch all of our other episodes

on the Zephyr YouTube channel and all

683

:

the other platforms that you listen

to your, catch your favorite podcasts.

684

:

Please be sure to like and

subscribe to those channels, and

685

:

give us a follow on LinkedIn.

686

:

Thank you very much, and have

a great rest of your week

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About the Podcast

Adjusted for Risk
Your weekly guide to timely market analysis, investment strategies, wealth management tips, and engaging discussions to empower investment professionals
Hosted by Market Strategist Ryan Nauman, Adjusted for Risk brings together financial markets, investments, economics, wealth management, and life to help investment professionals make sense of what's happening—and prepare for what's next.

Ryan sits down with industry leaders, investment experts and thought leaders to explore the trends driving markets and influencing investor behavior, from ETFs and SMAs to portfolio construction, AI, the economy, and the evolving wealth management industry.

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Cut through the noise. Gain perspective. Make more informed investment decisions.

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About your host

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Ryan Nauman

As Zephyr’s Market Strategist, Nauman provides thought provoking analysis and research on market trends across asset classes, sectors, and regions to help empower better asset allocation strategy decisions. His ability to navigate complex market dynamics and identify emerging trends has made him a trusted voice among investors and industry professionals alike. He is an accomplished investment strategist who has spent the last 22 years in the investment management industry ranging from working with plan sponsors, managing the investments of retail investors, and providing actionable thought leadership to investment professionals.
Ryan Nauman is the host of the popular Adjusted for Risk and Inside SMAs podcasts. He is a well-respected investment industry strategist regularly featured on Charles Schwab Network, Yahoo! Finance, Bloomberg TV, Bloomberg Radio and Chuck Jaffe’s Money Life podcast. His opinions and market expertise have been published in Reuters, CNBC, Bloomberg, MarketWatch.com, Yahoo! Finance, and the Wall Street Journal.
Prior to joining Zephyr, Nauman served as lead Investment Manager for a large financial planning practice. He also spent several years as an investment analyst conducting manager due diligence and creating mutual fund lineups for over 100 Plan Sponsors while overseeing $1 billion in defined contribution plan assets.