Jefferson National and Exceed Investments Partner to Launch VIT

We are pleased to announce a partnership between Jefferson National, innovator of the industry’s leading tax advantaged investing platform for RIAs and fee-based advisors, and Exceed Investments, a pioneer in defined outcome investing. The alliance will combine the benefits of Jefferson National’s unique Investment-Only Variable Annuity (IOVA) with Exceed’s investment method of providing market exposure with defined, preset protection levels. Jefferson National will issue our first co-branded Variable Insurance Trust (VIT) in early 2016.

To learn more about the Jefferson National and Exceed Investments partnership, click here for the press release.


Nasdaq Exceed One Year Index Performance Review

In September 2014, Exceed Investments and the Nasdaq launched the first family of defined outcome indexes (Here’s our original blog post on the launch). The indexes allow investors to access defined outcome investments within a wide range of investment solutions, providing public markets with:

  • Shaped exposures to the S&P 500, allowing investors to pre-define their preferred risk metrics and thereby experience a controlled investing experience
  • Widespread access to strategies generally only available to institutions and ultra high net worth individuals via insurance or banked wrapped programs
  • A liquid and diversified portfolio of securities that is regularly rebalanced

With one year of performance under our belt, it is worthwhile comparing how the indexes did vs. their objectives and the back testing we conducted on each of them.  As expected, each index did what it was supposed to when it was supposed to; please take a look for yourself:


Response to a Biased Article on Structured Notes

I recently came upon a Seeking Alpha article by Alliance Bernstein titled Structured Notes: Read the Fine Print. The article expressed a fairly negative and, in my opinion, inaccurate view of structured investing based on an analysis of one structured note in particular. As an experienced structurer and trader prior to founding Exceed Investments, I’d like to help set the record straight.

The article analyzes a 5-year 28% buffered note on the S&P 500 as an example. While they do not share a link to the terms, the note is similar to, if not exactly the same, as this note.

First, let’s briefly consider what a structured note is and discuss its purpose.  Structured notes are an example of what I call “defined outcome” investments, which are options-based strategies that allow investors to shape a risk/ reward exposure to fit their personal objectives. In these strategies, market participation levels are preset. Therefore, the targeted downside participation is known in advance, as is the upside potential.




The unpredictable nature of the market can be terrifying. Any hint of volatility sends skittish investors in search of skilled managers to guide them through pending storms. But even when armed with a sound strategy, investors are vulnerable to fear of potential loss and could jump ship if doubt begins to seep in. That means managers must do more than just identify the right game plan. They must also consider investors’ confidence level in a strategy, and their willingness to ride it through the turmoil, to stop an exodus from the market.

We know from behavioral finance studies that investors feel the sting of loss more acutely than the thrill of gain. Recent reports indicate that the threatened loss of assets drove investors to squirrel away more money in cash allocations to protect from a downswing. Cash levels have increased to their highest point since the 2008 crisis at 5.5 percent of portfolios, according to the Bank of America Merrill Lynch Fund Manager Survey for July. That spike in risk aversion came amid weakening economic confidence in China, worries over Greek debt, and frustration over a low-interest-rate environment.




The investing world is slowly but surely getting a little scarier as flashpoints are adding to the unease of an already longer than typical bull market. Is there contagion from Greece? What is going on in China’s equity markets?  And lets not forget Puerto Rico’s potential default.

Most investors have pressure to generate returns while simultaneously avoiding disasters. The problem is that without a crystal ball, the only way to generate returns is by taking on risk. There is simply no way around this. “High return, low risk” products brings out the skeptic in me – trust me, there is risk somewhere within the package that is applicable to the return. If the risk is not well understood or seems too good to be true it may be best to simply stay away.



A New Way of Thinking: Defined Outcome Investing as a Means to Mitigate Aversions

The average investor defines and mitigates risk in ways that do not align neatly with classical financial theory. Deeply ingrained aversions to loss, risk and ambiguity often lead to investment decisions that clash with the imperative of maximizing risk-adjusted returns. Indeed, a growing body of research in behavioral finance confirms that cognitive biases can materially and adversely affect portfolio performance.

But no amount of research will transform how and why human investors make decisions. Ultimately, the typical investor wants more security, predictability and transparency than has traditionally been available in the marketplace. That unmet need results in a disconnect between portfolio performance optimization and investor behavior.  A solution can be found in defined outcome investing strategies.

Follow this link to access the full white paper.


Joe Halpern Published in Bloomberg: Currency Hedged: ETFs vs Structured Notes

I recently had the opportunity to provide a “deconstructed note” column for one of Bloomberg’s periodicals – the Bloomberg Brief, April 30 2015 edition. In the article, I compare currency hedged ETFs to a popular structured note following a global basket of indexes and offering currency hedging. While content at Bloomberg Brief is typically behind a paywall, the editors at Bloomberg were kind enough to provide a link for our readers to access:

Guest Commentary: Favorable Forwards Make Currency-Hedged Notes Look Enticing


Joe Halpern Published in NASDAQ and Wealthmanagement.com: Thoughts on Dealing with Volatility and a Lengthy Bull Market

With market volatility picking up in recent months, coupled with a bull market that is now 6 years and running, a few themes have been top of mind with the investing community. I wanted to share a number of recent articles that I’ve published touching on some of these themes and the relevant role of defined outcome investing.

Wealthmanagement.com as well as Nasdaq published Beyond Active vs. Passive: A Third Way for Investors, an article in which I explore how the lines have blurred between active and passive investing, driven by the new wave of more sophisticated indexes that have recently hit the market. Defined outcome investing is one of those strategies. The use of rules-based defined outcomes to achieve Alpha provides an alternative to actively managed solutions. Traditionally, investors choose between Alpha-seeking active managers and passive rules-based solutions which deliver beta or some variation thereof. The prevailing wisdom is that in straight up markets passive is the way to go but when markets get choppy, active managers often outperform. Defined outcome investing provides a rules-based solution which can lead to successful market navigation regardless of clear or choppy conditions, with lower fees and less human subjectivity than traditional active management.



Cake, Ice Cream and Protection

The other evening my wife and I had a couple over for dinner. Over the course of the evening we got to discussing what my company’s indexes, the Nasdaq Exceed index family, were created to do. My nine year old daughter piped up and said “explain your products in terms of cake and ice cream.” I decided to take on her challenge. I explained that imagine she had this delicious piece of cake and she was about to eat it but it fell on a dirty floor. With our product, I explained, you would lose a sliver of that cake but would still be able to eat a lot of it. However, in exchange for that protection, even if that cake did not fall, she would have to give up a little of the cake to protect it from calamity. While the adults around the table were impressed with the analogy, my daughter, less than satisfied, asked me what happened to the Ice Cream?!


Loss of a Great Visionary

The derivatives world has lost one of its biggest innovators and most important visionaries – Ivers Riley.

Ivers had a hand in almost every transformative moment involving listed equity derivatives since their inception in the 1970s. He played a key role in milestones as diverse as the approval of listed puts, the creation of the Options Clearing Corporation, the development of ETFs, and the advent of electronic trading. Investors the world over benefit from the high level of transparency and liquidity that his efforts put into motion over the last several decades.


Enjoying the thrill of investing without the dangers: Controlling your Risk / Reward Exposure

The Kingda Ka roller coaster is one of the largest and perhaps scariest roller coasters in the world. After a fear invoking pause, it launches out of the gate, achieving a speed of 128 miles an hour in 3.5 seconds. It then goes 456 feet in the air before plummeting back down. Sounds like great fun for screaming teenagers (Alas, I’m past the age of appreciating the ride).

Airplane rides through turbulence also tend to shoot up and down, but they don’t seem to capture this same delight – more often than not, passengers are frequently annoyed and genuinely terrified.

One critical difference between a roller coaster and an airplane is how controlled the environment is. A roller coaster is a thrilling but controlled experience – as scary as it may seem, people know exactly where it starts and ends. In between those, riders get to shoot up and down and flip around in a safe environment.

An airplane ride is not a controlled environment. Turbulence is unpredictable and often uncontrollable, and there is always the small but real risk that the pilot really does lose control of the situation.