Back in the Saddle Again

“A second chance doesn’t mean anything if you didn’t learn from your first.”

Anurag Prakash Ray

The story of Exponential ETFs was cut short. I’ve talked about Exponential quite a bit here, but I’ve never talked about how it got cut short. The first weeks of the Covid shutdowns in 2020 were horrific. You were there, you remember. So many people lost so much. What I lost doesn’t compare to the pain that others endured, so I’ll keep it brief: a funding commitment pulled, an eight month runway became an urgent raise, a lifeline was offered,?Toroso acquired the sub-advisor business,?Arrow Funds acquired?my beloved?reverse-cap fund, and just like that the story of Exponential ETFs was cut short.

Two years have passed, and the sub-advisor team is still in downtown Detroit, now managing over $6.5 Billion in AUM. And after years of howling at the moon about index concentrations and FAANG valuations, those warnings have come to pass as reverse-cap has crushed the S&P for the entire two years.

And as for me, I’m back at the starting point. Still hungry, still curious, still punching up, and still getting punched back. Good days and bad ones.

Justin Goldberg likes to get things done. Everyone responds to problems in different ways. Some complain, some contemplate, some can’t muster the energy to care. Justin responds to problems by rolling up his sleeves and getting things done. And when he was told that he could not invest in a REIT ETF that was managed the right way because that fund did not exist, he rolled up his sleeves and launched?that fund?himself.

Everyone loves to talk about how index funds have outperformed active managers. It’s a great story: with math on one side and greedy fund managers on the other. At least, that’s how the index funds like to tell it. Reality, of course, is more complex. What they call “index funds” can also be called size or even momentum factor investing. It can be called US large cap bias. It can be attributed to self-fulfillment of that story driving a narrative that drove flows that drove performance. Lots of layers to this onion.

Here is something that doesn’t get talked about as much as it should: in the real estate sector, the best actively managed funds have demonstrated fairly reliable alpha:

I’ll tell you something else interesting about REITs. REITs aren’t sexy, and most investors assume that any REIT is more or less fungible with another, but the data says otherwise. And in a post-Covid world investors need to know if their cap-weighted REIT funds are holding empty office buildings and vacant strip malls.

Both of these tables come from the research generated at Armada ETFs, where a small team of REIT experts have joined with Justin to solve his problem. To build the fund that holds the right REITs at the right times. The fund that we’ve been wanting to invest in.

I’ve been working with Justin on Armada ETFs for about a year now while also working on another problem. That other problem is a capital markets ecosystem that is taking more value out of ETFs than they are adding back in. That problem is a lack of incentives for liquidity providers, a lack of liquidity for automated trading programs, and asset-managers trying to shoehorn their buy-and-hold ETFs into a structure designed for trading funds.

That problem requires a redesign of massive parts of our trading infrastructure. And for that problem I’ve got a plan.

I’ve got a plan, but I don’t have a product.

To execute that plan I need time, capital, and I need a lot of momentum. Momentum has been an issue this year.

In 2013, the baseball player Chris Davis led the American League in home runs, RBI, and total bases, finishing third in the AL MVP voting. The next year he finished with a batting average under 200 and lost his job. Same guy. Bob Dylan wrote Tangled Up in Blue, and Bob Dylan wrote Wiggle Wiggle. Same guy. Which is to say that we are all capable of greatness, and we are also capable of… less than.

And when VCs didn’t bang down my door begging me to take their money for a pre-product idea in a competitive and low-margin industry, I became… less than. I lost momentum.

I started writing, but then I stopped. I started pitching, but then I stopped. I started recruiting, but then I stopped. I didn’t have the capital, I didn’t have the backing, and my confidence was being tested.

And then Justin called.

“What’s going on with atNav? We need this. Armada needs this, our clients need this. How fast are you building it?”

Turns out there really wasn’t an issue of momentum. There wasn’t an issue of confidence. There was an?issue of isolation. Sitting alone with a cat and a zoom connection is no way to generate excitement. That’s no way to take on a $10 Trillion industry with nothing but grit. That’s no way to build.

I’ve never had a great idea in isolation. Great ideas come from working through details, poking holes and throwing out 'what ifs' with friends.

And that’s when it became clear what had to happen next.

I’ve buried the lede deep enough, so here it is: I am proud to announce my new position as CEO of Armada ETFs. We are going to grow Armada and grow the HAUS ETF while also developing atNav under the same roof, with the same team and resources. I couldn’t be luckier and I couldn’t be happier.

Two years after Exponential ETFs was cut short I have been blessed with a chance to get back in the game. I’ve been blessed with a chance to use the hard-fought lessons and battle-scars to grow Armada, and to launch atNav, the right way with the right team.

So here we go, and thank you for letting me share this long strange trip with you.