Know Who Drives Return

SPACs, FOMO, and Tail Risk - Matthew Tuttle Captures the Momentum

September 24, 2021 Matthew Tuttle from Tuttle Capital Season 1 Episode 5
Know Who Drives Return
SPACs, FOMO, and Tail Risk - Matthew Tuttle Captures the Momentum
Show Notes Transcript

Matthew Tuttle from Tuttle Capital joins David Drapkin to talk about SPACs, FOMO, and tail risk. Tuttle Capital's thematic and actively managed ETFs are taking advantage of the SPAC craze, everybody's FOMO (fear of missing out), and protecting the downside tail risk.

Listen in to learn how they do it and their latest thoughts on what's happening in the markets.

Discussion Topics

  • Intro to Tuttle Capital
  • FOMO
  • Gambling vs. Investing
  • SPACs, and state of the market
  • Future of SPACs and sponsors
  • FATT - Tail Risk ETF
  • Buy the Dip?
  • $100 in any ETF

Learn more at Tuttle Capital's site: https://tuttlecap.com/

Matthew Tuttle Biography
Matthew Tuttle is the Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, LLC.

Matthew is a familiar face among the financial media. He has been a frequent guest on CNBC and Fox Business and has been frequently quoted in the Wall Street Journal and Barron’s.

He is the author of How Harvard & Yale Beat the Market and Financial Secrets of my Wealthy Grandparents.

Matthew has an MBA in finance from Boston University.


(Disclaimers: this is not investment advice. The author may be long one or more securities mentioned in this report.)

David Drapkin (Boardroom Alpha):

Hey everyone, David drapkin here. Welcome back to another episode of Know Who Drives Return by Boardroom Alpha. Today it's my pleasure to welcome Matthew Tuttle. Matthew is CEO and Chief Investment Officer of total capital management. Total offers actively managed automatic ETFs. Matthew is an also an awesome follow on Twitter. If you haven't checked him out. Go check him out now, Matt, it's it's great to have you on and thanks for joining us today.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Hey, thanks for having me.

David Drapkin (Boardroom Alpha):

Awesome. So you know, first off why don't, just give us a little background on yourself. And Tuttle Cap, where do you come from? and sort? What do you guys do?

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah, so you know, started off with you being in the brokerage firm industry and was appalled by what passed for advice, went to the insurance companies was equally appalled, I set up my own wealth management firm in 2003. Allocated to a bunch of supposedly absolute return money managers, who ended up losing my clients not as much money as the market in 2008, but more than you would expect from absolute return. So that kind of pissed me off figured out the the only way to do it right is do it yourself. Then in 2012, started having other financial advisors seeing what we were doing. And you know, asked if we could do that for them. So set up my money management firm, then got sick of trading through custodians Schwab, TD and Fidelity. So we started launching ETFs. Then had people come to us and say, "hey, we see what you're doing an ETF Can you want them for us?" And we started doing that. And, you know, here we are, we've got some of our own ETFs, we've got to some ETFs for other people, we've got some of our own ETFs we're gonna be launching and a bunch of ETFs for other people we're going to be launching.

David Drapkin (Boardroom Alpha):

Right, right. And we'll get into the specifics of some of the ETFs. But I'd like to think that some of your ETFs can be thought of as very of the moment, you know, capitalizing on, you know, current trends, and we'll get to FOMO and the SPAC etc. Do you believe that the market current markets, enabling them, do you think this will be an enduring, enduring theme, or you'll capitalize on these of the moment themes and be able to, you know, bang out ETFs, as as topics arise?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So yeah, and I think the markets have fundamentally changed. You know, a lot of people kind of create parallels between what's going on now in the internet bubble. And I was around in the internet bubble, there are similarities, but there are massive differences. I mean, what's going on with retail investors, the connectivity, social media, all of these things are creating phenomenons that I believe are here to stay. And so one of the things that we really tried to do is be able to be extremely agile, because the ETF industry is not set up for things to change. It's set up, you know, here's an index and we're going to rebalance it quarterly, semi annually. But if market dynamics completely and totally change, yeah, we're, you know, we're kind of stuck in the old paradigm, nothing we can do.

David Drapkin (Boardroom Alpha):

Right?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So yeah, we're gonna be in by our structure, we can adapt and get ETFs out very quickly, if we see opportunity.

David Drapkin (Boardroom Alpha):

Right. How many ETFs do you currently have going?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So right now we have 1, 2, 3, 4, 5, 6, 7, we have nine ETFs. Right now. We have another one that we hope becomes effective middle of October, then we've got a bunch of stuff in registration that hopefully will come out at some point this year. And then we're going to file for something that's going to be really interesting, can't talk about it until we file for it. But hopefully we're going to file for that next week.

David Drapkin (Boardroom Alpha):

But I won't ask you to pick a favorite but maybe maybe at the end. So let's start with with FOMO one of the newer products, obviously capitalizing on, you know, the crazy year we've had this year, you know, the meme year with the Reddit warriors and the apes and the game stoppers. You know, when did you first have the idea for the FOMO ETF? And it can you talk a little bit about you know, what goes into FOMO ETF what you're trying to target you know, and how investors can can make money off of that.

Matthew Tuttle (CEO/CIO Tuttle Capital):

So yeah, I've had the idea Ever since we really saw what was going on with retail, and really saw that there was, there was this demand where retail investors were kind of pushing back, you know, after the the internet bubble, retail investors lost a ton of money. And the brokers went back to him and said, Look, leave it to the experts buy index funds, and then COVID hits, and all of a sudden, people are making a lot of money, they're like, you know, I want to do that. And I want to do some other stuff. And, you know, what we saw is the financial industry, you know, beyond a couple things, you know, our work and some other stuff really wasn't serving that, and wasn't serving it in a way that could be dynamic. Because to me, what FOMO is, is constantly or could be constantly changing, you know, so right now we're doing a lot of these gamma squeezes in the DeSPACs. You know, that may be a phenomenon that goes away at some point, if it does, we'll move to something else. But that's just it's something if you have an index fund, and you're seeing, you know, these stocks go up 30% for basically no reason. You can't capitalize on that. FOMO can.

David Drapkin (Boardroom Alpha):

Mm hmm. And do you have a sense for, can you give us a sense for who the main participants are in FOMO? Is it you know, all Robinhooder? Do you see shareholders across demographics and your type of investor?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So the thing about having an ETF is unless someone tells you, you really have no idea. Um, you know, there probably would be some do it yourselfers. But really, you know, if you read through, you know, Twitter, in the social media, a lot of these guys are actually doing it themselves. So this is really more for, you know, the guy who's sitting there saying, Yeah, yeah, I got a nine to five job, I want to be able to participate in some of this stuff. But I can't sit there and watch it. You know, and you have to I mean, we have one of these gamma squeezes, it opened up up 33% today. We decided, you know, hey, we're going to vwop it and get out over the morning. You know, we got out of it right now it's only up 5%.

David Drapkin (Boardroom Alpha):

Right.

Matthew Tuttle (CEO/CIO Tuttle Capital):

And we got out of it probably at an average price of up 20%. You know, if I had a nine to five job, yeah, I'm not going to be able to do that. So that that's really where we designed it for Is someone who's like, Hey, I'm worried about missing out, but I can't sit in front of my computer all day.

David Drapkin (Boardroom Alpha):

Right? Yeah, they're really, those are really quick moving trades. And you know, on our side, we obviously follow the SPAC market and do all analytics there and look at those redemptions, or low floats and gamma squeezes and people trying to get in. But to your point, you really, you really have to be on your toes in the know following this on a daily basis to really be able to capture it. So what you're saying is by buying, b participating in the FOMO ETF that's one of the one of th strategies you employ to hel get exposure to that withou needing to be there on a dail basis doing it right.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Exactly.

David Drapkin (Boardroom Alpha):

Yeah. And so what's your view sticking on the retail theme for just a second on this, you know, gambling versus investing theme that's going on where to your point, retail traders on Twitter on Reddit, really treating it more like a game, if you will? versus when you think of a traditional ETF strategy that's more of an investment. And so can you talk a little bit about the balance between the gambling side of the world and the investing side?

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah, and really, I don't see it as gambling. I see. What's really interesting is you've now got a large group of people all doing research, all helping each other out, you know, hey, what do you think of that? So you know what, look at this, hey, you know, I thought this was gonna go up, why didn't it? Oh, you know, what, you know, look at ps1, look here. And, you know, certainly there's some gambling, there's some people posting stuff that, you know, they got no idea what's going on. But I think that investing has fundamentally changed. Or at least there's a there's another side to it, where it used to be, you know, hey, growth in value, that was pretty much it. I'm either a guy who buys stocks that are growing or I'm a guy who buys stocks that are undervalued. And now you've got kind of this third leg that you know, to me done the right way is still investing.

David Drapkin (Boardroom Alpha):

And so do you think that you know, the meme-ification, this gamma trade, this trend will, will last or as traditional return to work happens offices open up again, that it'll go away in some capacity, or the floodgates are open and access is there. And

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah, I mean, I think this DeSPAC gamma trade is gonna last from the standpoint of Yeah, I saw an article A while back saying, you know, hey, people aren't going to redeem once they realize what's going on. But the problem is, you've got a lot of pre merger spackling. So we have FOMO. But we also have SPCX. SPCX is a pre-merger, SPAC fund, and we only buy pre-merger SPACs, and we're buying them under $10. And if we've got a deal that comes due, and the things trading at $9.90, and we can redeem the $10 we're gonna redeem the $10 in SBCX. I've got an analyst who works on it, we're just talking today about some of these these gamma squeezes. And he's lamenting. Yeah, I mean, I can't, you know, we can't participate in these nspcs because, you know, we get one wrong, you know, we get killed because it's not what we do. But in FOMO, we can participate in that stuff. And I think there are a lot of pre-merger SPAC guys, you've got more people getting into that space now as a bond alternative. I mean, look, what's happening to bonds today, but and you know, and those guys have to redeem, they can't take the risk. You know, hey, it's at $9.90, I could get $10, or I take the risk, and maybe it's $4.

David Drapkin (Boardroom Alpha):

Right. Yeah, let's talk a little about that. Because obviously, you know, that that trade, the pre-deal SPAC trade, exactly, as you said is sort of shifted from six months ago is, you know, what high quality sponsor can I buy at $11 pre-deal because we think it's gonna go to $15 or $16 at deal announcement with literally everything essentially, for the most part trading under $10, or under NAV. We've talked about overfunded trust in a second as well. But with most things, trading under under NAV, what do you look for besides just the cheapest one to buy in terms of pre-deal SPACs? You know, does the sponsor even matter anymore? Or is it you know, what, what percent can I get?

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah, I mean, it still does so, but the markets changed. I mean, back in January and February, we were willing to offer up like our kids to underwrite to get IPOs

David Drapkin (Boardroom Alpha):

Yeah, give me any allocation,

Matthew Tuttle (CEO/CIO Tuttle Capital):

I can get get, give me an allocation, because first trades gonna be $10.50 or $11 or $12. And, you know, that was great. Now, the underwriters are begging us, and we hardly participate in anything on the IPO. I mean, you know, look at that Citi deal that came out yesterday, you know, $9.82, last I looked, I mean, that's awful. Just ugly. So sponsor still matters, because there are still too many SPACs chasing too few deals. And, you know, we think the market will settle out, kind of like the private equity market where the best guys get the best deals, and the marginal players are left with the scraps. So serial issuers, operators, guys who are VC guys, you know, that still matters. But now, you know, now we're looking at the terms. I mean, you know, you guys see it, if you don't have an overfunded trust, your first trade is under $10. You know, we're looking, what are you doing on the warrants? What's the, you know, what, how long do you have to find a deal? You know, we're looking at all of that stuff, you know, do you have anchor investors, not that important to us, but, you know, something that that we look at, and, you know, again, we're we're very, very selective on the deals that we participate in.

David Drapkin (Boardroom Alpha):

And so you said you're essentially not participating in in new issues or are very lightly participating in new issues.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah, I mean, it, you know, it's got to be enticing to us to participate. Because, I mean, again, if I want it, you know, buy it at $9.90. Right. Right. Why buy it at $10?

David Drapkin (Boardroom Alpha):

Right. And so, by our count, there's call it 450 pre-deal SPACs out there. What do you see happening to the majority of that supply? You know, where you'd expect a, at least a larger wave of liquidations and you historically seen in the past, but you're also probably going to see, sponsors stretch for deals just just to get anything done. And so how do you see that that dynamic playing out with like the glut of supply that exists?

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah, I mean, a couple of things. I mean, crappy deals, liquidations and you know getting creative looking in areas where maybe they hadn't looked at before so we just had that the Tiedemann deal the RIA yeah and we're in that RIA money manager space, you know, that's been an area where I've always thought, you know, spax made come in and in try to buy, you know, companies with assets under management. So you know, I think you'll probably see some creativity, you know, not everyone's going to be looking at clean energy and FinTech and technology and cloud and 3d and you know, all this stuff, you know, they're going to look at other areas because they're gonna have no choice. So I think it's going to be a mix of all of those things.

David Drapkin (Boardroom Alpha):

Maybe, maybe some less flying car companies and, and businesses in areas that maybe weren't as popular

Matthew Tuttle (CEO/CIO Tuttle Capital):

We're, we'ere not for sale. But I mean, other guys like me, you know, I'm sure they're, you know, they're gonna get a look.

David Drapkin (Boardroom Alpha):

You should you should launch a SPAC and just SPAC yourself, you know.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Thought about it.

David Drapkin (Boardroom Alpha):

How do you see what what do you think the best thing that could happen to the stock market is in the next six months?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So, you know, right now, I think this really is the best thing. You know, what was happening in January and February? It was fun while it lasted. But it was transitory,

David Drapkin (Boardroom Alpha):

Right.

Matthew Tuttle (CEO/CIO Tuttle Capital):

I mean, are we in our pre merger SPAC fund when we launched it in December, and we kind of assumed, you know, hey, good year, we'll be up 12%. I mean, we looked at it, like people look at merger arbitrage funds, where, you know, you buy a merger arbitrage fund, it's not correlated with stocks and bonds, and you get three to 6% a year, on average. We figure pre-merger, SPACS you can do better than that, and not be correlated with stocks and bonds. And we're sitting there February 15, and we're up 24%. And it was great. You know, we're killing the market everything but you're you're looking at it, you're like, Man, you know, we're borrowing future returns here, this isn't realistic. And you know, now we're up, you know, a little over 11%, which, you know, which is about right, but what you're seeing now, is you're starting to see the fixed income guys get it. You know, they're looking, alright, interest rates are going up, bonds are going to stink. Yeah, I can buy us back at $9.70. And as long as I don't screw it up, I can get out at $10. And I've got, you know, I've got a term, you know, the SPAC's got 12 more months, or whatever it is, which means I got a yield to maturity. And I've got optionality, I mean, let's say the guy finds a kick ass deal, I get out of $10.20. Even better. So those guys have figured it out that the merger arbitrage guys haven't figured it out yet. You know, guys who are typically buying merger arbitrage funds, you know, and we wrote a paper that's on my website about how, you know, pre mergers SPACs are better. But yeah, I think those guys will figure it out at some point as well.

David Drapkin (Boardroom Alpha):

Yeah, I think that's right. And, you know, while it's not as sexy as as it was, you know, during the peak, the, to your point, it seems like quality sponsors will emerge as the winner. There's still, you know, low risk, you know, juicy returns to be had. And then you know, as the market continues to evolve with, you know, better alignment between sponsors and economics, and, you know, performance based, you know, earn outs for sponsor shares, and all that jazz, you know, can only mean for, you know, higher quality, you know, SPACs that are that are that are out there in the future. So, I think

Matthew Tuttle (CEO/CIO Tuttle Capital):

it also, I mean, you're, you know, you're not having too many IPOs I mean, I forget what it was back in the day, but it seems like there are five to 10 IPOs, every single day.

David Drapkin (Boardroom Alpha):

At least, like 10 IPOs a day. 20 more on file, you know, at least for us was hard to keep up. You know, this week, there's been, I don't know, three or four. And to your point, every single one is over funded, for the most part. And so it's interesting to see that the cadence, you know, really slow down. You know, in some, in some conversations you've had with sponsors, it seems to be like, let's let this thing clear out a little bit. You know, before we hop in with our next thing.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yup.

David Drapkin (Boardroom Alpha):

Let's switch gears a little bit. Can you talk about fat and tail risk and sort of what you see there?

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah. And if you ask what my favorite fund is, you know, FOMO I guess is number one. Because it's more fun, but I mean, FATT is is a close second. You know, that's, you know, we kind of look at two things when we're launching funds. Number one is what do people want, and it's just not out there. Number two is what should people want, and it's not out there and the tail risk fund falls under the what people what people should want. The way we designed it, is to be a positive carry tail risk fund. Meaning it can make money the 99.9% of the time the markets up, it's not gonna make a lot, you know, we're looking to make bond like returns when the markets going up. And then it's designed to, you know, in a big decline, you know, COVID, a 2008 type of scenario, you know, to make as much on the downside is the mark or make as much on the upside as the market makes on the downside. And we designed it that way, so that it's something that you don't have to time. You can just say, I'm going to put, you know, 10, I mean, I've got 25% of my personal portfolio in it. And, you know, it normally just kind of chugs along and you know, then if the market blows up, it'll it'll go up, and it'll be there. So that's what it's designed for.

David Drapkin (Boardroom Alpha):

And so how is it? How is it currently positioned? Would you say?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So, the way we do it is we have two assets, two types of assets in there, we have volatility, and we use the, you know, the volatility, exchange traded products, because when the market does crumble, that's really the only thing guaranteed to do well. You know, treasuries, you never know, gold, you never know, volatility is going to be there for you when you need. And then we have the indexes. The S&P, the NASDAQ and the Dow, because what happens is when the markets going up, volatility is going to bleed, but it's going to be a slow bleed to the downside. And you have the equity indexes in there to try to offset the bleed and earn a little bit of money. And then what we do is we ramp the volatility up and down. Because what happens is in a big market sell off volatility will spike way more than the market goes down. So on the sell off day, I forget what third what was a Tuesday was a Monday when the market sold off there Tuesday on Yeah, I mean, a you know, one point the volatility exchange traded products were up 18%.

David Drapkin (Boardroom Alpha):

Right.

Matthew Tuttle (CEO/CIO Tuttle Capital):

That day when the markets down, like, you know, one and a half to two, you know, volatility got cut into the clothes, but you know, we're having a really good day that day, because, you know, we had like 10, 15% in volatility and was up 18%. But and so that that's how those things are, that's how it's designed.

David Drapkin (Boardroom Alpha):

That's, that's super interesting. And so ont that point that when the market dips on on Monday, you're maybe not directly related to your products, per se, but you know, there was a ton, there's this big debate going on versus you know, buy the dip, versus everything's already overvalued, like crazy. How do you how do you Where do you land in that in that debate?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So I think you've got to look beyond the S&P 500 if you look beyond the S&P 500 you realize everything isn't overvalued. Uou know, but the S&P 500 is a market cap weighted index so what 25% of its FANG you know, that stuff probably is somewhat overvalued. But then you look kind of beyond that and I mean you've got a lot of stocks a lot of areas in in correction territory so you know, what we're seeing is we're seeing these rolling corrections so everyone is saying hey, the market, you know, the S&P hasn't been down 5% since like October of last year, that's not healthy. But you look at sectors and themes and memes and different stocks, you know, a lot of them have gotten crunched and then they come back so money is just flowing from one area to another and you can keep that going for a while. I don't know how long you can keep it going for a while and so you know that that's why I think that by the dip will work until the catalyst is something real. And this whole you know, Evergrande thing could be real

David Drapkin (Boardroom Alpha):

Right.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Now the market saying it isn't right. I'm hoping that's right. But you know, anytime you get something with property, I mean it brings back you know, post traumatic stress from 2008.

David Drapkin (Boardroom Alpha):

Right buy the dip because I have FOMO perhaps right. Earlier, you mentioned when we're talking about some of the themes of this year with the retail boom you mentioned Cathie Wood so we did notice that you have filed for five stand corrected a short arc ETF what what's the status there? How are, how are you thinking about you know rolling out product out?

Matthew Tuttle (CEO/CIO Tuttle Capital):

So you know obviously it's not effective so I can't talk a lot about it but the goal is that that would be out sometime mid October.

David Drapkin (Boardroom Alpha):

Got it. Okay.

Matthew Tuttle (CEO/CIO Tuttle Capital):

You know, all the timelines line up. That would be our goal.

David Drapkin (Boardroom Alpha):

Love to love to get you back to discuss that. After we've seen some some returns there. Cool. And so you know, if I had $100 which, which which Tuttle sponsored ETF should I buy?

Matthew Tuttle (CEO/CIO Tuttle Capital):

I mean, have to be FOMO gotta be FOMO got to be FOMO

David Drapkin (Boardroom Alpha):

Capitalize.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Yeah.

David Drapkin (Boardroom Alpha):

Awesome. Oh, really, really appreciate your time. Certainly some very interesting products out there that are that are topical. Capitalizing on the trends figure with FOMO and the previous back in the disc back ETF so and fun to watch them fun to watch you guys and then excited to see what comes next.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Sounds good. Thanks. Thanks for having me on.

David Drapkin (Boardroom Alpha):

Thanks. Matt.

Matthew Tuttle (CEO/CIO Tuttle Capital):

Alright, thanks.