Gabriel Pincus of GA Pincus Funds, and an investor in the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB) speaks with Will Rhind, Founder and CEO of GraniteShares ETFs, to answer some questions about his strategies and use of ETFs.
WR: Thank you for taking some time to visit us in New York. To start off, tell us about you and your background.
GP: With some help from my Bubbe (Yiddish word for grandma) my love for the stock market began at age 10 when she bought me three shares of Dell.
After studying entrepreneurship in college at Indiana University,I became an agency trader at Bear Stearns. In this capacity, I executed orders on behalf of hedge funds and wealthy individuals and began to understand that a disciplined strategy was needed to outsmart the market.
In 2007, I moved to wealth management where I discovered that the disciplined strategies utilized by traders were missing in this space. I spent the next 5 years submerged in the Exchange Traded Fund (ETF) industry while working for IHS Markit and Deloitte & Touche.
After completing an MBA in Finance at Vanderbilt University in 2014, I started focusing on what would eventually become GA Pincus Funds.
WR: Tell us about GA Pincus funds.
GP: GA Pincus Funds is a Texas, New York, & Illinois Registered Investment Adviser (RIA) that creates Separately Managed Accounts (SMAs) for clients using an investment strategy comprised of three main tenets: Active Management, Low Cost, Transparency.
GA Pincus Funds utilizes a proprietary algorithm to Actively Manage all accounts; investing in Low Cost Exchange Traded Funds; while allowing all investors Transparent 24/7 real-time access to their accounts. We manage money for clients in 9 states and the District of Columbia.
WR: Can you explain your investment approach?
GP: Each client receives a customized risk profile based on factors such as: investment goals, age, time horizon, employment status, etc. GA Pincus Funds uses this risk profile to develop a long-only allocation of ETFs.
We then use a proprietary algorithm to monitor each client’s account ensuring that all securities trade within a predefined range. Trades are triggered when individual securities move outside this range. The algorithm includes a tax loss harvesting feature that seeks to minimize or even eradicate short term gains in taxable accounts.
Each of our clients has a unique benchmark based on that client’s risk profile.
WR: You talk about being a FinTech firm, can you explain more?
GP: FinTech involves the mixing of finance and technology to disrupt an existing way of doing business. Our proprietary algorithm is built into our proprietary software which is linked to TD Ameritrade. Once a client deposits money at TD Ameritrade, we use our software to create the client’s unique allocation and algorithmically manage that client’s investment based on real-time market movements. As we continue to enhance our software our goal is to eventually license it to competing RIAs.
WR: How do you build models, what is your approach to asset allocation?
GP: We believe that value can be achieved through extreme diversification. Each client should have a small portion of their wealth spread throughout as many assets classes as possible. The exact number of asset classes will be determined by the size of the investment and the risk profile of the investor. Currently, the investible universe at GA Pincus Funds is comprised of 30 asset classes and 100 ETFs – 56 of which offer commission-free trading.1
Our portfolios are long-only and we do not invest in Exchange Traded Notes or ETFs that issue a K-1. We typically design our allocations such that clients with less than $100,000 hold portfolios exclusively comprised of free-trading ETFs.1 This keeps annual ETF management fees down to approximately 0.15% and commissions down to 0.00%. Larger accounts will have annual ETF management fees below 0.20% and trading fees below 0.05%.
Keeping our costs low is an essential tactic in striving to improve our client’s performance.
WR: What do you view as the role of commodities in a portfolio?
GP: Our algorithm is driven by volatility and the correlation between assets classes. Commodities, which are both volatile and inversely correlated to most asset classes, play an integral role in our client’s portfolios. Depending on the client’s account size and risk profile, we will allocate anywhere from 0-10% of a portfolio to commodities.
WR: What do you see as the future of investment management / investment advice / both?
GP: Investment management will get more automated. More and more companies like GA Pincus Funds will emerge that use mathematics and statistics to manage wealth in a more efficient manner. The analysis that is performed before investment advice is given may be automated, but at least for the foreseeable future, the actual delivery of that advice will continue to be done by a human.
WR: What sets your firm apart from others?
GP: GA Pincus Funds is proud to offer our services to clients from all walks of life. While you do not need to be a multi-millionaire or c-suite executive to invest ($25k minimum), our larger accounts seek to offer increased diversification.
WR: What challenges are investors and advisors facing right now?
GP: There are currently a few challenges facing the investment industry. Investors are paying too much and receiving too little. Some wealth managers pay separate money managers to invest client assets in specific strategies. While buy and hold is typically low cost, it is inefficient and generally has not beat the market.
Money managers at times do beat the market, but when their fees are added to the fees of the wealth manager, those fees may reduce alpha.
Advisors are finally beginning to jump on the ETF bandwagon in large numbers, but what many fail to understand is that not all ETFs were created equally. Many advisors use ETNs without understanding that if the issuing bank goes bankrupt the value of the ETN will go to zero. Others invest their clients in volatility or leveraged products without knowing that these products were essentially created for very short-term hedges, not as part of a buy and hold strategy.
Investors, should demand more from advisors. If you are paying someone a fee and you are underperforming your benchmark, you should seek better performance or a lower fee. Further, you should demand that your advisor explain to you what each holding in your portfolio is and why it is there.
WR: Tell us about your routines or habits.
GP: As a trader, I saw all the guys eating sunflower seeds and I definitely picked up on that habit. I spend about an hour a day working on my software with my excellent developer, Tim Roesch, who is based in Dayton, Ohio.
When I am in the office, I monitor the software in conjunction with my original Excel spreadsheets to double-check the functionality. I spend multiple hours a day reading news, financial and otherwise, and use that information to come to my own conclusions about why the market is where it is.
I fill the remainder of my time seeking out new clients and helping my existing clients with any questions they may have.
WR: What time do you get up / do you have any morning routines you can share?
GP: The last thing I do before bed is check the Asian markets on CNBC. This helps me prepare for my day ahead. I have an alarm, but I always rise before it goes off. I wake up each morning at 7:20am jump out of bed, shower, brush my teeth, and walk my dog, Pierre. My office is in my home, so I get there by 7:45am.
WR: What do you believe is the secret to success?
GP: Find something you love and then try to be the best at it that you can be. My passion as much as my performance is what has helped GA Pincus Funds succeed. While still a small company, we have grown from 1 client to 35 clients in under 2 years. If you ask my wife, who has supported me and my business unconditionally, she will say, I am a better person for having launched this business.
WR: Anything else you’d like to cover?
Until recently GA Pincus Funds had been using a precious metals ETF and a MLP ETF for our client’s commodity exposure.
This wasn’t perfect, but it is difficult to find commodity ETFs that don’t issue K-1s. COMB, the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB), fills a void. It is a commodity ETF that provides exposure to 20 different commodities while limiting the total exposure to any individual commodity to 25%.
As the name suggests, the ETF does not issue a K-1 and its management fee is lower* than its competitors. While trading has been light, the market makers are extremely effective, there has been ample liquidity, and the typical bid-ask spread was less than 0.03 (source: Bloomberg, 9/2017). By switching to COMB I provided my clients with a broader commodity ETF and lowered their annual ETF management fees by 6-14%.2
WR: Thanks for your time, Gabriel, and the great insight into your business and use of COMB!
*ETF.com Oct 2017
1. Additional Fees may include but are not limited to: 1.00% of AUM paid quarterly (0.25%/quarter) in arrears. ETF management fees (0.05% – 0.50%) per year depending on the ETF. Trading Fees ($6.95/trade) where applicable. 56 ETFs do not charge the $6.95/trade commission, 44 ETFs do charge the $6.95/trade commission.
2. Fee calculation example: Client: #00013. Original Holdings: $325,000; Commodities 10% (5% MLPX and 5% GLTR) Non-Commodity Holdings (90%) = The fee for these holdings totals $462.86 MLPX Annual Fee: 0.45% * $325,000 * 5.00% = $73.125 GLTR Annual Fee: 0.60% * $325,000 * 5.00% = $97.50 Total Fee (original) = $462.86 + $73.125 + $97.50 = $633.485 New Holdings: $325,000; Commodities 10% (10% COMB) Non-Commodity Holdings (90%) = The fee for these holdings totals $462.86 COMB Annual Fee: 0.25% * $325,000 * 10.00% = $80.29 Total Fee (original) = $462.86 + $80.29 = $543.15 $ Difference between old and new holdings = $633.485 – $543.15 = $90.335 % Difference between old and new holdings = $90.335 / $633.485 = 14.26%.