Adapt or Die with Rodrigo Gordillo ReSolve Asset Management, Ep #16

The political and socio-economical world is changing rapidly. What’s happening isn’t just a part of the normal cycle. So how do we adapt in these changing times? In this episode of UpThinking Finance™, Rodrigo Gordillo shares why low inflation isn’t normal, talks about the Fed’s over-reliance on fiscal spending, and his company’s concept of return stacking (and how it works). Rodrigo Gordillo is the Co-Founder, Managing Partner, and Portfolio Manager of ReSolve Asset Management. They launched ReSolve in 2015 using a quantitatively focused investment methodology that they began developing when they worked as portfolio managers at private wealth management firms. Learn more about his unique investing strategies in this episode!You will want to hear this episode if you are interested in...[2:40] Learn more about Rodrigo Gordillo [7:33] How Rodrigo got into quantitative analysis[11:13] How Rodrigo connected with his co-founders[14:23] Why 40 years of low inflation isn’t normal[18:55] The Fed’s over-reliance on fiscal spending[23:56] Rodrigo’s concept of return stacking[46:00] Some of Rodrigo’s favorite resourcesHow Rodrigo’s formative years impacted his investment strategiesRodrigo was born and raised in Lima, Peru. He was lucky to be the son of a math professor and naval officer. His father made it far in the information technology space so he was sent to Monterrey, CA for further training. He used to joke that his job was to answer a question poorly that would otherwise be answered worse. When he left the Navy, he started a software development company. Because of this, Rodrigo was always surrounded by computers and information.In 1989, the President of Peru decided to default on IMF loans. Inflation soared 7,200% in six months. Whatever anyone had in savings went to zero—including his grandfather’s savings. The big winners were the debtors and the big losers were the savers. It was an impactful moment in Rodrigo’s life. It’s also why he makes sure any investments he works on account for periods of high inflation. How Rodrigo got into quantitative analysisRodrigo notes that quantitative analysis can be made simple. It’s a set of rules he and his team have coded to make sure they’re disciplined and executing religiously on their investment philosophy. He emphasizes that the philosophy is what’s important. In the late 80s, Harry Brown recommended that you have 25% of your money in cash, 25% in gold, 25% in equities for growth, and 25% in treasuries for bear markets. It’s an early version of how people think about portfolio balance today. You have to decide what balance means for each segment.Ultimately, Rodrigo seeks to create balance with diversity (global equities, bonds, and commodities in the portfolio) within regimes. You update the risk rather than dollar weights. It’s far better than a 60/40 portfolio.Markets are complex, and Rodrigo notes that you can’t conflate your lived experience with expertise. The experience has been 40 years of a low inflation market, persistent positive growth, and abundant liquidity. It is not common and it’s not the norm. You have to have the expertise to look at history and understand it. That’s how he and his team landed on return stacking.Rodrigo’s concept of return stackingWhen you have a diversified strategy, advisors are asking you to give space in the portfolio to zig when others zag. It creates a better risk-adjusted return. For every unit of risk you take, you’re given more units of return because they added diversity. It lowers volatility and smooths out the return streams over long periods. But from an absolute basis, your returns will be lower. In the last couple of years, a few innovative funds use derivatives to get additional exposure for every dollar you give them. PIMCO has a fund that invests in an active bond portfolio and uses the collateral to buy an S&P Futures contract that is 100%. So when you buy their fund for $100, you’re getting $100 worth of bonds and $100 worth of equities. Their volatility is low. Now, you’re getting a full return of bonds and stacking the full return of the equities. Rodrigo’s fund follows the same concept. It’s their best beta portfolio (equally split between bonds, equities, and commodities), and stacked on top is managed futures. Historically speaking, he’s seen a 5% real return long-term for each basket. Want to learn more? Rodrigo takes a deep dive into his return stacking strategy in this episode of UpThinking Finance™. Do not miss it!Rodrigo Gordillo is not affiliated with or endorsed by LPL Financial or Capital Investment Advisers.Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.The financial professionals associated with LPL Financial may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state. The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. When employing long-short strategies, long positions may decline as short positions rise, thereby accelerating potential losses to the investor.34:48 – 37:49 charts: Past performance is not indicative of future results. Source: Resolve Asset Management SEZC. Data from Global Financial Data. US Equities is S&P 500 Total Return Index. Commodities is GSCI Index and Treasuries is USA 10-year Government Bond and Total Return Index. Gold is Comex Gold Bullion Index.Resources & People MentionedBridgewaterBridgewater Associates YouTubeConnect With Rodrigo GordilloReSolve Asset ManagementReturn Stacked™ 60/40: Absolute Return IndexReturn Stacking™: Strategies For Overcoming a Low Return EnvironmentConnect with Rodrigo on LinkedInConnect with Emerson FerschCapital Investment AdvisersOn LinkedInSubscribe to Upthinking FinanceAudio Production and Show Notes by - PODCAST FAST TRACK