Frequently Asked Questions

About Build

Who founded Build and why?

Build Asset Management was founded by John Ruth and Matt Dines in 2018. Mr. Ruth earned a degree in marketing from the University of Missouri and has over a dozen years’ experience as a Financial Advisor.  Mr. Dines has an MS in Finance from Washington University in St. Louis and is a CFA® charterholder. 

John and Matt asked themselves an audacious question coming out of the 2008 Global Financial Crisis and its aftermath: how can investors avoid losing their hard-earned money in a significant downturn without sacrificing growth opportunities? To answer that question, they founded Build: the next gen fund manager that offers investors and advisors confidence and the investment tools they need for the road ahead. Build takes the best ideas in the financial industry, improves upon them, and makes solutions that work for everyone. Build offers a new way to invest, one with real downside protection and upside potential for every investor’s financial goals. 

What makes Build unique?

To address evolving market conditions, Build developed Indexed Risk Control™ strategies.  Our strategies are an evolution in fixed income investing, comprised of active fixed income management for protection and a structured approach to obtaining equity exposure that seeks to achieve long-term growth.    

We start with a fixed income core, focusing on quality and duration to effectively manage risk. This fixed income core’s job is to anchor the portfolio and play defense during market downturns. Second, we use an overlay of long only call options on an equity-linked index allowing the portfolio to participate in market growth. Third, we rebalance the two ingredients every day. This rebalance is triggered by Build’s proprietary quantitative framework. All of this enables Indexed Risk Control™ to deliver a repeatable and smoother investing experience. 

In 2020, Build’s flagship Conservative Indexed Risk Control™ strategy produced returns on par with its benchmark (S&P Target Risk Conservative Index). However, the journey getting there was very different. The standard deviation of daily returns was roughly half that of the benchmark. Where Build’s Indexed Risk Control™ strategy really shines is on those “newsworthy” down days, when investors were most likely to check their portfolios and worry. On days when the stock market lost 1% or more of value, Build did better than the benchmark 90% of the time. 

Is Build registered with the SEC and who regulates what you do?

Build is not registered with the SEC; we are registered at the state level in Missouri, Washington, and South Dakota. Build’s CIT offerings for employer-sponsored plans are under OCC (Office of the Comptroller of the Currency) oversight as they are managed by a trust company. Build’s Private Trusts are regulated under SEC Reg D. Build does plan to register with the SEC once we surpass $110 million in AUM. 

Where is your headquarters?

Build has 2 headquarters: 

Jefferson City, MO – this location houses our CEO and administrative personnel. 

Seattle, WA – The Seattle location houses our portfolio management, IT/engineering, operations, and marketing staff. 

Why did you decide to have HQs in both Missouri and Seattle?

When the company was started, Mr. Dines was in Seattle and Mr. Ruth as in Jefferson City. Having two locations allows the company greater access to top talent in multiple areas, allowing Build to capitalize on different areas of specialty of these markets. 

Why are you registered in Missouri, Washington, and South Dakota?

As a state registered company with headquarter offices in Missouri and Washington, we are registered in those states. Alta Trust Company, who manages the CRX, MRX, and ARX CITs (collective investment trusts) is headquartered in Sioux Falls, South Dakota, so we are also registered in that state. 

How big is your company in terms of people?

As of Aug 31, 2021, Build employed 20 people 

 

What is your current AUM?

As of April 30, 2021, Build’s AUM is $78.9 million 

Who is responsible for making investment decisions?

Build employs  investment professionals in the capacity of portfolio management, securities trading, security analysis, quantitative research, client portfolio management and investment operations.  

  

Role 

Duties 

# of Staff 

Portfolio Management 

Portfolio managers exercise day-to-day discretion over implementing directives for fixed income portfolio strategy and the equity options overlay. 

2 

 

Financial Analysis 

Fixed income sector-, issuer-, and security-level analysis and recommendations. 

1 

 

Quantitative Research 

Development of risk management analytics, strategy improvements, and quantitative analysis. 

2  

Investment Operations 

Back- and middle-office execution, settlement, and accounting reconciliation.  

1 

 

 

The Investment Committee governs the portfolio managers, who are responsible for the
day-to-day implementation and execution of the strategy in the financial markets.

Please describe your portfolio management team and their experience?

As of Mar 31, 2021, the Investment Committee members and Portfolio managers are: 

  • John Ruth, Co-Founder and CEO. Founded Build in December 2018. 2 years tenure with Build.  
  • Matt Dines, Co-Founder, CIO, CFO. Founded Build in December 2018. 2 years tenure with Build.  
  • Dustin Qualley, Fixed Income Portfolio Manager. 1.75 years tenure with Build.  
  • David Rickard, Quantitative Portfolio Engineer. 2 years tenure with Build.  
Why does Build think they can break into the highly competitive and consolidated asset management industry?

The Build team has strong conviction that there is room for innovation in the asset management industry, and that both financial advisors and investors are looking for new solutions to deal with market conditions moving forward. Build’s Indexed Risk ControlTM strategies are unique in the industry. Indexed Risk Control is the only strategy that strives to achieve a dual mandate of capital preservation and capital appreciation by investing in a fixed income core with an overlay of long-only call options.  

The steep drawdown in 2020 illustrates the success of the Build’s Indexed Risk Control strategy – while the S&P experienced a maximum drawdown of -33.92%, the Conservative Indexed Risk fund experienced a maximum drawdown of -6.24%. Build believes that investors who wish to reduce downside risk will appreciate our innovative approach and the performance we have delivered so far. 

Fixed Income

How exactly does Indexed Risk Control protect against downside risk?

Indexed Risk Control protects against downside risk by investing the vast majority of funds in high-quality investment-grade fixed income securities, such as US Treasury and agency bonds, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities.

Do you buy put options to hedge against down markets?

Indexed Risk Control does not invest in put options.  Indexed Risk Control protects against downside risk by investing in high-quality investment-grade fixed income securities, such as US Treasury and agency bonds, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities.   

The options utilized in Indexed Risk Control are call options taking a long position and are intended to allow the strategies to participate in growth markets. 

How exactly does Indexed Risk Control deliver upside potential?

Indexed Risk Control uses both an actively managed fixed income core and an equity options overlay to deliver upside potential. The options overlay allows for participation in equity market performance, while the actively managed fixed income core dynamically positions for the market environment, seeking income generation and capital preservation.

How does Build know what fixed income securities to put in its portfolio?

The fixed income allocation within each strategy is actively managed, and may include U.S. Treasury and agency bonds, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities. This core allocation varies in size as a proportion of total portfolio across our Conservative, Moderate, and Aggressive strategies.  The Funds are expected to maintain a dollar-weighted average duration of 6 years or less for the Conservative and Moderate strategies and 10 years or less for the Aggressive strategy. The fixed income core accounts for the majority of assets in the portfolios, with a maximum target allocation of 97.5% to fixed income assets for the Conservative fund, a target allocation of 90% for the Moderate fund and an initial allocation of 90% but then a range of 60-100% for the Aggressive fund. Within the fixed income allocation, except for U.S. Treasuries or Agencies, individual issues will maintain a max target market value of the portfolio of 5%. 

The fixed income core is constructed to manage the key risks associated with respective benchmarks, including duration, yield curve, and spread risk. The portfolio management team meets weekly to perform credit reviews, discuss market developments, and execute within the directives of the Investment Committee. Recommendations on issuers are made, and the portfolio managers have discretion on what specific issue(s) within the issuer to invest in. Portfolio management uses quantitative screens to review fixed income issuers, including credit and cashflow metrics. This is combined with qualitative assessments such as issue(r) liquidity, operating environment, credit conditions and event risk.  

Within the fixed income core, risk is measured via position weights, conventional fixed income risk measures (e.g. duration, spread duration, key rates, credit ratings), as well as
in-house developed measures built from quantitative tools such as Principal Components Analysis.
 

 Individual fixed income securities are evaluated based on their underlying risks such as creditworthiness, callability/prepayment, and maturity. These securities are then evaluated within the context of the overall fixed income portfolio, evaluating issuer and sector contribution to overall portfolio risk.

Indexed Risk Control

Where / how should I include Indexed Risk Control in my investment mix?

Innovative financial advisors are using Build’s Indexed Risk Control™ strategies as bond alternative or for overall portfolio risk mitigation. 

Market conditions have evolved, and legacy fixed income strategies may not be keeping up. Build Indexed Risk Control™ is the next generation of fixed income investing for today’s market conditions. Today, investment grade bonds still provide great capital preservation, but with historically low interest rates they aren’t providing much upside. With a core holding of at least 90% investment grade fixed income, Conservative Indexed Risk Control™ plays premium defense. No longer being able to count on the upside from bond yields, the strategy plays offense with a long only call equity options overlay. Both ingredients are rebalanced daily, guided by our proprietary quantitative framework. All of this enables Indexed Risk Control™ to deliver a repeatable and smoother investing experience across full market cycles. 

In 2020, Build’s flagship Conservative Indexed Risk Control™ strategy produced returns on par with its benchmark (S&P Target Risk Conservative Index). However, the journey getting there was very different. The standard deviation of daily returns was roughly half that of the benchmark. Where Build’s Indexed Risk Control™ strategy really shines is on those “newsworthy” down days, when investors were most likely to check their portfolios and worry. On days when the stock market lost 1% or more of value, Build did better than the benchmark 90% of the time. 

How can I invest in one of your strategies?

The Conservative Indexed Risk Control, Moderate Indexed Risk Control, and Aggressive Indexed Risk Control strategies are currently available through ERISA plans, such as 401(k) and 403(b) plans. The strategies are also available to a limited number of 3c1 Private Trusts, available to accredited investors.  

Build strategies are not yet available via ETFs for purchase directly at your retail brokerage but may be in the future. 

I don’t see Build products in my 401(k) or other employer-sponsored retirement account. How can I get access to them?

Build strategies need to be added to your plan. This is typically done by your company’s plan sponsor or a third-party advisor who is responsible for selecting products that go into your plan. Please reach out to your HR representative and mention that you would like to see Build strategies in your plan. Alternately, you can also use the Contact Us page on GetBuilding.com to speak with a Build representative. Someone from Build may be able to reach out to your plan sponsor or plan advisor. 

Private Trust: What are the tax implications of Build’s strategies in a private trust?

The 3c1 Private Trusts are not designed with tax implications in mind. We run these strategies to protect principal in down markets, while participating in growth during up markets. We do not focus on tax impacts when making  trades. Please check with your tax advisor to determine the tax implications based on your individual situation. 

* The above is not intended to be tax advice. Tax consequences vary by individual tax payer. Please consult your tax professional or financial advisor for more information regarding your specific situation. 

Does Build have an ETF or mutual fund that I can purchase through my brokerage account?

At this time, Build does not offer an ETF or mutual fund that can be purchased through an  

 

How many securities does the portfolio contain?

Historically, the fully invested portfolio typically contains between 70 and 90 securities. 

 

 

What benchmarks are used for performance?

Each Indexed Risk Control™ strategy uses the S&P Target Risk series as a benchmark: 

Conservative 

S&P Target Risk Conservative Total Return Index (SPTGCUT) 

Moderate 

S&P Target Risk Growth Total Return Index (SPTGGUT) 

Aggressive 

S&P Target Risk Aggressive Total Return Index (SPTGAUT) 

 

 

 

Why is Indexed Risk Control different from other products such as target risk or target date funds?

Target Date Funds and Target Risk Funds are funds that invest in a diversified portfolio consisting of a mix of stocks and bonds. Generally speaking, target date funds start relatively aggressive and become more conservative as the target date (e.g. the year you plan to retire) approaches.   

Target risk funds offer a single, balanced solution to diversify investments, tailored to a specific risk level. Unlike target date funds that change the risk profile based on time, target risk funds, maintain a relatively consistent level of risk. 

 

Indexed Risk Control differs in several ways… 

  1. In all Indexed Risk Control strategies, we hold a higher percentage of our portfolios in fixed income than comparable target date or target risk strategies. This means that in equity market drawdowns, our strategies seek to provide better principal protection than target date and target risk. 
  1. We invest in in long call options rather than individual equities. This gives us participation to the upside in a growing equity market, but limits losses in a declining one. 
  1. Versus target date funds, Indexed Risk Control strategies maintain the same risk profile. TDFs have a glidepath methodology that changes over time. This means that sometimes investors may not fully understand what their TDF is comprised of until they read their statements. 
  1. Regardless of which strategy you choose—Conservative, Moderate, Aggressive—they all work backwards from seeking less drawdown than their comparable TDFs or target risk funds over a full market cycle. 

While there might appear to be asset managers similar to Build who seemingly share a focus on risk management, defined outcome, or downside protection in their philosophy and approach, Build is the only asset manager whose solutions and philosophy focus on long-only “risk asset” exposure via an option overlay, active fixed income management, and quantitative investment research and development. Build is pioneering new ground in these areas—as well as exploring the frontier of the inter-relationship between them. We believe this gives Build a competitive advantage over other asset managers attempting to solve the core problems in this space with other approaches. 

 

 

I’m happy with target date funds. Why should I switch to Indexed Risk Control?

Many investors who are happy with Target Date Funds are viewing them in the context of an 11-year bull market that only ended with the COVID-19 drawdown. Even with COVID-19, the stock market quickly recovered and approached all-time highs. People who have remained in target date funds during this period have not been exposed to an extended bear market, and most likely have only seen their retirement account balance go up and to the right. 

 

The problem lies in the fact that target date funds are holding increasingly higher allocations of equities to make up for performance gaps in fixed income markets as rates have gone to zero. This means that an in-retirement, TDF may have over 50% of its holdings in equities. In the case of another severe market downturn that doesn’t immediately recover, the investor could be exposed to a significant loss of funds. After the 2008-2009 financial crisis, managers of target date funds were called in front of the SEC and lawmakers to explain why many of their near-dated funds lost double-digit percentages. 

 

Indexed Risk Control holds a much higher percentage in fixed income than target date funds, yet still offers competitive performance to the upside. Furthermore, instead of an opaque name such as a 2020 target retirement fund, Indexed Risk Control allows you to select from Conservative (near-or-in-retirement), Moderate (mid-career), and Aggressive (early-career), or some combination of the three to match risk appetite. 

The stock market quickly bounced back to all-time highs after both the 2018 and 2020 corrections. Why do I need a risk-controlled solution when stocks just go back up?

To successfully save for and fund a retirement, we encourage all investors to have a long -term mindset and time horizon. This typically means a minimum of three decades for someone early in career.  

 

Below are several examples of multi-decade bear markets, or peak-to-peak recovery periods, that show the risk of relying heavily on equities too close to retirement. 

  • August 1929: It took almost 30 years – until May 1959 (and 4 significant drawdowns) – for the Dow to get back to pre-depression values. 
  • January 1966: The Dow took 28 and a half years, until July 1995, to get back above 8,000 points, and investors endured 6 significant drawdowns, including a 6-year bear market that began in 1976, and Black Monday in 1987 in which the Dow dropped 22.6% in one day. 
  • December 1999 – November 2013 (14 years): The Dow came close to recovering to 1999 levels in October 2007, only to experience the great recession of 2008. 
Why shouldn’t I just buy existing strategies that have a mix of bonds and stocks, such as a 30/70 product?

A traditional 30/70 strategy carries more risk than Build’s strategies which invest a higher percentage in fixed income securities (>90% for Conservative, >80% for Moderate, >70% for Aggressive). Additionally, unlike a traditional 30/70 strategy, Indexed Risk Control includes an overlay of long-only call options in equities, which can allow the strategies to participate in gains during a growing equities market.

Why should I trust an asset manager with only a 1-year track record?

Build believes that advisors have a fiduciary duty to consider new ideas that will perform for their clients – regardless of the tenure of the strategy.  

We know the strategy works because it was battle tested in a remarkable year. In 2020, Build’s flagship Conservative Indexed Risk Control™ strategy produced returns on par with its benchmark (S&P Target Risk Conservative Index). However, the journey getting there was very different. The standard deviation of daily returns was roughly half that of the benchmark. Where Build’s Indexed Risk Control™ strategy really shines is on those “newsworthy” down days, when investors were most likely to check their portfolios and worry. On days when the stock market lost 1% or more of value, Build did better than the benchmark 90% of the time. 

Sure, you’ve got back-tested data that looks good, but I’ve been burned by good ideas with no track record before. Why should I trust your back-tested data?

Many back-tests use the benefit of hindsight to make security selection or sector rotation bets. Build’s back-tests are merely reflections of what our algorithms would have done in those equity and credit environments.  

Our backtest data is based entirely on our algorithmic and repeatable portfolio allocation framework, in which each option position has a target level of risk sensitivity (e.g. delta). When market movements would have caused the value of the risk sensitivity to deviate from target outside of a tolerance band, the portfolio’s option holdings were brought back to the algorithm’s target level of the risk measure. Within the fixed income core, risk was measured via position weights, “standard” fixed income risk measures (e.g. duration, spread duration, key rates, credit ratings), as well as measures built from quantitative tools such as Principal Components Analysis. 

Our backtest methodology has been independently verified by a third party.

 

Build’s Investment Philosophy

What is unique about Build? What is your investment philosophy?

Build has developed a novel approach to portfolio construction and managing risk that we call Indexed Risk Control™. Indexed Risk Control is designed to offer investors a secure path to accomplish their key financial goals in many market environments, including today’s new era of ultra-low interest rates and heightened asset price volatility. Build’s investment process and rules-based algorithmic framework were inspired by core concepts from existing investment products and strategies. We’ve kept what works best, combined the best features, and improved upon shortcomings where these prior solutions did not align with investor preferences. The result is a uniquely effective approach to solving the client’s long-term objectives—including funding a retirement—built for the challenges of this era. 

We start with a fixed income core of bonds, focusing on quality and duration to effectively manage risk. This fixed income core’s job is to anchor the portfolio and play defense during market downturns. Second, we use an overlay of long-only call options on an equity-linked index allowing the portfolio to participate in market growth. Third, we rebalance the two ingredients every day, if needed. This rebalance is triggered by Build’s proprietary quantitative framework. All of this enables Indexed Risk Control™ to deliver a repeatable and smoother investing experience. 

In 2020, Build’s flagship Conservative Indexed Risk Control™ strategy produced returns on par with its benchmark (S&P Target Risk Conservative Index). However, the journey getting there was very different. The standard deviation of daily returns was roughly half that of the benchmark. Where Build’s Indexed Risk Control™ strategy really shines is on those “newsworthy” down days, when investors were most likely to check their portfolios and worry. On days when the stock market lost 1% or more of value, Build did better than the benchmark 90% of the time. 

Do other fund managers offer solutions similar to Indexed Risk Control?

It might appear to be some asset managers who seemingly share a focus on risk management, defined outcome, or downside protection in their philosophy and approach. However, Build is the only asset manager whose solutions and philosophy focus on long-only “risk asset” exposure via an option overlay, active fixed income management, and quantitative investment research and development.  

Build is pioneering new ground in these areas—as well as exploring the frontier of the interrelationship between them. We believe this gives Build a competitive advantage over other asset managers attempting to solve the core problems in this space with other approaches. 

What is Indexed Risk Control?

Indexed Risk Control™ is a new asset class with a dual mandate seeking both capital preservation and capital appreciation. 

  • Each Indexed Risk Control™ strategy has an actively-managed fixed income core and a long only equity call options overlay. 
  • Our proprietary quantitative framework is a blueprint that drives our portfolio management, enabling increased protection when markets are down – especially when down sharply – and providing growth when they are up. 
  • Our flagship conservative strategy, which consists of over 90% fixed income, had a max drawdown of 6.24% during the market’s fastest drawdown on record, while other industry standards averaged between 15-34%.  

Indexed Risk Control™ seeks downside protection in a new zero-rate environment while passively participating in long-term market upside opportunities. 

How is the dual mandate of downside protection and upside participation achieved?

Indexed Risk Control protects against downside risk by investing predominately in investment-grade fixed income securities, such as US Treasuries, corporate bonds, and mortgage-backed securities. 

To participate in the upside potential of the equities market we invest a portion of the portfolio in long-only call options of US large cap equities. This allows us to participate in the gains of a growing stock market, while minimizing our downside risk. 

What market conditions favor Build’s investment strategy?

The family of Indexed Risk Control strategies are designed to meet or exceed the primary objectives of capital preservation and capital appreciation in markets with heightened volatility and/or an established trend in either direction. 

The extraordinary market movements that occurred in March and April of 2020 proved that Build could provide stability in the face of massive price dislocations. The maximum drawdown of the S&P 500 in 2020 was -33.92% while Build’s Conservative Indexed Risk Control was down only -6.24% at its most extreme. As the market recovered during the spring and summer of 2020, Build’s strategies participated as market values moved higher. The Indexed Risk Control strategies performed just as designed, in one of the most volatile markets in memory, and did so by providing a smoother, more consistent path of returns. As of December 31 2020, Build’s Indexed Risk Control CIT had returned +8.50% since its inception January 28, 2020. 

What market conditions would NOT favor Build’s investment strategy?

While it is impossible to anticipate all market scenarios, we believe our strategies have adaptable and repeatable features that will allow us to achieve our dual objectives in volatile market environments. Downside protection is a key element to our strategies and by allowing for varying degrees of client-driven risk tolerance, the funds provide potential capital appreciation.  

In periods of oscillating markets with less volatility, our strategies will perform as designed but may not distinguish themselves from competing strategies. 

How do Build’s quantitative risk management frameworks operate?

The option overlay component of our strategies follows a structured, rules-based algorithm based on option risk parameters (e.g. delta, vega, gamma). The portfolio managers execute trading in the financial markets to maintain alignment between the portfolio and the target model portfolio derived from the quantitative framework. 

How do you know the optimal mix of bonds and options in the portfolio?

The mix of fixed income to options is determined by the strategy: 

  • Conservative Indexed Risk Control: 90%-100% fixed income / 0%-10% options 
  • Moderate Indexed Risk Control: 80%-100% fixed income / 0%-20% options 
  • Aggressive Indexed Risk Control: 70%-100% fixed income / 0%-30% options 
Is Build an active or a passive investment management company?

Both. The fixed income assets are invested actively, while the options overlay follows a passive investment strategy. 

What ESG factors do you consider in your investment decisions?

Our strategies focus on the dual mandates of capital preservation and capital appreciation. While ESG does not play a primary role in our strategy management today, we are investigating how it will play a role in the future.  

Did you just get lucky with market timing in March 2020, or is your process repeatable in different environments?

Our proprietary quantitative framework is a blueprint that drives our portfolio management, enabling increased protection when markets are down – especially when down sharply – and providing growth when they are up. This framework is algorithmic and does not involve efforts to time the market or take bets on market direction.  

We start with a fixed income core of bonds, focusing on quality and duration to effectively manage risk. This fixed income core’s job is to anchor the portfolio and play defense during market downturns. Second, we use an overlay of long only call options on an equity-linked index allowing the portfolio to participate in market growth. Third, we rebalance the two ingredients every day. This rebalance is triggered by Build’s proprietary quantitative framework. All of this enables Indexed Risk Control™ to deliver a repeatable and smoother investing experience.  

Our flagship conservative strategy, which consists of over 90% fixed income, had a max drawdown of 6.24% during the market’s fastest drawdown on record, while other industry standards averaged between 15-34%. 

Build’s
Investment Process 

Do you invest in international companies / emerging markets?

Build’s investable universe includes U.S. Dollar-denominated fixed income and call options on indices or publicly traded U.S.-based companies.  Build may invest in U.S. Dollar-denominated fixed income securities issued by foreign entities.  

Are Build portfolio managers just making predictions on the direction of the market?

Build portfolio managers are not trying to predict the direction of market.  Instead, our solutions are designed to preserve capital in a down market, and to participate in positive gains in an up market.

Tell me more about your proprietary screening process for fixed income. How are you managing fixed income any differently than other asset managers?

Under our algorithmic and repeatable portfolio allocation framework, the fixed income core risk is measured via position weights, “standard” fixed income risk measures (e.g. duration, spread duration, key rates, credit ratings), as well as in-house developed measures built from quantitative tools such as Principal Components Analysis.

How and when do you rebalance the options overlay?

We rebalance the portfolio as parameters warrant.  In volatile market environments, this could result in intraday rebalances. Under our algorithmic and repeatable portfolio allocation framework, each option position has a target level of risk sensitivity (e.g. delta, vega, gamma).  When market movements cause the value of the risk sensitivity to deviate from target outside of a tolerance band, the portfolio manager executes trades to bring the portfolio’s option holdings back to the algorithm’s target level of the risk measure.

Do you trade 100% via algorithms? When and how does human intervention play into your trading?

While Build’s strategies are driven by our proprietary algorithm-driven risk management framework, all trades are executed by Portfolio managers who have discretion within the algorithm-defined parameters.  

Fixed income securities are actively managed to a risk framework but have analyst input and are executed at the discretion of our portfolio managers.  

 

Options trades are recommended by algorithms, but portfolio managers are responsible for executing trades within a best execution framework. 

How do you decide which specific securities to include?

Build’s strategies combine a rules-based options overlay with an actively managed fixed income core. Our investment process begins with the Investment Committee which meets bi-weekly to review performance, discuss forward-looking market themes, and recommend positioning for the strategies. The portfolio management team is responsible for the execution of the strategy approved by the Investment Committee.  

The option overlay component of our strategies follows a structured, rules-based algorithm based on option risk parameters (e.g. delta, vega, gamma). The portfolio managers execute trading in the financial markets in order to maintain alignment between the portfolio and the target model portfolio derived from the quantitative framework.  

The fixed income core is constructed to manage the key risks associated with respective benchmarks, including duration, yield curve, and spread risk. The portfolio management team meets weekly to perform credit reviews, discuss market developments, and execute within the directives of the Investment Committee. Recommendations on issuers are made, and the portfolio managers have discretion on what specific issue(s) within the issuer to invest in. Portfolio management uses quantitative screens to review fixed income issuers, including credit and cashflow metrics. This is combined with qualitative assessments such as issue(r) liquidity, operating environment, credit conditions and event risk.  

Build’s investable universe includes U.S. Dollar-denominated fixed income and long-only call options on indices or publicly traded U.S.-based companies.  

How do you measure risk?

Our portfolio management team prioritizes market-observable metrics to measure risk of drawdown exposure in the portfolio, as opposed to theoretical or non-observable estimates. Key metrics in the options overlay include portfolio weights of options positions (which defines “worst case” exposure to equity market drawdown) and relevant option risk sensitivities (e.g. delta, vega, gamma).  

Under our algorithmic and repeatable portfolio allocation framework, each option position has a target level of risk sensitivity (e.g. delta). When market movements cause the value of the risk sensitivity to deviate from target outside of a tolerance band, the portfolio manager executes trades to bring the portfolio’s option holdings back to the algorithm’s target level of the risk measure.  

Within the fixed income core, risk is measured via position weights, conventional fixed income risk measures (e.g. duration, spread duration, key rates, credit ratings), as well as
in-house developed measures built from quantitative tools such as Principal Components Analysis.
 

What third-party research do you use for investment decisions?

Build utilizes external resources and subscriptions to assist in the research process. These include Bloomberg Anywhere Terminal subscriptions for the portfolio management team, CreditSights for external fixed income analyst recommendations, and research publications including the Journal of Finance and Grant’s Interest Rate Observer to contribute to top-down research. 

 

Options Overlay for Capital Appreciation

Why do you use options instead of just buying stocks directly?

Options allow an investor to limit losses to a known, fixed amount, while providing the possibility for unlimited upside potential. 

Indexed Risk Control strategies invest in long-only call options, which are contracts that give the buyer the right, but not the obligation, to buy a fixed amount of a particular security at a predetermined price on or before the date the contract expires.  The buyer pays a fee, called a premium, to purchase the option.  If the security does not increase in value, the option holder would allow the option to expire, limiting the loss on the investment to the amount of the premium paid.  Conversely, if the security increases in value to an amount higher than the strike price (the predetermined price specified in the options contract) the option can be exercised, providing a gain in the amount of the difference between the market price of the security and the strike price less the premium. 

Are options riskier than buying stocks?

Options can be less risky than equities (stocks) when used properly.   

Options can be less risky for investors because they require less financial commitment than equities, and they can also be less risky because the loss in a down market is limited to amount of the premium paid, avoiding the potentially catastrophic effects of a market crash. 

 

How does Build know when to buy options, and at what price?

Option risk sensitivities (e.g. portfolio-level delta, vega, gamma) and portfolio-level metrics such as position weights and aggregate portfolio exposure to the underlying equity market prices (“Notional beta”) are the key inputs to our equity options trading decisions.  

Our strategies have target weights for these risk sensitivities (“glide paths”) for the option holdings within the overlay. When market movements cause the sensitivities of the portfolio holdings to deviate from their glide paths outside of a tolerance band, we adjust the risk metrics back to their target values. In other words, buy and sell decisions in the option overlay are responsive to market movements which are informationally reflected in the risk characteristics in options markets.  

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Build Asset Management, LLC (a/k/a Build and/or Get Building) is a registered investment adviser in the States of Missouri, South Dakota, and Washington. The Adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.

Build does not guarantee any minimum level of investment performance or the success of any index portfolio, index, mutual fund or investment strategy. Past performance does not guarantee future results. There is a potential for loss in any investment, including loss of principal invested. All investments involve risk, and different types of investments involve varying degrees of risk. Investment recommendations will not always be profitable. No representation is being made that any client account will or is likely to achieve profit or losses similar to those shown in hypothetical backtested performance. Impacts of federal and state taxes and trading costs are not included in the results of index portfolio or index returns. Hypothetical backtested performance information shown in text, charts, tables and graphs is provided for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any types of securities. Terms of Use Policy.