Watch: Structured Note strategies for todayโs volatile markets
Halo Investingโs Co-Founder & President, Jason Barsema, recently sat down with Phil Johnson, President of Rothschild Wealth Partners, to discuss portfolio management strategies during a period of unprecedented market volatility. With over $7 billion in AUM, Rothschild Wealth Partners approaches these uncertain times with a disciplined, tactical mindset.
Phil shares his insights on balancing growth and income structured notes, using hard versus soft protection, and providing clients with clarity and reassurance. By remaining agile and focusing on the long-term potential of diversified portfolios, Phil and his team continue to navigate turbulent markets with confidence.
Key Moments:
- How Phil deploys effective portfolio management balancing offense and defense in uncertain environments.
- Proactive client communication and tactical strategies during market volatility.
- How Structured Notes may offer unique opportunities to enhance returns and manage risk.
- Specific Structured Notes Phil has been keeping an eye on over the past few weeks of heightened volatility.
Read the full episode transcript below:
Jason Barsema: Hi, everyone. This is Jason Barsima, the cofounder and president of Halo Investing. Today, Iโm proud to have our friend and partner, Phil Johnson, the president of Rothschild Wealth Partners that manages over seven billion dollars in AUM. Phil, thanks for joining us on such a volatile day today.
Phil Johnson: Thanks, Jason. Is there something going on in the market that Iโm not aware of?
Jason: I think thereโs a lot going on in the market that weโre not aware of.
And, you know, ultimately, just that is we always wanna be able to get in front of our clients with other advisers to understand not just their thoughts on the market. Weโre watching CNBC all day, but what are you doing within portfolios? How are you managing client conversations? And and what are some tactical things that you may be looking at? But kinda starting off at the top, what do you think about the markets, and whatโs really Rothchildโs thesis, you know, from here on out for the rest of the year?
Phil: Yeah. So so good question. Iโll probably kinda start what our thoughts are on the market and, and kinda go then maybe in the client conversation.
Honestly, right now, I think I think the weโre at max uncertainty, right, in the market, and youโre seeing that reflected in prices.
So the big the big question we have is, you know, how do you communicate with your clients around that? Right? And I think we spent the last few days just kinda doing exactly that.
Even if even if thereโs no action items to take, we just kinda like weโre just at least reaching out because I think half the half the battle or half the job is just making sure your clients are aware that youโre paying attention, that theyโre okay, number one. Right? And that this is kinda you know, these these things do happen.
Thereโs a reason we do diversified portfolios. Thereโs a reason use downside protected products like, structured notes, with Halo. So those are all things that quite frankly really come into play in environments like this. We always said when the market goes straight up, you know, peep you know, we probably you know, weโre always gonna be probably a bit of a drag because we we know that thereโs, market environments like this, and this, quite frankly, is when clients, frankly, need their advisers the most. Right?
Jason: When the marketโs going up, you know, you you know, do it yourselfers are Thatโs an easy phone call.
Phil: Whatโs that?
Jason: So thatโs an easy phone call when the markets are going up. Right?
Phil: Yeah. Exactly. And and and one thing is when the marketโs going down, you canโt hide. Right? You gotta, you know, you gotta be in front of your clients. And then and thatโs kinda how we are. So even, like, we were just kinda communicating recently. Hey. Look. This is this is where weโre at, but youโre fine. You know, marketโs down x. Youโre down y. This is why we stay diversified. This is why we use, structured notes. This is why we use alternatives, etcetera.
So thatโs the biggest thing. Itโs just kinda keeping your clients somewhat calm because, you know, theyโre nervous and and rightly so. I think weโre all a little bit nervous. Sure. So itโs just kinda you know, our job is to kinda, you know, be be that calming effect, and just, you know, really quite frankly, make sure that they donโt go to cash or things like that. Right? Thatโs, you know, some of the worst things you could do.
Jason: Well and I was actually looking at an interesting chart on Fred this morning, you know, which whoโs through the St. Louis Federal Reserve. And, you know, retail money market funds, balances are at their highest level in history, and itโs been parabolic Yeah. Since twenty twenty two. And itโs like, man, you know, you missed out on the rally of twenty three and twenty four because people got scared in twenty two and and then went to cash. When youโre dealing this is a different type of uncertainty, and I was having this conversation with a client earlier today. Right? Like, we all manage money during the GFC.
Obviously, very difficult time to manage, but that was different because thereโs a systemic financial crisis. Right? And there was things that the Fed could do. Thereโs things that the treasury could do to ultimately stem some of the bleeding, if you will. Yep. When youโre dealing with fiscal policy, right, it becomes a little bit harder because this market can change, as we saw this morning, with a tweet or lack thereof. Fake news, it turned out to be. How do you guys manage portfolios in, you know, an environment thatโs really centered around fiscal uncertainty versus monetary uncertainty?
Phil: Yeah. I think, itโs a good point. I think the biggest uncertainty here is, you know, even on the fiscal side, you just thereโs it weโre in such an unknown. Now this is this itโs a little different.
I would say itโs different than even COVID. Right? COVID, it was it was just a little different. And this is where, you know, during COVID, the government could step in and which they did with both fiscal and monetary stimulus.
Jason: Right? Well, this is kinda, to some degree, being caused.
Phil: Yeah. So itโs a itโs a little different in that sense. So weโre just trying to not overreact. I think thatโs the biggest key for us is not to overreact to to the noise, and kinda be a little bit tactical. You know, we we had to you know, our clients, you speak of, you know, the amount of money in money market funds. You know, we we had a a decent amount of of money set aside in cash, and primarily because we thought maybe the markets were getting a little a little overvalued kinda going into the end of the year and into the beginning of this year.
It just totally didnโt know, you know, how much. You know, I think that first the first drawdown from February is a bit of a repricing, and then, obviously, the last few days is all about tariffs. So what what weโve been able to do is be a little tactical.
And every clientโs different. So we treat clients obviously in retirement or not near retirement. But, you know, hopefully, you know, weโve been allocated correctly so that, you know, they donโt have to, you know, sell their equities at the wrong time. And then and then, honestly, what weโre doing is tactically, maybe for some of younger clients, you know, kinda stepping back in in certain ways.
And quite frankly, being tactical is, you know, using structure notes is one of those one of those products that we use, to be tactically, you know, take advantage of of dislocations. We did it during COVID, in in the, you know, in in March and April. The yields are great.
Kinda taken advantage this time around. And and, you know, some of it was dry powder. Some of it was just tiny maybe taking, you know, trimming some equity positions and going into much more of a protected equity position with, the same upside or more upside over the next four to five years.
Jason: Well and I wanna get to that in a second. But before I do, you know, obviously, this country is very polarized in regards to its political beliefs. Right? And so I could imagine as an adviser, it might be difficult having client conversations right now sticking to the facts, which is the markets versus the politics because some person might be a Trump supporter and loves the tariffs.
Some person might be a Trump supporter and doesnโt like the tariffs, and some person might not be a Trump supporter at all and regardless doesnโt like anything thatโs being done. And you have clients that fit both spectrums. Obviously, half of half of the country is on one side and the other halfโs on the other. How do you manage that?
How do you really keep conversations centered around the markets and not cross that political line?
Phil: Yeah. Itโs tough. You you got you know, you have to be apolitical, right, regardless of your own whatever. And thatโs itโs itโs hard. But, you know, this would be a good example of people that donโt like Trump and the white certainly arenโt gonna like his policies. You you know, theyโre theyโre the ones that right now theyโre actually saying, hey. I I I wanna go to cash.
And and itโs our job to say, you know, again, the old adage of, you know, time in the market, not time in the market. And Yeah. And we just try to be, like, you know, as diligent around. Like, we have a strategy. You know, we have to stick to it. Right? If if this ends up being something that we need to change over the long term, then weโll do so. But right now, in this environment, in the last three, four days, nowโs not the time.
Right? When things kinda, like, become a slightly clearer, you know, even even a little bit clearer, then we can start making some adjustments. But doing something in this environment isnโt, you know, outside of being tact you know, some tact you know, some tactical trades. Itโs just not the right time to make wholesale adjustments.
And thatโs kind of what we tell our clients regardless of where their own personal belief is or whether they should be doubling down or getting the hell out. Right?
Jason: Well, equity markets and capital markets are are the only market that Iโm aware of that when it goes on sale, no one wants to buy. Yeah. I mean, like, think of any other good or service thatโs on sale. We all rush to buy it except for when itโs a stock market because weโre scared.
Phil: And I was reminding my own brothers this weekend of if you would have bought the top of the market in two thousand seven and, you know, obviously, we all know what happened in o eight and o nine, you still would have made three x your money at the close of last Friday. Right? Yep. If youโd have bought the top before the worst financial recession weโve seen in our generation.
And so I think itโs important for advisors to remember to manage those emotions. Like you said, donโt do anything reckless by going to cash because you may never, be able to get back in, especially, whatโs going on right now. And use that opportunity to buy some things that are on sale. But, you know, kind of the last point that I wanna cover is you mentioned structured products and things that youโre looking at.
Jason: What type of structured products look good to you in this market? What are you buying? Growth, income, both?
Phil: Yes. Iโm gonna say, yeah. We did. Yeah. We actually did something on Friday. We did both a growth note and an income note.
Jason: Hard protection or soft protection on the growth?
Phil: So itโs interesting. We are typically, we do hard protection on growth notes and, you know, whether itโs ten, fifteen, twenty percent.
Jason: Yeah. Just to make sure itโs not that that comfort of the buffer. Right?
Phil: Yeah. A lot of our clients like the like the idea of the buffer. But this was an instance where we actually did a soft because we were already down x percent. Smart. You know, we felt comfortable being, you know, doing a soft protection and that probability of five years from now being down is pretty was pretty small if I donโt wanna say not gonna happen, but because you never know, but highly highly improbable. And and by being soft, we just got, you know, kinda more leverage to the upside.
And Well, then youโre taking advantage of volatility because youโre selling put premium with soft protection versus hard protection. Youโre buying it. Right? So, obviously, puts are really expensive right now when the, VIX, I think, touched fifty five earlier this morning. Yep. And so thatโs, you know, thatโs thatโs smart too. Because remember, the marketโs already followed by almost twenty percent. So, thatโs thatโs interesting. And your client and your clients felt okay with that with soft protection versus hard.
Yeah. I think for certainly. I think, you know, when we can kinda say, hey. Youโre already down fifteen, and hereโs another twenty five or thirty. You know, but I, you know, I hate to say this, but they kinda just trust us to to do what we think is great. Right? So theyโre you know, like, thatโs kind of a big part of it.
And then on the on the income side, right, we did we did a snowball on the indices, and and, I we just kinda like that. I mean, I think, you know, couple weeks ago, that was pricing at ten, and this time was pricing at fourteen and a half.
Jason: A snowball is the income note where the coupon is aggregated and paid after the end of the year. Right?
Phil: Yep. Yep. Yeah. And then, and we just kinda like that we like that structure, and it it priced out well. And, again, decent side protection, and we just feel, look, in the end, itโs all about getting the return for the the unit risk that youโre taking. And we just felt weโre being rewarded for the risk that weโre taking in that particular note.
Jason: Are you looking to go shorter dated notes or longer dated notes in this market or not a huge preference?
Phil: We typically donโt really have a huge preference. I think, you know, I think we typically donโt do less than three, and we donโt do more than five. So weโre always gonna be I shouldnโt say always, but a lot of times in that three to five year five three to five year range.
So I think weโll just feel like, you know, if we if weโre gonna get leverage, Iโd want leverage for a little longer. Right? I mean, just because marketโs gonna go up over time, so our growth note with leverage, you know, we you know, that was five years because we wanted that to be you know, we wanted the we want that thing to cook for as long as possible.
Jason: Thatโs what I do as well.
Phil: Yep. And then on a snowball, we actually happen to make that five as well because itโs just where it priced out really well. Sure. And quite frankly, you know, if I can get that every year, all it takes is for one of those indices to be down a penny, and Iโm Iโm gonna roll, you know, roll that coupon into the next year.
Jason: Do you remember the yield you were getting?
Phil: Fourteen and a half.
Jason: Wow. And what do you tip what would you typically get on that? Probably, like, around ten or eleven. Iโm seeing, you know, thirty to forty percent higher.
Phil: Yeah. We were we literally just priced this, a few weeks ago, you know, called before quarter end. I think it was, like, ten or ten and a half.
Jason: Wow. So, yeah, thirty to forty percent higher.
Phil: Yeah. And then and then the, you know, obviously, the industries are down quite a bit more from then. Right? So, my downside isnโt my downside isnโt as large as it was three weeks ago, unfortunately.
Jason: Yeah. Well, you know, I think itโs, itโs all about being able to play offense for your clients in times of uncertainty just as much as it is about playing defense. Yes. And, usually, one, two, three years out, we look back and we are sure glad that we were able to dip our toe in the water. And so, Phil, I know that youโre really busy with your clients.
I know our clients really appreciate the opportunity to hear the perspective of someone whoโs also in the trenches right now managing client emotions in political conversations, in a very challenging time, and we appreciate you taking the time to come speak with us today.
Phil: Yeah. My pleasure, Jason. Anytime.
Jason: Yeah. Thank you very much.
Phil: Alright. You bet.
Please see our Halo Disclosure Page for important disclosures.
An investment in Structured Notes may not be suitable for all investors. These investments involve substantial risks. The appropriateness of a particular investment or strategy will depend on an investorโs individual circumstances and objectives.
Content and any tools discussed are provided for educational and information purposes only. Halo Investing makes no investment recommendations and does not provide financial, tax, or legal advice. Any structured product or financial security discussed is for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular product or service.
