At The Money: Deregulation Will Free Your Portfolio

**Michael Gayed** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Barry Ritholtz** (0:33)
Exactly one year ago, the Free Markets ETF launched, ticker symbol FMKT, designed to invest in companies expected to benefit from deregulation and free market dynamics in the second term of the Trump presidency. I was intrigued by the concept and wondered what it might look like in the second half of this term. To help us unpack all of this, let's bring in Michael Gayed. He is the Portfolio Manager for Tactical Rotation Management, one of the sub-advisors to the Free Market ETF. Michael, I was intrigued by this concept. What was the original insight behind FMKT?
How was deregulation becoming an investible theme that perhaps markets were underpricing?

**Michael Gayed** (1:24)
Yeah, it's interesting. When Trump got elected, I've got this large network of advisors that I talked to, 350 advisors that I regularly talk to, which is why my calendar is always so jammed. One of the advisors said to me, it would be good at investment ideas, something that focuses on deregulation. He was saying it off the cuff. I give the guy credit for coming up with the idea. It's like, that's actually an interesting idea. Deregulation arguably makes the time to market faster. It increases margins. It should benefit earnings from a fundamental perspective. It should increase competition. All that sounds like an interesting thesis.
I called up three other firms. One, which is the advisor, Title Financial Group, and then two other RIAs as sub-advisors, people that I've known. I wanted to approach this more from the AVC standpoint. My other funds I launched on my own. This I want to actually have partners on, because this is a very different way of my style of investing, which is more risk on risk off historically, and came up with the idea and said, okay, well, let's go after. Now, when I was thinking through the idea, it's like, all right, Trump is making it very clear that he's going to go for this, for every new regulation you want, I want to cut. He goes from that to, for every new regulation, I want 10 cut. He's actually gone more aggressive on that since he was elected.
Come up with a fun idea, figure out what sectors, what industries benefit the most from deregulation.
That has to be active because these executive orders come out and you don't know what's going to be deregulated next, so you've got to focus on that as quickly as possible. Now, deregulation is a very interesting buzzword. You hear a lot of people on the media talking about deregulation as a big tailwind for the broader markets. I do believe that if you look at why has the US outperformed Europe so much, it's not just because of tech, it's because we don't have as much regulation as Europe does. Regulation is a stopping point, is a friction that hurts earnings and tie it to market.
Came up with the idea for free markets. It's an active fund, stock picking. A lot of the focus is around sectors like industrials, financials, cannabis, nuclear, anything in the aerospace part of the marketplace. Not so much tech. Maybe we can touch on that. We believe that tech is probably going to be regulated, and maybe AI in particular would be regulated, especially from regulatory perspective in our business, the investment advisory business. But out of the gate, we had some pretty strong performance. About a year ago, we launched, we had 400,000 traded shares on day one, a lot of interest in that. We had really strong performance. We were a thousand basis points over the S&P at some point. That ended up being a blessing and a curse, because obviously nothing closes a sale like a chart. People started chasing the performance of FMKT, and then we had a drawdown as we got back to AI is the only play in town. Right now, we're meandering, but I do believe that the deregulation theme is here to stay. Even if you get a Democrat as president next go-around, the reality is industries that have less regulation should at least theoretically outperform.

**Barry Ritholtz** (4:16)
So, let's stay with that concept of deregulation.
How do you define what sectors benefit from deregulation? And then how do you hone in on what companies within those sectors are going to be the biggest beneficiaries?

**Michael Gayed** (4:30)
So, arguably, it would be very hard to do either of those outside of using AI, which we actually built out a whole workflow and AI screening process to figure out exactly that, which sectors, which industries benefit, which individual companies are mentioning deregulation the most in earnings transcripts. So we've got multiple kind of filters that are looking at valuation, that are looking at where SG&A is impacted by regulatory costs. And it's in some way that you can argue it's obvious, right? It's like, think about industry-wise, sector-wise, what has the most regulation?