Michael A. Gayed is Portfolio Manager of the ATAC Fund Family at Toroso Investments, an investment management company specializing in ETF focused research, investment strategies and services designed for financial advisors, RIAs, family offices and investment managers. He is the author of five award-winning research papers on market anomalies and investing. Michael has been interviewed on CNBC, Bloomberg, and Fox Business, as well as the Wall Street Journal Live for his unique approach to interpreting market movements. In this episode of How To Trade It, Micahel unpacks what risk is and isn’t. It might not be what you think. You don’t want to miss it!
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When traditional media outlets talk about risk-on, they are generally speaking about direction. For example, if the market is positive, they say it’s a strong risk-on day. For Michael, RORO isn’t about direction at all. Instead, it’s about conditions that favor an “accident” in the market. Michael believes there are certain relationships which have commonality, in terms of interest rate sensitivity, that tend to get ahead of major black swan events.
There are three indicators that Michael looks for ahead of crashes, corrections, and bear markets. First, utilities relative to the stock market. If utilities outperform the stock market, on a short-term basis, generally you see a rise in volatility. Next, lumber relative to gold. When lumber is weak relative to gold, you tend to see higher volatility. And third, long-duration treasuries relative to intermediate. Ultimately, these three indicators are all about interest rates.
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