ETF Author Max Isaacman Likes DGS, SPHB and More

Max Isaacman has been a broker and investment advisor for 45 years. He was a financial consultant at Merrill Lynch, a partner and office manager at SG Cowen, and a vice president at Lehman Brothers. Currently, he is a Registered Investment Advisor with East/West Securities. His fourth book, Winning With ETF Strategies is available in May, and Isaacman spoke to Benzinga to tell us all about it. What led you to write the book?
The main reasons were that the market was really doing badly, and despair was everywhere. I've been working on the book for three years, and I started work on it before the terrible crash. The thing is, we had a lousy market and I thought, it this going to continue. I went back and found work that showed that, usually, the equities beat other bonds over a ten year period. I had to show in my book how, in past decades, equities almost always beat bond except this last decade - 2000/2010. Equities lost to everything, including treasury bills of all things. Gold outperformed, and that had been dead for ten tears. Everything outperformed equities and I thought, this just can't go on, and that's why I wrote the book. I made the point that equities in 2010-2020 would be a far different story than the prior decade because it just had to be. Then I followed along with it and thought, what good does that do? I have written books on ETFs, I use them for my money management and myself. I want to develop the ETF thing, which is so developed. ETF's came out to replicate the market, meaning the S&P 500. Of course, you had your cap-size also. You had your S&P mid-cap and your S&P small-cap, and that was it. Well, the second revolution was that ETFs came out to beat the market. By that, they would make market bets. If you're gonna beat the market, you'll make market bets by however you want to make it. By your exposure, by risk exposure. What markets you want to be in. Do you want to be in small-cap, or China, in natural resources - that's your bet to beat the market. I wanted to put in also the really unique ETFs that were coming out. It used to be that people would not have access to these kind of strategies, and now they did, fairly cheaply through ETFs. Then I thought that it's not just me. There are money managers out there who really use ETFs, and know how to use them. I wrote the first book on ETFs and that wasn't that long ago. That was about 12 or 13 years ago. ETFs have really developed and broadened since then. I picked 23 top managers to help me out. They were all credible and had good strategies. I got their thinking and put it in the book. The thing is, a person picks up the book and the first two parts are ok. They can see that the market's going to go up over the next ten years, they hear that's my view. The other thing is yes, ETFs are extraordinary securities. The departure seems to be somewhat that they read about what the managers say, and they don't know how to interpret that. The thing is, it's important for an investor to know how to interpret what the managers are saying. The point is, the managers are not saying, 'this is a hot stock and it's going to go up next week', or 'this sector's really hot and it's going to keep going'. Because, as we know painfully, when sectors are hot or stocks are hot, then they crash. These managers don't take that view, and they all take subtly different views. They all have strategic allocations, they have ways that they use ETFs, their attempting to outperform the market (most of them), but the thing is to read their thinking to see how they invest and why. There are nuances there. Investors, if they're investing $10,000 or $10 million, this is pretty much how they're thinking should be, which strategically what do you want to do, how do you want to do it, what's your approach? The other thing is that buyers of the book might be looking for money managers to handle some or all of their money. That's why I wrote the book, because I felt that this wasn't getting exposed. The thing is, you can turn on the TV and see what's hot but studies have shown that that's not the way to do it. Studies have shown that pundits that are on TV don't have the best track records. More than that, it's the thinking that goes into it. We're not investing for today or for tomorrow. I mean, you can with a small portion of your assets if you want to play that way, but to be serious about it, you have to take the view of, where is the market, where's it going to go, and what sectors do I want to be in, what cap-size do I want to be, what regions do I want to be in? Almost always, you're being a contrarian. You have to be. Anyway, that's why I wrote the book. Who is it aimed at?
I think all investors. Anybody investing in the market or considering it should read the book, no matter what age or how much capital they have to invest. In this day and age, if you're going to invest, there's so much misinformation out there, and there's so much information. The thing is, what can you do? For 200 pages, you can sit down and read where I think the market's going to go and, better than that, where empirical evidence says the market's going to go. It's concise, it's got charts, and it's friendly. The other thing is, what are ETFs and why should I use them? And then, sit down with these managers and read what their thinking is. These people are quoted - it's not dry and it's easily understood. I think anybody that's even interested in the market should sit and read it. I really believe that. How did you pick the asset managers that you interviewed? Did anyone say no?
Yeah, a lot of them did. Busy guys, didn't get it, didn't want to participate for whatever reason - the thing is, it takes time to put together these books. It takes intellectual energy. You have to find the right people. My feeling is that the people I found really have a passion for it, love it, and want to talk about it. I dropped people too, where I saw that the credibility wasn't there or where the information didn't feel important. I wanted to have 20 and ended up with 23. With all of your experience, did even you learn things while conducting the interviews?
Yeah, I really did. Every book I've written, I think I write them to learn. It solidified what I thought, and took the complexity out of that and kept it simple. What I got out of it is that everybody has a different view, but the thought process is there. In 23 managers, there are 23 thought processes. So I learned quite a bit. ETF investing is fishing. It's using the best fishing rod in the investing pond. What ETFs do you like right now?
Right now, I really like the Standard & Poor's High Beta because I think the bull market is coming. It's not for the faint of heart, but I like the concept. Pretty much how I look at it is, do I like the idea? PowerShares came out with this and the symbol's SPHB. If we have a bull market, I think it'll outperform. I like DGS, which is Wisdom Tree's small cap dividend paying ETF. I like that a lot. Will emerging markets experiencing high growth continue? I don't know, but you're not paying a high premium. I like NFO, which is Guggenheim's buyback ETF. I like the idea. They determine which company's top managers are buying back company stock. That's on the radar screen, and they also take earnings into consideration. It's really performed and I still like it. I like the NASDAQ 100. You could buy the IJR, which is the small cap of iShares. EEM is good. That's iShares big emerging markets. They've just come out with a small cap, which is EEMS. There's not much volume in it, but volume's starting to increase and I like it. They're volatile, and you might have to hold onto them for a while. I own them, and my clients may own them soon. I want to give full disclosure. All of the ones I own, and I own them because I believe in them.