Advisor Recommends a Bond Ladder With ETFs

Advisor Recommends a Bond Ladder With ETFs

Sam Huszczo of SGH Wealth Management uses factors for equity exposures and ladders for fixed income.

Reviewed by: Advisor Views
Edited by: Advisor Views

Sam HusczcoFounded in 2005 by Sam Huszczo, SGH Wealth Management has about $300 million in assets under management and implements ETF-only portfolios.’s Heather Bell spoke with Huszczo recently about how his firm is approaching equities and fixed income. Would you give me an overview of your advisory firm? 

Sam Huszczo: We are a firm located in Detroit. I founded it, and I've been running the firm over 15 years. We manage roughly $300 million in assets, and we're 100% in ETFs. I think that's where we've been on the early part of that curve, and have adopted the full ETF model for a number of years now. How do you approach equity investing via ETFs? 

Huszczo: We consider ourselves factor-based investors on the stock side. For the last 50 years, whatever they've described as “alpha returns” have just been factors, in my opinion. [We approach it as] the marriage of an old, tried-and-true way of quantitative factor-based institutional investing, with the modern spin of the current economic conditions.  

ETFs, in terms of factors, have really only been around for less than 10 years. Factor-based Investing is a style of investing that's been around for over a century, and it's a viable strategy. [Putting it in an ETF wrapper] now allows what used to only be available to large institutions now to be available to retail investors as well.  

One thing that was a huge innovation is being able to take these algorithms based on a factor and [offer them at] an extremely low expense ratio, and then allow people to buy smaller net dollar amounts within that type of very sophisticated factor.  

Back in the ’80s, this was done with pen and paper, so that's why only an institution could really afford that type of research team. Now [we’re] replacing that with a fluid, algorithmic computer that can just put it in an ETF form and make it so everybody can access it. 

Any good investment strategy I've had success with in the past [has always been] a blend between a time-honored tradition that's worked for decades and some sort of modern angle within it. [There] has to be that marriage between the two for it to be consistent and successful. What factors are you focusing on now? 

Huszczo: One of the factors we like right now is stock buybacks in the face of a potential economic recession due to the inverted yield curve. For companies that have a lot of cash on their books, if their decision making is to utilize that cash to buy their stock because their stock price is so low, versus them keeping a little bit of dry powder on the books to handle what could be a bad economic zone, to us that is a push against the asymmetric information that we always have as analysts. 

Our second-highest conviction factor is the momentum factor. We want to do a light version, a contrarian [take], where we go against what is the most popular thing, and so that's where this could potentially be a play. We see momentum excelling if inflation starts to get under control. Even if inflation were to get into the 4% range, we feel that's going to be the trigger to push the stock market into the next bull market phase. How are you approaching fixed income right now? 

Huszczo: It's been a horrible bond market for most people, which is a great opportunity. If you take something like the Vanguard Total Bond Market Index Fund (BND), that saw double-digit losses over the last year, it’s got an effective maturity of about nine years, so one of the largest bond funds has a what's considered a pretty long maturity.  

With investors having lost so much in their bond portfolio last year, we [think] it might be a difficult decision for them to lock in a long-term bond rate, once the Fed has announced that they're pausing rate hikes.  

It puts you in a weird, temporary position today where, if you try to seize those higher long-term rates and lock it in today and they keep raising rates, then you're going to have a little bit of buyer's remorse. Because if you were just patient, you could have locked in a higher rate at that time in the future.  

The government's between a rock and a hard place, where they can't really raise interest rates much higher than we have right now, without significantly impacting the U.S. government's budget.  

They have an incentive to keep rates low. That to me would also argue that they will stop interest rate hikes, even if the labor market is going well and the economy is still doing well, just as long as inflation starts to come down some.  

The bottom line is if you look at the dot plot, almost all the Fed voting members in 2024 and 2025 and beyond are voting for rates to come down somewhere between 2% to 3%. This is the moment to lock in a long-term rate for the next 10-15 years. And an appropriate ladder, I think will be able to get around a 5.5%-6% coupon at that time.  

In college, textbooks said you could get a 6% return in a corporate bond ladder, and then 2008 happened. For the last 15 years, there hasn't been a moment where you could get a 6% fixed return on a bond ladder.  

For the people that are ready for it, you can seize that moment at peak rates and lock in a laddered approach. We do that through target maturity bond ETFs.  


Contact Heather Bell at [email protected]   

Advisor Views is a bi-weekly Q&A-style series that features voices from across the financial planning industry sharing insights on investment strategy and portfolio management as it relates to the current economic environment.

The format enables advisors to respond in their own words to specific questions designed to provide readers with practical tools and tactics that can be applied to managing client portfolios.