And welcome everybody to another smart money circle update.
I'm Adam Sarhan. With me today is John Davi,
who's the founder CEO&CIO of Astoria Advisors with
approximately 1.4 billion in a UN.
John, welcome to the show. Thanks for having me, Adam.
So John, I always like to begin. Can you tell us your story and
how you got to where you are today, please?
Sure so. You want the whole life cycle
story or you want just the story of story?
Anything you want. To share.
Sure. So I mean I I'll talk just about
the professional career. So you know started in the late
90s, I was a research analyst and Merrill Lynch's quantitative
derivative research group. I spent the good 18 years
between Morgan Stanley and Merrill Lynch doing research
content for full construction. And then in 2017, I started a
story of advisors. So here we are now, you know, 6
1/2 years later and we're managing 1.4 billion.
Our focus is in a quantitative macro asset allocation exclusive
for independent RIA's. We have a range of solutions
ranging from, you know, quantitative stock portfolios,
ETF model portfolios. We became the sub advisor for
the access of story inflation sensitive ETF to pick a PPI
about a year and a half ago. So we have you know a couple
different solutions of how we connect with advisors.
You know we're known for serving as an outsourced CIL.
Our research has published a couple different venues, you
know Seeking Alpha, etf.com, you know go on CNBC, Bloomberg TV
quite often. So we've got the, you know, a
range of solutions. We've got good people, three
safe phase on staff. We've got you know seven
employees. We've never had any turnover in
our firm's history, which I'm really proud of.
So yeah, that's what a little bit about what we do.
I love that. So thank you for that.
So let's talk about the investment strategy and how you
view the world. Sure.
So I would say you know our, our focus for let's say our
strategic asset allocation portfolios is you know we'll
combine macro plus quantitative. I find some firms either do
macro, some far as just pure quantitative, but you know we,
we like to say we're the intersection of the two.
You know I think in a in an ideal world where we're saying
OK take a blank sheet of paper, you know identify where we are
in the market cycle, where we're in the economic cycle.
Historically what factors sectors, countries, sectors have
done well in that part of the cycle, build an ETF portfolio
that kind of you know tracks that view, use a little bit of
alternatives in order to kind of dampen and soften our portfolio
volatility. So that's kind of what we do in
a nutshell. I mean there's fifty different
indicators we look at, we download them systematically.
The investment committee meets every month.
We look at our indicators, identify we're in the cycle.
We review our portfolio tilts. We know exactly every in a week
what our tilts are, what its deviation is, what our
overweights on the weights are at each sector.
We have on our website storyadvisors.com, a cycle
indicator deck where we literally list each of our
tilts, each of our indicators, how they're progressing.
And you know, I think that's. Over time past performance on
indicative future results, but you know we've been able to
demonstrate that we've been able to participate in the market,
you know during the upswings, protect some capital when the
market goes you know down because we are diversified, we
have alternatives. So I think we've demonstrated
some reasonable success and I think that's why investors, you
know, I've been generally pretty happy over you know long periods
of time so. No, I love that.
So you're quantitative with the global macro overlay.
You said tilts for people that are not familiar.
Can you please explain what that is?
Yeah. So you know we're benchmark
oriented. We don't just take you know
excessive risk like we will, you know, make sure that we are
within a normal range, couple 100 basis points let's say of
risk versus our benchmark in a particular sector style theme
factor. You know, currently right now we
think that you know, inflation is going to be stickier and
higher for longer. We've had that view for a while.
So we've been protecting our portfolios with let's say PPI,
which is inflation ETF that we're the sub advisor for.
You know, I think that's like a good indication of like we had
this foresight 2 1/2 years ago. We built a solution in an SMA
format. We work with access investments
to kind of bring it to life. So that is kind of a tilt in our
portfolio per se. We'll have other tilt in the
portfolio depending on the year. In the beginning of this year it
was like very much the kind of defensive oriented portfolio
construction we've. Increase some of our risk as the
recession, which most widely anticipated predict the
recession that hasn't happened yet.
As the recession fears have come down, we've increased some of
the risk in the portfolio, but that's been through other
factors like international quality stocks, international
dividend paying stocks. But you know it's a core
satellite approach, right. We're strategic.
We want to be benchmark oriented, but then use our
overlay to kind of add in a couple 100 basis points about
performance give or take. In any given year.
That's wonderful. So do you offer solutions to
individual investors as well or only to financial advisors?
So yeah, we're an intermediary for other financial advisors.
We don't go direct to the end investors.
We're not financial advisors, we're not planners.
You know all of our assets are you know where we're working
with other financial advisor either physically managing the
portfolios for them or giving them our portfolios and doing
like model delivery. So that's different for some of
our peers. I'll just make that point
because some of our peers, they don't touch the money.
They're not doing the portfolio construction, they're not doing
the trade in, they're just sending their models on temps
and then hoping to raise assets, whereas we're, you know,
actually bolted underneath the RIA at the custodians and we're
doing the physical trading for them.
Got it. And your PP i.e.
TF that's available for everybody, just for clarity's
sake, is that correct? Yes.
OK, excellent. So if a financial advisor wants
a solution global macro and or quantitative and or help
managing the portfolio with a lot of your input, they can come
to you. They'd open up an account, you'd
sub advise it and then you guys have a relationship, you'd
handle the money management side and then they can go out and do
what they do best is acquire new clients, build those
relationships, so on and so forth.
Is that correct? That is essentially the value
proposition that we offer, which is not different from like what?
You would get it like an SEI and invest net.
It's just that we think there were a lot were a lot cheaper
like our goal would be like to be the Vanguard and Tam space
where we can do it at much more cost effective price point.
We also don't think that like at investment you've got 10,000
solutions, I don't think you need 10,000 solutions.
So we've got a core strategic asset allocation models.
We've got quantitative stock portfolios, we've got yeah, you
can come in, we've got quantitative stock portfolios,
we have our ETF, so. That's kind of, you know,
there's enough solutions that we can offer people to kind of
satisfy their, you know, their demands.
I love that. So let's talk about risk
management for a second. John, how do you handle risk and
what mistakes do you see people make with respect to risk
management? I think for risk management, you
know, our goal is to like you know, include alternatives in
the portfolio, ones that are inversely correlated.
So sometimes we see portfolios where it's like high yield
bonds. You know, leverage, credit
leverage loans, senior loans, you know, real estate, you know
those have positive correlation with risk with equities let's
say, whereas our alternatives you know will be inversely
correlated, still inversely or very low correlation.
So we use a ticker BTAL which is -, 70% correlated with the S&P.
You know we've used gold in the past which was very low
correlation. Gold miners merger arbitrage, so
you know we're looking for like 1015% of our portfolios to be in
these alternatives. I think as far as risk
management, like you know going into last year we kind of
identified that we would have higher inflation, you know Fed
that was you know going to be raising interest rates.
So you know we owned a lot of short duration bonds.
We had a lot of cash like instruments.
We were defensively positioned. We have PPI in our portfolio
that inflation ETF. And you know that helped, right.
That's a form of risk management and we had you know very good
year last year, you know in our SMA, you know portfolios.
So you know how did we catch this.
You know I think it's looking at history, looking at data,
looking at time series, reading research, doing our own
research, looking at independent research and you know we were
able to identify that we were going to have an issue.
So and honestly Adam even going into this year if I showed you
our year ahead outlook. They weren't like, you know,
massively saying the run for the hills.
We said there were three things that were priced in this year.
One, in economic recession, 2 in the recession and three, you
know there was going to be like a 20% downturn in the S&P.
We that's just a draconian outcome because everyone was
like run for the hills. So if you're saying run for the
hills, then you must mean you thought the S&P was going to
fall, you know, north to 20%. We thought that was.
Very unlikely to happen. In fact, we said of those three
things that were priced in, we thought maybe one of those three
would play out, but we doubt that like all three would
actually play out so. No, very smart then.
And you were 100% right. So very well done.
So John, let's talk a little bit about some timeless lessons
you've learned along the way that you'd like to share with
the audience, please. For investing.
Anything life, investing, leadership, business, I know you
know anywhere you want to go. We'll take it all with the
please and and thank you with the cherry on top.
Yeah. I mean, I think you got to be
humble, right? You know, the market can make
you second guess and you know, everyone's surprised the S&P's
up, you know, 15% this year. But you know, who would have
expected it? Who would expect Apple and
Netflix, Google to be up as much as they are now?
You know, I think like you have to respect history.
You have to actually know what happens in economic cycles.
You know, I think stick to your true north.
That's a big thing for us. Like our true north is to be
diversified across factors using alternatives.
I think once you stray away from that true north, you can get
yourself in trouble. So that actually applies the
thing for general life, you know, lessons too.
You know, listen, it's on a personal front.
You know, there's always going to be somebody smarter than you
that can work, you know, faster, harder, but you know you have to
stay in your lane and know what you, you don't want to do and
want to be successful at. So we like to say that we're
very good, you know, content generators, that's where we want
to like, you know, really emphasize, you know, people.
Some of our peers may have better returns maybe to take
more risk. You know what, we're always
going to be diligent with our portfolio construction, follow
our research, publish good content and I think that's kind
of you can translate that in the outside world, yeah.
No, I love that. So let's talk about some
timeless mistakes. What are some timeless mistakes
you've learned along the way and that you'd like to share with?
How do you avoid them? Well, I think for invest in, you
know, you have to be careful like there is.
When when you're so sure of something that something will
happen, you know does the market will keep you humble and you
know surprise you. So you know again we weren't as
bearish going into this year, but we certainly didn't expect
you know a 15% rally in the S&P and I certainly didn't expect
you know, developed international markets to be up,
you know 15% as well. So I think you know just you
have to like follow your models but then keep an open eye and
just you know. Just don't be close minded when
it comes to like investing. Like have a process follow it,
but be open minded. Yeah, that's really, really
powerful. So let's talk about adversity
for a second. What are some obstacles that
you've or adversity you faced over your life on or off Wall
Street and how do you overcome that and what are some lessons
that you've learned? You know, as an entrepreneur,
you know, startup company, you know you're going against the
behemoths, you know the 800 pound gorillas, you know you
it's daunting, right? You've got to just stay focused,
work hard, be openminded. You know, you explained to me
before by your business and you know, I hope to talk to you
afterwards, But you know, I think like, you know, there's a
lot of anything that like. Takes a long time and is
successful like nothing comes easy.
You've got to put in the time and the effort.
So you know, there's that book, you know, 10,000 hours.
You got to put in 10,000 hours. So you know, I I think like
anything can be done if you just put your mind to it and you
surround yourself with good smart people, which I think we
have Astoria. So yeah, I mean that's been, you
know, it's been challenging, but it's very rewarding too be a
startup in the asset management industry where it's like.
Every day, you know some large S managers taking in five, ten,
$20 billion, you know, but what's your edge, right?
What's your true north and separate yourself.
So these things that I think have been like, you know,
overcome an adversity. I love that.
Now, what advice would you give your 20 or 30 year old self?
I would say use technology. Embrace computer programming,
you know. I think code in and program is
going to be like, the equivalent of, like, speaking English.
Like my parents immigrated from Italy.
They came here, they really have an education, then don't speak.
You know, they speak English now.
But like, I think code in and program is going to be the
equivalent of that. And the very near future, you'll
still need humans and salespeople and whatnot, but,
you know, you don't want to get behind like the data.
And, you know, there's so much data being produced and who can
effectively process the data. And you know, make good
insights. I think that could be very
powerful. No, I love that.
That's really, really, really powerful.
Final question for you today, John, is what's the best piece
of advice you'd like to share with the audience?
For investing. Anything investing your life or
true north anywhere you want to go.
You know, we're at a period now where the SP is being dominated
by, you know, 7-8 stocks and massive concentration risk.
I know everyone thinks that Apple and Netflix and Google are
going to keep going up. I've just appeared to my career
where these stocks, they don't, you know, they come down from
earth and there's a new market leader.
So yeah, just be openminded, right?
Like, you know, change. You know, you have to like
there's different cycles and you have to like, build your
portfolios depending on where we are in the cycle.
And I think the fact that people crowding into those seven stocks
means that they're pretty bearish on.
The rest of the US market and probably the rest of the world,
we meet with financial advisors all the time.
We inherit portfolios like nobody wants to own
international stocks, Why Like they're cheaper like this ever
purpose in your portfolio. They add diversification
benefits. So you know just be open minded
like I I think like that would be one thing I I want to stick
with on this webinar. No, I love that.
Well, that's really, really great advice.
John, thank you so much everybody.
You can go to storyadvisors.com and hopefully John will have you
on again soon. Thanks so much, Adam.