For decades, financial advisors have faced the same fundamental constraint when constructing client portfolios: the 100% allocation limit. Every portfolio decision has required a trade-off—adding exposure to one asset class has meant reducing existing allocations. Now, a transformational approach called return stacking is challenging that limitation, offering advisors a way to maintain core exposures and add diversification.
Return Stacked® ETFs’ U.S. Stocks & Futures Yield ETF (ticker: RSSY), stands at the forefront of this innovation by combining complete S&P 500 exchange-traded fund (ETF) exposure with an uncorrelated global carry strategy in a single vehicle.
In an interview with The Wealth Advisor’s Scott Martin, Adam Butler, CIO of ReSolve Asset Management and co-founder of Return Stacked, discussed how the strategy allows investors to maintain full exposure to traditional assets while layering on diversifying strategies without sacrificing core allocations. RSSY delivers a true “yes and” solution rather than offering the traditional “either/or” choice, giving advisors a powerful new tool for building more resilient portfolios.
Breaking Free from Traditional Allocation Constraints
A fundamental problem with traditional portfolio construction is the trade-off between keeping what works and adding diversification. Investors have historically had to sell down portions of their comfortable stock and bond allocations to make room for diversifiers, despite those traditional allocations having served them well for decades.
Return stacking eliminates the sacrifice between maintaining core positions and adding alternatives. Rather than selling core positions to make room for alternatives, return stacking retains full exposure to the assets clients own while adding uncorrelated return streams on top. This approach uses efficient capital deployment through futures markets to access multiple return streams simultaneously.
For advisors struggling to justify reducing equity allocations to add diversification, especially during bull markets, return stacking offers a compelling solution that aims to both keep equity exposure and improve portfolio resilience.
The Mechanics of Return Stacking: How RSSY Works
RSSY achieves its dual exposure through a carefully structured approach that combines a direct ETF investment strategy with a futures contracts strategy. The approach maintains a 100% allocation to U.S. equities—specifically the S&P 500—by investing about 75% of the portfolio directly in an S&P 500 ETF and holding the remaining 25% in cash.
That cash allocation serves a critical purpose, providing margin for the futures positions that characterize the strategy’s unique structure. Butler explains that futures contracts provide leverage, allowing investors to gain the same market exposure with significantly less capital. “With futures, what you do is take $5 and buy S&P 500 futures, and that gives you $100 of exposure to the S&P 500,” he notes.
The deployment of futures contracts allows RSSY to achieve the equivalent of 100% S&P 500 exposure using only 75% of the portfolio’s capital directly invested in an S&P 500 ETF plus a small futures position. The remaining capital is then deployed in a global carry strategy designed to be uncorrelated with equities.
Through a single ETF wrapper and complementary strategies, RSSY aims to deliver institutional-caliber portfolio engineering techniques that would otherwise be inaccessible or impractical for most individual investors and their advisors.
Global Carry Strategy: The Diversification Engine
The diversification power of RSSY comes from its global carry strategy, which operates across multiple asset classes and markets. The futures component allocates across major global equity indices, government bonds from various countries, diverse commodity contracts, and multiple currencies.
This strategy focuses on harvesting yield across asset classes. In equities, the fund seeks high dividend yields; in bonds, high coupon payments; and in commodities, the insurance premium earned by providing price security to producers. “We’re just taking all of these different products, these different asset classes in these different markets, and we’re harvesting this yield,” Butler says.
A key feature of the carry strategy is its flexibility to go both long and short. When certain markets such as government bonds don’t offer premium yields over cash, the strategy will instead sell those bonds short. The construction systematically takes long positions in markets with positive expected yields relative to cash and short positions in markets with negative expected yields to maximize total portfolio yield while maintaining diversification across market environments.
The broad diversification across global markets and asset classes creates a return stream designed to perform well regardless of equity market conditions, addressing the crucial need for true diversification that many traditional portfolios lack.
The Math of Correlation: Improved Risk-Adjusted Returns
Beyond simply adding exposures, return stacking aims to improve portfolio efficiency by incorporating uncorrelated return streams. Over the long term, the global carry strategy has nearly zero correlation to both the S&P 500 and government bonds, Butler notes, creating powerful diversification benefits when combined with traditional exposures.
The result is an improved risk-return profile. While RSSY delivers one unit of return from the S&P 500 ETF strategy and one unit from the global carry strategy (totaling two units of return), the diversification between these uncorrelated return streams means the portfolio experiences only about 1.4 units of risk rather than 2. “The goal here is to improve the return that you get per unit of risk that you’re taking in order to achieve that return,” Butler explains.
In today’s environment where traditional diversifiers such as Treasuries increasingly move in tandem with stocks, the near-zero correlation of the global carry strategy represents a potential solution to the diversification dilemma many advisors and their clients face.
Implementation: Where RSSY Fits in Client Portfolios
Financial advisors can strategically position RSSY within various portfolio frameworks to enhance both returns and resilience. Butler highlights the paradigm shift in portfolio construction, noting that traditional diversification decisions have typically been “either/or” propositions.
“Yes, you can have your core equities, and you can have your diversification, and you don’t need to sacrifice that,” Butler says. “It’s a great solution for anybody who just doesn’t want to have to sacrifice their core exposures but wants to get or preserve the diversification that they’ve been seeking.”
For clients already allocated to alternatives, RSSY offers an opportunity to maintain diversification while recovering core equity exposure. Butler suggests, “If you’ve already got an alt, you’ve made space in your portfolio to buy a diversifier. Well, now you can replace that pure diversifier with a Return Stacked product that gives you back your core exposure.”
This flexibility allows advisors to adjust client allocations based on risk tolerance and market conditions without displacing diversification or core exposures. By using return stacking options such as RSSY, advisors may be able to construct more resilient portfolios designed to weather various market environments.
Democratizing Institutional Strategies
Perhaps the most compelling aspect of return stacking is how it brings sophisticated investment techniques to everyday investors. “Institutions have been unlocking this type of strategy for decades,” Butler says. “It’s shocking that we’re only now bringing this to retail investors.”
Return stacking finally delivers on Nobel laureate Harry Markowitz’s promise of diversification as finance’s only “free lunch.” As Butler points out, “For most of retail’s life, that wasn’t the case. You needed to give up something to get diversification.” With return stacking, that paradigm has shifted completely. “Now, diversification generally is a free lunch, and that’s what we are trying to do with Return Stacked.”
Financial advisors looking to differentiate their practice and improve client outcomes might find that return stacking offers a compelling innovation that aims to address the fundamental constraint of traditional portfolio construction. By maintaining full exposure to core allocations while adding uncorrelated return streams, products such as RSSY might bring institutional-quality portfolio construction to any client portfolio.
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Additional Resources
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Disclosures
Before investing, you should carefully consider the Fund’s investment objectives, risks, charges, and expenses. This and other information is in the prospectus. A prospectus may be obtained by visiting returnstackedetfs.com/rssy/propsectus. Please read the prospectus carefully before you invest.
Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. Brokerage commissions may apply and would reduce returns.
Derivatives Risk. Derivatives are instruments, such as futures contracts, whose value is derived from that of other assets, rates, or indices. The use of derivatives for non-hedging purposes may be considered to carry more risk than other types of investments. Cayman Subsidiary Risk. By investing in the Fund’s Cayman Subsidiary, the Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. The futures contracts and other investments held by the Subsidiary are subject to the same economic risks that apply to similar investments if held directly by the Fund. The Subsidiary is not registered under the 1940 Act, and, unless otherwise noted in the Fund’s Prospectus, is not subject to all the investor protections of the 1940 Act. Bond Risks. The Fund will be subject to bond and fixed income risks through its investments in U.S. Treasury securities, broad-based bond ETFs, and investments in U.S. Treasury and fixed income futures contracts. Changes in interest rates generally will cause the value of fixed-income and bond instruments held by Fund (or underlying ETFs) to vary inversely to such changes. Commodity Risk. Investing in physical commodities is speculative and can be extremely volatile. Commodity-Linked Derivatives Tax Risk. The tax treatment of commodity-linked derivative instruments may be adversely affected by changes in legislation, regulations, or other legally binding authority. As a registered investment company (RIC), the Fund must derive at least 90% of its gross income each taxable year from certain qualifying sources of income under the Internal Revenue Code. If, as a result of any adverse future legislation, U.S. Treasury regulations, and/or guidance issued by the Internal Revenue Service, the income of the Fund from certain commodity-linked derivatives, including income from the Fund’s investments in the Subsidiary, were treated as non-qualifying income, the Fund may fail to qualify as RIC and/or be subject to federal income tax at the Fund level. The uncertainty surrounding the treatment of certain derivative instruments under the qualification tests for a RIC may limit the Fund’s use of such derivative instruments. Commodity Pool Regulatory Risk. The Fund’s investment exposure to futures instruments will cause it to be deemed to be a commodity pool, thereby subjecting the Fund to regulation under the Commodity Exchange Act and the Commodity Futures Trading Commission rules. Because the Fund is subject to additional laws, regulations, and enforcement policies, it may have increased compliance costs which may affect the operations and performance of the Fund.
Currency Risk. Currency risk is the risk that changes in currency exchange rates will negatively affect securities denominated in, and/or receiving revenues in, foreign currencies. The liquidity and trading value of foreign currencies could be affected by global economic factors, such as inflation, interest rate levels, and trade balances among countries, as well as the actions of sovereign governments and central banks. Foreign and Emerging Markets Risk. Foreign and emerging market investing involves currency, political and economic risk. Leverage Risk. As part of the Fund’s principal investment strategy, the Fund will make investments in futures contracts to gain long and short exposure across four major asset classes(commodities, currencies, fixed income, and equities). These derivative instruments provide the economic effect of financial leverage by creating additional investment exposure to the underlying instrument, as well as the potential for greater loss. Non-Diversification Risk. The Fund is non-diversified, meaning that it is permitted to invest a larger percentage of its assets in fewer issuers than diversified funds. Underlying ETFs Risk. The Fund will incur higher and duplicative expenses because it invests in bond ETFs. The Fund may also suffer losses due to the investment practices of the underlying bond ETFs. New Fund Risk. The Fund is a recently organized with no operating history. As a result, prospective investors do not have a track record or history on which to base their investment decisions.
Toroso Investments, LLC (“Toroso”) serves as investment adviser to the Funds and the Funds’ Subsidiary. Newfound Research LLC (“Newfound”) serves as investment sub-adviser to the Funds.
ReSolve Asset Management SEZC (Cayman) (“Resolve”) serves as futures trading advisor to the Fund and the Funds’ Subsidiary.
Return Stacked® ETFs are distributed by Foreside Fund Services, LLC.
