Rainwater Equity ETF Invests In Recurring Revenue Businesses: Shaposhnik

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00:00This is sort of an old-school stock-picking ETF, a concentrated portfolio of high-conviction names.

00:07And Joseph, as I understand it, you're going after recurring revenue businesses.

00:12That's right. The portfolio is dedicated to investing exclusively in recurring revenue businesses.

00:19And that happens to be waste collection businesses, software, stock exchanges,

00:25all types of businesses that are recurring aftermarket aerospace parts.

00:29The kinds of products that companies will be able to see revenue come in on a very regular basis

00:36without them having to guess as to when revenue will be coming in.

00:39We think that advantages them significantly, not just domestic businesses, but as you mentioned in the lead-up,

00:46small-caps, international companies, everywhere we can find high-quality recurring revenue businesses

00:53that generate cash flow, we're on the hunt for them.

00:56And let's talk about what I mentioned earlier, the concentration of it.

01:00You said the mutual fund industry is broken, and a big reason is so much closet indexing going on.

01:06You clearly aren't doing that here.

01:08Can you talk about why you decided to be 27 stocks, very concentrated, and what that does?

01:14Yeah, I do believe the mutual fund industry is broken.

01:18If you look at the industry, 93% of mutual fund managers underperform on nearly any time frame,

01:25one-year, three-year, five-year, ten-year basis.

01:28And the reason for that, I believe, is because most mutual fund managers look at their index,

01:34and they try to come to a conclusion on each individual stock in that index.

01:39We think that that just doesn't work, and that you can't have an opinion on every business in your index.

01:47So instead of doing that, what we did at the old fund and we're doing in this fund

01:53is we're focused only on those businesses we think we can predict,

01:56which are recurring revenue-oriented companies.

02:00Now, in order to be able to outperform as we did in the prior fund,

02:04we have to stay focused on those businesses that we have highest conviction in,

02:08and that happens to be around that 20 number of stocks.

02:13And so historically, we've been able to generate better risk-adjusted returns

02:17with a more concentrated portfolio than a portfolio that owns hundreds and hundreds of stocks

02:23the way most other funds do.

02:26And so we're going to be able to do that, and we're going to be able to do that.