It seems only appropriate to be interviewing Ben Fulton, CEO of WEBs Investments Inc, in the snowy mountains of Utah, as he sits in front of his roaring fire.
He describes his start up ETF offering, launched late 2024, WEBS Defined Volatility ETFs (DVSP & DVQQ) as nest thermostat products, designed to protect their underlying portfolio, whatever the weather.
The ETFs dynamically adjust exposure to equity markets based on real-time volatility, aiming to provide a smoother investment experience. The ETFs are designed to automatically adjust exposure to maintain a stable risk level.
During calm, low-volatility markets, exposure increases using total return swaps to capture additional growth opportunities, and then during high-volatility markets, exposure decreases, shifting toward cash and US Treasuries to help cushion against potential losses.
Fulton has 30 years of experience in the ETF industry, mostly working with advisers and investors. He spent some time working in the leveraged ETF business and realised that there are times when leverage is appropriate and also times when risk needs to be reduced.
Fulton and his partners, Keith Cunningham, Kevin Rich and Tony Trevisan, have about a century of experience of the ETF industry between them, and they have created a model that at its core has a disciplined approach designed so that when risk is low it can enhance the returns and when it is high, it hits the exit.
“We are looking for investors with at least 18-month time horizons,” Fulton says. Given the markets that they have launched their product into, with the VIX surging more than 10 per cent, their timing seems excellent.
“We have been picking up interest over the last few weeks as people say it makes a lot of sense,” Fulton says. “We are getting sponsors of ETFs coming to us and saying how do we partner with you to use our product and create a version for us.”
The initial two products are based on going long SPY and QQQ and over the top of that is a swap with the firm’s counterparties. The plan is to expand through the extended family of each product.
“We are a volatility overlay manager and could do it on any asset – we are indifferent,” he says, adding that the overlay would work on bitcoin which has 75 per cent volatility, enabling it to be normalised within equity ranges of volatility.
“People tend to have fear and greed, not just the one,” he says. “People say: ‘I want to participate and manage my risk.’ They want to have their cake and eat it.”
Fulton has noticed that advisers who run larger sums of money and have become almost institutional recognise this as an institutional-type tool. “They tend to be quicker and ask lots of questions. Our product will have no problem with being scalable because they are two of the most liquid ETFs in the world.” However, the products need to grow to match that. “We need slow, steady growth,” Fulton says.
Advisers also ask why it wasn’t done before and that was due to the regulatory regime which did not allow this before, Fulton says, but also notes that at times they will be going above one times exposure which is new to the field.
“If you could build a disciplined model that said we are doing something – observing what’s happening and realise that you want exposure to an index we can manage daily to keep you at a defined volatility level then you should sleep better at night and be able to participate when the markets begin to go up again.”
Current markets are experiencing what Fulton calls ‘non directional chop’, saying this is wearing on everyone. “If you look at the last three months, it’s been a strange period of time with the headlines everyday changing – it’s been non-directional with lots of noise, lots of volatility but no high volatility. It’s so unpredictable which wears people out.”
