Wes Gray & Jack Vogel, Alpha Architect - BOXX, HIDE, & Why Trend Following is Timeless. PLUS: Embarrassing Career Moments | #474

Episode Summary

Executive Summary: Wes Gray and Jack Vogel discuss Alpha Architect’s rapid ETF-platform growth, especially its white-label business, and introduce two novel strategies: BOX (a box-spread fixed-income/arbitrage ETF aimed at T-bill-plus returns and potential tax efficiency) and HYDE (an inflation/deflation diversifier using trend on Treasuries, commodities, and REITs). They also revisit timeless themes like value, momentum, trend, taxes, and advisor portfolio construction.

Main Topics: Alpha Architect platform growth and white-label ETFs (Priority: 5/5): The guests provide an update on their ETF business, noting rapid expansion in funds and assets, and explain how white-label ETF infrastructure is meeting demand from advisors, RIAs, family offices, and other asset managers. BOX: box-spread fixed-income strategy (Priority: 5/5): A deep dive into the mechanics of box spreads, why they resemble T-bills, how they can deliver T-bill-plus returns, and the role of counterparty and liquidity in the strategy. HYDE: inflation/deflation diversifier with trend (Priority: 5/5): The guests explain HYDE as a fixed-income sleeve strategy that allocates across Treasuries, commodities, and REITs, using monthly trend signals to shift to T-bills when those assets are out of favor. Value, momentum, and trend as evergreen investing ideas (Priority: 4/5): They argue that value, momentum, and trend are durable, price-based concepts, discuss valuation extremes in value stocks, and note persistent investor under-allocation to momentum and trend. Taxes and structure as underappreciated sources of return (Priority: 4/5): The conversation repeatedly emphasizes that taxes, fund structure, and tax-aware implementation can materially affect outcomes, sometimes more than security selection. Portfolio diagnostics and advisor tools (Priority: 3/5): They describe Alpha Architect’s public tools for evaluating value attractiveness and ETF portfolio characteristics, including active share and factor exposures, to reveal hidden overlap and SPY-like portfolios. Behavioral discipline in alternatives (Priority: 3/5): The guests discuss why alternatives such as managed futures are difficult to own because they often fail for long periods, then work dramatically, creating performance-chasing behavior.

Key Arguments: White-label ETF infrastructure is filling a market gap because the major incumbents will not offer low-cost ETF rails to everyone else; Alpha Architect aims to be the 'Shopify/AWS of ETFs.' SMA, hedge fund, and mutual fund assets can be converted into ETFs in tax-efficient or tax-free ways, providing day-one assets and operational simplification. BOX is presented as a real market arbitrage/funding solution: buying box spreads can provide T-bill-like exposure with potentially 0-50 bps of added yield and possible tax advantages. The principal risk in BOX is counterparty exposure to the option clearing corporation rather than direct U.S. government exposure, though the guests argue the risk is effectively very similar. HYDE is designed to diversify equity portfolios by owning assets that tend to help in inflation (commodities/REITs) or deflation (bonds), while trend-following rotates out of them when signals weaken. Value is currently cheap by historical standards, and the guests argue the cheap stocks’ valuation spread has widened rather than normalized, suggesting sentiment rather than fundamentals is keeping the gap open. Large-cap value, when judged properly with equal-weight methods, is statistically indistinguishable from small-cap value, challenging a common industry assumption. Momentum and trend remain underused despite being intuitive and historically effective; the guests attribute this partly to narrative inertia from academic and institutional conventions. Taxes and wrapper choice can dominate after-tax outcomes; they argue more investors should focus on tax efficiency, QSBS, and structure before obsessing over marginal alpha sources. Managed futures and trend strategies are difficult to own because they are usually dull or painful, then become celebrated after a crisis, which encourages hot-money flows and poor timing.

Data Points: ETF funds on platform: 34 - Alpha Architect’s ETF platform size at the time of the interview ETF assets under management: almost $3.5 billion - Total assets on the ETF platform New ETF launches planned: 8 to 10 - Expected launches in the next few months Projected asset growth: could double again by end of year - Management’s expectation for platform growth Potential platform reference growth: $10 billion goal in 5-10 years - A prior public prediction referenced by the host Cropland lost to urbanization: approximately 4.8 acres per minute - AcreTrader ad about farmland investing Farmland investment minimum: $15,000 - AcreTrader passive farmland access minimum BOX funding spread: 0 to 50 basis points or higher - Guests say box spreads can offer T-bill return plus incremental yield HYDE fixed allocation: 50% Treasuries / 25% commodities / 25% REITs - Static target weights before trend overlays HYDE signal frequency: monthly - Trend signals are updated monthly Value spread peak periods: December 1999 and late 2008 - Historical peaks in the guest’s value-attractiveness tool Value spread status: highest on some measures - EBIT-based valuation spread described as currently at an extreme Long-only value paper sample design: 15 test portfolios in small value and 15 in large value - Paper comparing equal-weighted long-only value across size buckets Lead speaker’s confidence in trend/value: evergreen - They describe value and trend as timeless ideas regardless of Fed policy Iguana breath-hold trivia: 30 minutes - An anecdote used to close the episode

Pivotal Quotes: "we need to create a Shopify of ETFs or an AWS of ETFs" — Wes Gray: Explaining the rationale for Alpha Architect’s white-label ETF platform "Why would we waste all this brain damage to recreate a T-bill?" — Wes Gray: Describing the motivation for the BOX box-spread strategy "Buy cheap stocks wherever they reside. Do not buy small caps just because someone sold you that." — Wes Gray: Arguing that value matters more than market-cap size in value investing

Implications: Listeners should focus more on structure, taxes, and disciplined implementation than on headline alpha. The episode suggests ETFs will keep absorbing more custom strategies, while value, momentum, and trend remain durable but behaviorally difficult to own.