In a significant development for retail investors and financial advisors, Return Stacked® ETFs has introduced a novel approach to portfolio construction that enables diversifying alternative strategies without diluting core allocations. The flagship U.S. Stocks & Managed Futures ETF (ticker: RSST) exemplifies this approach, bringing institutional-grade investment strategies to the retail market and potentially transforming how advisors construct client portfolios.
In an interview with The Wealth Advisor’s Scott Martin, Rodrigo Gordillo, President and Portfolio Manager at ReSolve Asset Management and Co-founder of Return Stacked ETFs, discusses how RSST combines equity exposure with managed futures to enhance returns, explains how the fund adapts to protect against both inflationary and traditional bear markets, and outlines implementation approaches for advisors seeking to enhance client outcomes.
Bringing Institutional Innovation to Retail Portfolios
For decades, institutional investors have utilized sophisticated portfolio construction techniques that retail investors couldn’t access. Now, through the Return Stacked ETFs suite, retail investors can employ similar strategies. The key innovation lies in how the strategy deploys capital. Unlike traditional portfolio construction where advisors must allocate portions of a 100% pie to different assets, return stacking allows for exposure beyond that limitation.
“Every dollar that you invest, you’re going to get a full dollar of something, let’s say like the S&P 500, and then on top of that, an extra dollar on a diversifying asset class or strategy,” Gordillo explains. The approach means advisors no longer need to sacrifice existing positions to add diversification, addressing a common challenge in portfolio construction.
The RSST Advantage
At the heart of the Return Stacking innovation is the firm’s RSST ETF, which combines full exposure to U.S. large-cap equities with a managed futures trend-following strategy. While many alternative investments show high correlation with traditional assets, managed futures stand apart. The strategy actively trades across multiple markets, including global equities, bonds, currencies, and commodities, maintaining what Gordillo describes as “around 0% correlation to both bonds and equities, which is really tough to find.”
The multimarket approach provides several advantages for portfolio construction. “This idea of portable alpha kind of burned some hands in 2008 in the institutional space,” Gordillo notes, “because they were stacking alternative managers, hedge funds they thought were noncorrelated, and then realized, ‘Oh no, they actually are correlated.’ We took on more risks than we expected. Whereas from trend following, just listen to the word, it follows trends by its very nature.”
The trend-following component can take both long and short positions, allowing it to potentially profit in both rising and falling markets. Furthermore, by trading across diverse asset classes, the strategy has the capacity to identify and capitalize on trends wherever they emerge, rather than being confined to traditional equity market dynamics.
Risk Mitigation in Different Market Environments
The RSST’s trend-following component particularly shines during market stress. During inflationary periods such as 2022, when both bonds and equities struggled, the strategy can adapt by taking long positions in rising assets like commodities while shorting declining assets such as bonds and equities.
The flexibility has historically provided significant risk mitigation during market downturns, with Gordillo noting that “if you look at a managed futures index like the SocGen Trend Index, it has exhibited double-digit positive returns” during notable S&P 500 bear markets like the tech bubble and credit crisis. The strategy’s adaptive nature means it can potentially profit in both traditional and less conventional market environments, offering advisors a powerful tool for portfolio diversification.
RSST’s adaptability is particularly valuable in today’s market environment, where traditional diversification strategies may fall short. As 2022 demonstrated, the conventional wisdom that expects bond to provide a hedge against equity market declines doesn’t always hold true. RSST’s ability to adjust to varying market conditions provides an additional layer of portfolio risk mitigation beyond traditional asset allocation approaches.
Implementation Strategies for Advisors
For advisors considering RSST implementation, Return Stacked ETFs recommends starting with a meaningful allocation. “We think a minimum stack of 20% is where you start getting to a point where you might be able to pay for your advisor fee,” Gordillo advises. At this level, portfolios maintain familiar behavior while possibly benefiting from enhanced returns and reduced drawdowns.
More aggressive implementations, such as a 40% allocation to RSST within a traditional 60/40 portfolio, create what Gordillo calls a “60/40/40” portfolio. While this approach may introduce more variation from benchmark returns, it maximizes the strategy’s potential benefits. The key is matching the allocation to client risk tolerance and return objectives while ensuring proper education about expected portfolio behavior.
Performance Expectations
The RSST strategy aims to deliver consistent outperformance while managing downside risk. With the managed futures component historically delivering positive returns “seven to eight out of 10 years,” Gordillo says, advisors might offer clients more frequent outperformance relative to traditional portfolios. The consistency provides a compelling narrative for client discussions and portfolio reviews, helping justify advisory fees through demonstrable value-add.
“Everybody wants to beat the S&P. That’s the biggest thing, right?” Gordillo observes. “We’ve talked about downside; we’ve talked about risk mitigation. Trying to do that by stock selection has obviously been tough. It is a very efficient market, the US equity market. You look at the SPIVA reports, 12% of managers over the last 15 years have outperformed, and there’s no guarantee that they will continue.”
This performance pattern differs significantly from traditional active management approaches. While many active equity managers struggle to consistently outperform their benchmarks, RSST’s systematic approach and diversifying return stream provide an additional source of potential alpha. The strategy’s focus on capturing trends across multiple asset classes means it is designed to generate positive returns even when traditional markets struggle.
Beyond Traditional Alternatives
Unlike popular alternative strategies such as covered calls, which sacrifice upside potential for current income, RSST maintains full market exposure while adding a genuinely diversifying return stream. The approach allows portfolios to participate fully in market rallies while potentially benefiting from noncorrelated returns, offering a more robust solution for long-term portfolio construction.
The ability to maintain full market exposure while adding noncorrelated returns sets RSST apart from other alternative strategies. For advisors evaluating alternative investment options, understanding this key distinction is crucial. Many alternative strategies claim to provide diversification benefits, but they often maintain significant correlation to traditional market risks. RSST’s managed futures component, by contrast, offers true diversification through its ability to take both long and short positions across multiple asset classes, potentially providing more reliable portfolio risk mitigation.
As Gordillo notes: “The reason nobody invests in just a naked managed future strategy is because it’s so foreign. It’s really tough to see it as a line item when it’s doing 4% when the S&P is up 40%. But if the S&P is up 40% and your RSST is up 36%, I don’t think anybody’s going to be complaining that much.”
Education and Resources
For advisors interested in implementing Return Stacking strategies, Return Stacked ETFs provides comprehensive educational resources at returnstacked.com. The website includes how-to guides, client explanation frameworks, and detailed information about various stacking strategies.
Return Stacking represents a significant evolution in portfolio construction, bringing institutional-grade strategies to the retail market. For advisors seeking to differentiate their practice while potentially improving client outcomes, RSST offers a compelling solution that combines full equity exposure with truly noncorrelated returns. As the investment landscape continues to evolve, understanding and implementing these innovative strategies may become increasingly important for competitive advisory practices.
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Additional Resources
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Disclosures
Portable Alpha is an investment strategy that separates alpha (excess returns from active management) from beta (market exposure).
The Fund’s investment objectives, risks, charges and expenses should be considered carefully before investing. The prospectus and summary prospectus contain this and other important information, and it may be obtained at returnstackedetfs.com. Read it carefully before investing.
Investing involves risk. Principal loss is possible.
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. Credit Risk: Credit risk refers to the possibility that the issuer of a security will not be able to make principal and interest payments when due. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. 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. Equity Market Risk. By virtue of the Fund’s investments in equity securities, equity ETFs, and equity index futures agreements, the Fund is exposed to equity securities both directly and indirectly which subjects the Fund to equity market risk. Common stocks are generally exposed to greater risk than other types of securities, such as preferred stock and debt obligations, because common stockholders generally have inferior rights to receive payment from specific issuers. Equity securities may experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect securities markets generally or factors affecting specific issuers, industries, or sectors in which the Fund invests. 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.
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