Meet an Advisor: Bob Coakley

Evan Harp interviewed Anova Management’s Bob Coakley ahead of the Exchange conference, happening March 15 through 18 in Las Vegas.

Evan Harp: Tell us about your practice.

Bob Coakley: Hey Evan, really appreciate your time today and I look forward to getting into it about what we do. I’m part of a team at Anova Management. We’re a small team, new to the RIA business, and my business partner Wayne and I got about $30 million AUM. We focus on taking systemic risk and mitigating that. We try to use long short strategies so that our investors can have more exposure to the market, as opposed to diversifying away risk.

Coakley on Risk and Investing

Harp: What’s your investment philosophy?

Coakley: I look at the market as an industry sector structure, and that you have multiple places and baskets where money migrates through cycles — whether you’re talking long-term tenure cycles, gold, real estate, and commodities, along with your equity markets and your bond markets.

But inside of the equity space, we look at the way the money migrates through various sectors. Our objective is to try to understand which sectors are strong and getting new inflows of capital, and which sectors are slightly weaker, with money moving out.

What we try to do with the structures today with ETFs is we analyze ETF sectors. Our objective is to take these different sectors, put them into our clients’ portfolios, and we have an algorithm that we use to help us identify which ones are going to outperform the broad market index, like the S&P 500. In analyzing these sectors, we go long on the ones that the algorithm anticipates should outperform. And then we take a short position in the sectors the algorithm anticipates will underperform.

So, we use ETFs to eliminate the idiosyncratic risk, the individual company risk. Instead of being long on Nvidia by itself or AMD, we would pick an ETF like the VanEck Semiconductor ETF (SMH), which gives us less exposure to individual company risk and gives us more sector risk.

Simultaneously, we would use other sector ETFs to prevent us from having an opportunity where we have too much exposure in one particular sector’s systemic risk. Then, one of the things that we look to overcome, is the downside exposure and the systemic risk.

When most managers feel the market will potentially go lower, they’re going to take off risk by going further into fixed assets. Our fundamental belief goes back to the ’40s, where hedge fund managers were actually putting short positions on it. If you got a perfect short position and the market drops, say 10%, if that’s a perfect hedge, you should drop 50%. On the upside, then if you had a perfect hedge on it, it would go up 50%. You would still be walking up steps from a higher evaluation. You would get to a new high water mark faster.

With what we do with migrating into different sectors to eliminate your idiosyncratic risk and your systematic risk… With systemic risk, we then have the short side positions that have the capacity to prevent 20% moves. This year, in January, February, and March when the market started to turn a little bit — we have a product that we’ve listed on the New York Stock Exchange. The market was down 22%. Our ETF was down 8%. It went back to the new high water mark within 26 days as opposed to almost 60 days. It’s outperforming the broad markets since launch with the hedge.

When we put clients into this type of a strategy, instead of mitigating their exposure to the market where you have 50% in equity and 50% in fixed income — everybody has different models on people’s age and retirement structure of 60-40, 70-30. We feel that our hedged program gives us the capacity to give people longer tail exposure to the equity market. So, if our risk portfolio is less, we can keep more money working in a higher capacity in the stock sector. That would then give them an overall higher yield, when you blend it together with the traditional 60-40 equity mix. We may be able to hold 70% equity instead of 60%.

As somebody gets older in retirement, when they actually need to be able to generate higher revenue, they throttling back because they don’t want to have the market exposure. We can still can continue to keep them at a position of about 60% or 70% equities. If you take the risk profile, because the hedge program, it’s really given them about a 45% risk exposure. And then we roll into it some other fixed income assets. That way, they still have a balanced portfolio without taking away their opportunity for market risk returns. It’s an interesting portfolio structure that we’re excited about.

And we’ve done this really because there’s millions of individuals out there that have less than $100,000 in investment retirement income. They can’t have exposure to some of these RIAs. RIAs are not going to approach them. They’re not going to work with somebody who has $100,000. They all have minimums. The beauty of what we’re trying to do is provide the opportunity for small investors to be able to participate in the market through our ETF structure and have hedge fund returns without paying 2% and 20% standard hedge fund fee and being exposed to the need to have a minimum of $5 million to invest.

Extra Mushy Peanut Butter

Harp: What’s the ticker for your ETF?

Coakley: The ticker is the Efficient Market Portfolio Plus ETF Trust Units (EMPB). We joke we use “extra mushy peanut butter.” It’s the “efficient market portfolio,” but “extra mushy peanut butter” is easier to remember. And we launched it December 11, 2024, on the New York Stock Exchange.

Harp: What’s the biggest challenge you had to overcome and how did you do it?

Coakley: Years ago, on the New York Mercantile exchange, I had a couple times where there were significant losses, which I think almost ended my career. It made me a better trader, so that I understood how important it is to mitigate losses.

Coakley on Exchange

Harp: What are you most looking forward to about the Exchange Conference?

Coakley: It’s going to be our third year going to Exchange. I find it to be a very useful place to meet like minded people. The speakers are very informative. I look forward to being around industry people that are looking to grow the ETF space. The knowledge that is there is pretty broad.

Harp: Final question — who is another advisor that inspires you?

Coakley: My business partner, Wayne Penello. He’s just so well educated and thought out. He’s written books on how to hedge (Risk is an Asset, published by Forbes), worked in the energy sector, like I did, but went upstairs and managed billions of dollars. He made $13 billion for his clients on hedging. He’s responsible for the algorithm that I have the pleasure of using to develop the portfolios.