Lead-Lag Live

Breaking the 60/40 Rule: Matthew Tuttle on HEAT, AI, and Thematic Investing

• Michael A. Gayed, CFA

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In this episode of Lead-Lag Live, I sit down with Matthew Tuttle, CEO and CIO of Tuttle Capital, to talk about why the 60/40 portfolio no longer works — and how his HEAT formula helps investors adapt to today’s market realities.
We dig into why bonds fail as a hedge, how AI is reshaping investing, and the thematic opportunities most people are missing — from old economy AI plays to the future of space.

In this episode:

- Why bonds aren’t a reliable hedge anymore
- How the HEAT formula works — hedges, edges, asymmetry, themes
- Using leveraged and inverse ETFs strategically
- Thematic investing in AI, crypto, and space
- How AI is leveling the playing field for retail investors

Lead-Lag Live brings you inside conversations with top financial minds shaping markets in real time.

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Speaker 1:

And again, if you think bonds are a hedge, look at the Liberation Day sell-off. What happened to your bonds? Look at 2022. What happened to your bonds? What companies are taking this technology and using it, like you know a Walmart or someone like that to enhance? We're going to be launching a bunch more.

Speaker 2:

Hi everyone and welcome back to Lead Leg Live. I'm your host, mel Schaefer. Today I'm joined by Matthew Tuttle, ceo and CIO of Tuttle Capital. Matt, it's great to have you here. Thank you for having me. So, matt, you've become well known for leveraged and inverse ETFs, one of the most well known on financial Twitter acts, but against a big name, jim Cramer. But I guess not everyone understands why those tools were even, or why do they even exist. Can you start by telling viewers what these products are, and what do you say to investors who question whether they need to have them in their portfolio?

Speaker 1:

Yeah. So you know, we definitely see a lot of pushback from people on single name, levered and inverse ETFs. How can you have an ETF for a single name? Leverage is bad, oh my God. And really, what these are are tools, and I am a big believer that more tools are better. Now, does that mean everyone is going to use the tools the right way? No, but you know we strive very hard on things like this and through our website and I'd write a daily newsletter to try to educate people on how to use things.

Speaker 1:

You know, obviously these are designed to give you 2X of the upside or the downside for one day only Doesn't mean you can't hold it for more than a day. It just means you hold it for more than a day. You might do better than 2X, you might do worse than 2X, you might do worse than 2x. It just depends on the glide path of returns and you know I like to look at these in a bunch of different ways. You know, if you're bullish on a stock that's maybe trading at, you know, 500 bucks a share and there's a levered ETF trading at five, you know it allows you maybe to buy into a stock that you wouldn't have been able to buy into.

Speaker 1:

Same thing on the options you know the options on a stock trading at five hundred are going to be more expensive from a premium standpoint than the options are in a stock. You know something trading at like five. I also look at it as an options alternative from the standpoint. You can't trade options in after hours and pre-market. You can trade levered and inverse so and we see ahead of earnings a spike in volume in our ETFs, especially like right after earnings post-market. You know people may be trading the ETF. They can't trade the options. So there's a lot of different uses for these things and they're just tools.

Speaker 2:

Yeah, and maybe tools more for the sophisticated investor. But I mean, you're doing some things to try to educate investors and I wanted to talk about the heat formula and investment strategy. I know you're writing a book about what inspired that framework in the first place and you know why do you think it matters so much right now?

Speaker 1:

Yeah, so I have seen a lot. What I have not seen is a whole lot of changes in what people are taught about investing, which doesn't make any sense to me because market dynamics are constantly changing. Like the 60-40 portfolio was developed in the 50s and people still use it today, even though it obviously and you see articles from time to time it obviously doesn't work. So that's what inspired me. I used to have a wealth management firm and we would teach people these concepts. I got into ETFs, I got out of wealth management, but nothing's changed. So we're actually we're starting up a wealth management firm again because I'm sitting here saying you know, man, what's out here still sucks. You know, someone needs to do something about it.

Speaker 2:

So can you talk about what does that stand for HEAT? Can you talk a little bit about the philosophy and how you're putting it to work?

Speaker 1:

So yeah, the acronym H-E-A-T H is for hedges. I am a big believer that you should always have hedges because you cannot predict the market. Look at the past couple of days. I mean doom and gloom on Friday, then everything great on Monday, sell off again yesterday and now a big rally again today. I mean good luck figuring that stuff out Now. But I'm also a big believer.

Speaker 1:

Bonds are not a hedge. For something to be a hedge, it has to work every time, not every once in a while, because how can you sleep at night saying no, all right, I'm hedged, but I don't know whether my hedge is going to help. And again, if you think bonds are a hedge, look at the liberation day. Sell off. What happened to your bonds. Look at 2022. What happened to your bonds? So that's the H Edge. E stands for edges, meaning you should look for edges. Those could be structural, those could be an investment philosophy that's got some sort of moat to it, or it could be behavioral. Is buying quotes on the VIX exchange traded products? Because of how they're structured and because of the fact that VIX needs a reason to stay elevated, those products, if they did not reverse split all the time, would be trading at like a fraction of a penny. So most of the time I'm going to own puts on those things.

Speaker 1:

A strategy edge we run a fund for these guys called Brendan Wood, and Brendan Wood's philosophy is they go out and they interview thousands of the top money managers in the country and one of the things they ask them is what stock or stocks are you going to be buying more of or buying for the first time over the next three to six months? And they compile the top 25. I call that an edge with a moat because you and I couldn't do that. I could call up Steve Cohen hey, steve, what are you going to be buying? He's not going to talk to me. Why he's talking to Brendan Wood is they put together these massive reports that if you talk to them you get their report, so nobody can arb that edge out. A behavioral edge is something like RSI. So Larry Connors kind of discovered or created or modified, let's say, rsi in the early 90s. We said look, two, three or four period RSI is predictive and it still works. And it still works just as well today as it did in the 90s, because that is a behavioral edge based on the fact that individual investors tend to overreact both ways.

Speaker 1:

Asymmetry is the A. That means you should design your portfolio and your trades to be asymmetric Heads. I win a lot Tails, I lose a little. We run a pre-merger SPAC ETF, spcx. I love SPACs as an asymmetric trade, a pre-merger SPAC, because you know your downside is whatever cash and trust unlimited upside, call options, same deal. I know my downside unlimited upside. And if you look at the top investors of all time, these are guys who know you cut your losses short, you let your profits run. And then the last one is the T, which is themes you want to be invested in today and tomorrow's top themes, not diversified by style, asset class factors, any of that stuff. You want to be diversified by whatever the top themes are today and you want to have a sense of what those are going to be tomorrow. So that's the HEAP formula.

Speaker 2:

Yeah, so talking more specifically about themes, can you talk about some of the ETFs in your current lineup that investors could look at to cover the T in AT?

Speaker 1:

So we're going to be launching a lot more in that regard. One of the ones we have is the Laffer-Tangler equity income ETF and it wouldn't sound thematic I mean, what's thematic about equity income? But Nancy Tangler runs that ETF and one of the main things she's looking for is old economy companies that are benefiting from AI. So that's a theme and that's a way I like. I mean and I've got all the AI companies as well but I like playing it from that aspect. You know, all right, we know NVIDIA is the AI winner, but what companies are taking this technology and using it like you know, a Walmart or someone like that to enhance? We're going to be launching a bunch more thematic ETFs. We've kind of come up with a couple of twists. It's just taken us a while to get those out. We'll have those out soon.

Speaker 2:

Yeah, and so Matt. Another thing I just wanted to hit on briefly. I know Rex shares in Telecollaborated to bring the T-Backs ETFs, I think most recently expanded to include some big names like Roblox and the front media. How does building leveraged ETFs around these sort of high profile stocks and even crypto products fit in to the heat formula?

Speaker 1:

we're definitely looking at thematic names because the market has really changed and retail investors get it. You know, the institutions I think are coming. I mean I was talking to a hedge fund manager the other day who was running a fundamental strategy. In the past couple of years They've had trouble and the guy was like man, when did this market just get thematic? Welcome to the party, pal. I mean it's been that way. I don't think it's changing. So when we're looking at single names, we're trying to align with the major themes out there. So obviously AI with, you know, nvidia, crypto with MSTU and BTCL and ETU, and then some of the crypto treasury stuff DJTU, you know, gmeu for GameStop, you know. Looking at some stable coin stuff, you know we've got we just did CoreWeave, we've got Circle coming out. So we're looking at these thematic names because the guys trading this stuff realize it's not large cap, small cap, growth value anymore, it's thematic.

Speaker 2:

Yeah, and so you've mentioned AI a couple of times and I want to talk about it in two different ways. So in the first way, how do you think it's changing the investment landscape, not just for fund managers, you know, like yourself, but for everyday investors?

Speaker 1:

So what it is doing is further leveling the playing field. So back when I started investing, it was all about fundamental analysis and if I were smarter than you and was willing to work harder, I was going to uncover stuff that you weren't, because you had to work. I mean, I go to library, read reports, call company management, all of that stuff. The internet started to change that, bloomberg started to change that, and now AI is. I mean I can't imagine why you would employ fundamental analysis anymore. Are you going to, from time to time, find some hidden gem? Sure, are you going to do it consistently? I doubt it. I mean, with AI at my fingertips, I have the world's smartest analyst who, in five seconds, can do what you and I would take hours to do and look at it in an unbiased way. So I use it to help kind of design my portfolio and I'll throw brokerage research reports in there.

Speaker 1:

And it was interesting one day and it just kind of hit me where, you know, I threw a brokerage report in there, said you know, hey, look, and anything I should pay attention to here. It was like you know, yeah, if I were you, I would sell this stock which it knew I owned because it knows me and I would buy this stock. All right, interesting, and actually it was a stock. I was looking for an excuse to sell and a stock I was looking for an excuse to buy, so I did it, but afterwards I was like holy crap. An excuse to buy, so I did it, but afterwards I was like holy crap. So for $200 a month I've got the world's smartest investment analyst on my computer who just gave me personalized investment advice, totally unbiased, because it knew what my portfolio was, it knew how I thought about markets and it looked at research and said, matt, if I were you, I would do this because I know you.

Speaker 1:

That's a game changer.

Speaker 2:

Yeah, it is. And then so, on the flip side, in terms of investing, where do you think we are within the AI cycle? Are our evaluations starting to get too stretched, and what do you look at to judge that?

Speaker 1:

So we just today in our newsletter, wrote about the possibility of a bubble. That's always there, you know. In AI, you know. The problem is, you just don't know. So you know, are the valuations stretched? Yes, you know. When are we going to see the benefits from all this capital expenditures? Who knows? Are we going to the benefits from all this capital expenditures? Who knows? Are we going to see benefits from all these capital expenditures? We don't know that either.

Speaker 1:

So I think you've got to take a measured approach here. So you've got to be in these names. I think you want to do it asymmetrically. So again, I like doing it with call options. If I buy $2,000 worth of NVIDIA call options, I know my maximum loss is $2,000 unlimited upside.

Speaker 1:

You want to have hedges because you're not going to be able to time it, but you also don't want to go crazy because you could be right, we could be in a bubble, and you know after the fact it will be obvious. But sitting in it it is. It is tough, you know I do. The cool thing about the heat formula is you can dial it up, dial it down. For me personally, I run a very conservative version. I'm at a stage in life where if I were up 50%, it's not going to change my lifestyle. If I'm down 50%, that's going to suck. So I'm running it very conservatively. I don't really. I mean I do, but I don't care that much if we're in a bubble. The way I've got my portfolio set up, I just think you've got to be careful because you're not going to know about it until after the fact.

Speaker 2:

Yeah, and so I just want to. I want to hit on the thematic investing just one more time. You've always sort of had an eye, I guess, with themes and you're a bit ahead of the curve when it comes to that sort of thing. What are you watching right now that maybe others aren't paying enough attention to, right?

Speaker 1:

now that maybe others aren't paying enough attention to. So I think maybe the biggest area that people may not be paying attention to is space, and so we do a podcast as well, and we just we had someone on talking about Space Force yesterday. We had someone on a couple of weeks ago runs a company that transports things to and from space and interestingly, I did not know this which is why it's cool to have a podcast and have cool guests is there are a bunch of things that you can't make on Earth because gravity screws it up, like you know all sorts of artificial, like eyes and you know ligaments and things like that, and then there are other things that gravity makes more difficult. So we're going to eventually have a whole bunch of stuff in space which creates a massive economy because you've got to get stuff up there. But then why? I wanted to talk to the Space Force guy. If I put a data center in Indiana and say North Korea wants to blow it up, how are they going to do that? They're going to invade the US and march all the way to Indiana. Good luck with that. If I put something in space, then they just send one of those James Bond satellites and it eats it.

Speaker 1:

So now we need to defend against that. So you've got this whole group of all right. Who are the companies that are going to be building these things? And then what we teach people about themes is you've got to look at it in layers. So the first layer is all right who are the winners? But then who are the suppliers to the winners? Who are the suppliers to the suppliers? Who are the companies that are going to use this technology to improve their revenues? Who are the losers? So you've got all right. I mean, who are the companies transporting stuff to and from? Who are the next level defense companies building things that are going to defend all this stuff? So that's a theme that I'm really excited about.

Speaker 2:

Yeah, so looking beyond, I remember during the COVID times when space was all about just trading a Virgin Galactic, which didn't end up so well for everyone who bought back then. But, matt, before we wrap up, where is the best place for people to follow you or learn more about what you're doing at Tuttle Capital?

Speaker 1:

Yeah, so my website is TuttleCapcom. We do a daily newsletter about some sort of heat formula concept. The signup is on there. I'm pretty active on Twitter at Tuttle Capital, so those are probably the best places to find me Great, Matt Well, thanks for joining me and thanks to everyone for watching.

Speaker 2:

Be sure to like, share and subscribe for more episodes of Lead Leg Live. I'm your host, Mal Schafer.

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Michael A. Gayed, CFA

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