David Mazza, Managing Director & Head of Product at Direxion, joins Cheddar News to discuss why investors should be rethinking 60/40 portfolios, and what's driving a recent rise in leveraged and inverse ETFs.

Opening Bell

Why Investors Should Rethink the 60/40 Portfolio

in our next segment trader nation brought to you by direction, E. T. F. We explore how investors and traders can position their portfolios for the future with directions expanded suite of E. T. F. So markets open lower this morning as we know. And this comes amid a rally and tech shares as stocks clawed clawed back from intense selling last week. Spirit by worries around persistent levels of inflation and the prospect of economic slowdown. Well, joining us now to discuss is Dave Masa, managing director and head of product and direction. Thank you so much for joining us. Dave. So you know, what, what are you seeing from investors right now? Because I know you meet with a lot of people and is it time to buy the dip or sell the rip? Well, we've been in an environment where buying the DIP has been, um, basically in favor since, uh, the COVID crash in March of 2020, which of course was shocking at the time. But over the last few years, particularly retail investors have continued to buy at any sign of weakness. More recently as this pullback has gotten longer in duration, we're still seeing retail investors based off of data from alternative sources or from various brokerages that they continue to buy. But the rate that they're buying is lower. Um, so it's certainly, you know, I would not necessarily advocate to be blindly buying the dip. I really appreciate and understand what names you may be stepping into and some of the risks that remain out there because, uh, to the intro to this statement, you're absolutely right inflationary pressures remain quite high and we're hearing Federal Reserve officials acknowledging this, Finally, economic growth potentially slowing. And there's just a lot of question marks geopolitically. So the operating environment that we have seen, particularly for companies, has changed markedly. And we know that you guys are helping a lot of people with the Z. F. T. S and things that are happening right now, uh, E T. F. That is. But I want to talk about investors and how they have really long really rallied and try to rely on the 60 40 portfolio. So how does that stand in this current market environment and how can investors maybe rethink this portfolio? Well, simply put, although the 60-40 portfolio has been what's advocated really for decades, it's been awful. The performance of a 60-40 portfolio, some of the worst on record. And to be clear what that means is traditionally 66-60% is stocks. The 40 is bonds in some way, whether those treasuries or corporate bonds or what's called an aggregate bond index that combines them together and then what you hear is in 80 20 that's more stocks versus bonds. And then, you know, the flipside 2080 more fixed income. The challenges in this market is the fixed income part of portfolios has actually performed worse than equities. That's very, very rare and very difficult environment. So there's no diversification benefits traditionally, when one is up, one could be down or vice versa. Um So what we're really seeing them are advocating investors either to take a more active approach in constructing their portfolios if they have the ability to be more nimble and and look towards GTs to help with that, to gain the diversification that E. T. S. Can bring relative to single stocks or just look for other sources to maybe provide more balance in their portfolios that they're not gonna find from fixed income. I want to stick with that point for a moment because investors have been stepping away from the retail trading. Single stocks. Why is this, can you explain that more and what are they gravitating towards? Yes. So we know, you know, really a couple of years ago, what was mean stocks, which was the term never existed before, came came into favor whether it's Gamestop or AMC. Uh And of course others and they saw massive games, hundreds of percent, thousands of percent in some cases, which is just astronomical and unsustainable because those gains were not consistent with the underlying fundamentals of those companies. And so now many retail investors who did the right thing and look toward investing look towards saving are now underwater. And some of those positions. But we've seen in the last few months is that they're selling of single stocks, but actually buying of E. T. S. And this, this occurred two times before in history, it occurred in the tech bubble um where E. T. S were just really a new investment tool. And then after the global financial crisis, the reason being, is that any TF, whether it's a broad based E. T. F, uh, industry E. T. S really diversified exposure, right? You don't have that single stock risk. So as opposed to picking consumer discretionary stocks like target, which today is having very difficult performance, someone could look toward a broader consumer discretionary basket and reduce some of the risks that can come from individual names. And this is really happening in mass as the volumes of E. T. S have increased sharply, really, over the last few weeks. So in that case, what opportunities can be leveraged and inverse E. T. S present for retail traders? Yes. So for someone who's interested in trading and by that, I mean, has the ability to monitor their portfolio on a daily basis. These are uh, traders can look toward leveraged and inverse cts. These are not set it and forget it tools. These are not really something that should be used for someone's retirement account or something or that nature. But if someone is active, you can look towards daily leveraging diversity T. S To take advantage of market moves because they provide amplified exposures on a daily basis. And what we have seen at direction is over the last months and again, particularly in the last few weeks as this paint as we've approached that correction territory in the S&P 500 hit that of course in the NASDAQ, we've seen a spike in activity in the in the products in our suite as traders have come and look to either hedge their portfolios or take advantage of short term emerging opportunities again with these daily trading tools. Okay, so let's dive a little deeper into these inverse E. T. F. How can you know, we really take that and make it a more bearish stance on those things. Yes. So to be clear, a leverage GTs provides amplified exposure. Traditionally people think about that on on the bull side. So, uh something that, let's say the S. And P 500 was up 1%. Uh Bull fund would be up two or three times that if that was its mandate inverse funds do the opposite. Uh And so that that's one of the reasons why we are seeing an increase in activity there again, because markets are down in verse Cts are actually up now. Again, it's very important for investors to educate themselves, go on our website or other or other websites to understand how these products work because they're really daily investment vehicles, you can't just buy and university TF and expect your portfolio to be hedged over over a month time period because they need to be traded. But let's see if someone has positions in semiconductor names that they that they really like A. M. D. In the video intel, pick your stock and you have long you've owned them for a long time. They've done well for you. You have a long term capital gains. But you're concerned about the potential negative negative earnings releases that some of these companies have been put into place on a particular earnings day or earnings week when many of these names are releasing their numbers, you could use an inverse CTF to hedge your position relative to some of those those names. And that's really one of one of the reasons why we've seen a real increase in inverse cts, particularly on the semiconductor side. To some extent on the financial side, as these names have come under pressure in the recent past. All right. All great information. Dave Masa, managing director and head of product at Direction. Thank you so much and find out more about how Direction E. T. S enable you to seek profit and manage risk and all market conditions visit Direction dot com. And of course before investing carefully, consider the fund's investment objectives, risks, charges and expenses contained in the prospectus at Direction dot com and read it carefully