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Dave Nadig
2:27
Every time we have a big market swing, heroes are nominated, and goats are slaughtered.
But its very rare folks get these things right several times in a row.,
2:28
So: if I was CERTAIN that Bob Smith was going to get me out, and back in, within a few percent of tops and bottoms, of course I'd give Bob my money.  But you cannot be certain, and in fact, the math would suggest that the Bob Smiths of the world are quite bad at this.
2:29
That's where a Defined Outcome product comes in -- you have 100% certainty on the pattern of returns.  You may not know your entire downside potential, but if you buy a fund with a --15% buffer, you know for certain that you have to have a pretty bad year to experience ANY pain at all .
thats the attraction.  But they're not magic: you're selling upside to secure downside.  The packaging is fantastic, but the concept isn't unique or original.
2:30
People have been using options for decades to do just this.
OK, time for one last question:
Jon
2:30
Hi Dave, it seems like there has been a lot of talk about direct indexing. I see the value from the perspective of having certain beliefs and letting those beliefs play out in your portfolio... It just seems like a lot to manage for each individual account on top of the risk of trailing benchmarks significantly aka active risk!
Dave Nadig
2:30
So, i guess it depends on how its done.
the whole point here is that the complexity gets solved by software.  Just like anything else.
2:31
So if its a huge pain to manage each investors account, or if its a huge pain for the investor to manage their positions/taxes/reporting/whatever, then this isn't a direct indexing problem, its an implementation problem.
2:32
The platforms that are good at this (there are lots, but the ones I've seen from Optimal, Parametric and Canvas seem to be good off the top of my head) solve this problem through good reporting tools, and good onboarding processes.
And they also present you with ways to measure, select, and monitor that active risk.
In Canvas, for example, active risk is something you CHOOSE.  It's not an accident.
2:33
You can build the Russell 1K minus one stock, and that's pretty much going to track.  Or you can build the R1 minus 100 stocks, and your going to get trackign error.  You can make that choice.
So it's not one size fits all -- and that's the whole point.
2:34
OK folks, that's a wrap for this week.  I think we're Thursday next week again.
Thanks for coming, as always, and have a great rest of the week!
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