What Happened To The Harvard Endowment?

Just some quick hits in this post. 

The Tradr 2X SPY Quarterly ETF (SPYQ) will start trading tomorrow (per a Tweet) as originally expected. They need some amount of time to show they can deliver on a quarterly result but I think these would be the best tool for building any sort of capitally efficient portfolio, with idea being to avoid the complexity of multi-asset funds. Instead investors could build it themselves. Again, they need to prove they work but a way to implement in the manner I mean would not be to target a 60% weighting to equities with a 30% weight to SPYQ but put most of that 60% into a plain vanilla fund, maybe 50%, then 5% into SPYQ to get to 60% exposure leaving 5% to put into an alternative. If something hideous happened to SPYQ, the 5% exposure would merely be frustrating, not catastrophic. 

My first job after college was at Lehman Brothers starting in the summer of 1989. One useful piece of advice I got was to stay away from the IPOs and other syndicated deals. The idea behind that idea was that I wouldn't actually want shares in the companies that would ever be made available to me, a guy who cold called for 10 hours a day. All that would be available to me would be shitty companies. Good enough for me, I'm out. 

I think the IPO market now might be different but I still don't get involved in that manner. But that brings us to this potential private equity ETF from State Street in partnership with Apollo. If I'm wrong, I'm wrong but the odds that this thing becomes a repository for shitty deals seem pretty high. We're not a multi billion dollar endowment or CALPERS or one of the teachers unions or whatever. If you absolutely, positively have to have some exposure, as a retail sized investors with a brokerage account, I think the private equity operating companies like Blackstone or KKR would be better bets. Those are not private equity funds, they are operators of private equity funds. I think it would be better to get paid for selling the shitty deal via the operating company than it would be to buy the shitty deal via the new ETF. 

Bloomberg wrote about the struggles of the Harvard Management Company, speaking of endowments. This is the most recent asset allocation I could find from Harvard.

There's no great way to replicate 39% into private equity in the public markets without concentrating into some crazy risk.

This replication considerably rearranges the deck chairs for the equity sleeve. The 5% in BX is a nod to private equity operators without leveraging up like crazy. The "hedge fund" exposure with the three mutual funds are just names we talk about here along with quite a few other similar funds that could be substituted in. VNQ and IEF are pretty plain vanilla proxies for their respective asset classes. 

The long term result doesn't differentiate by that much. 2020 was the only year it lagged VBAIX by more than 5% and in 2022 my Harvard version outperformed VBAIX by 11.86% only dropping 5.01%. I think we've gotten better results from other blog portfolios that were much simpler than this one. 

Newfound/ReturnStacked updated their model portfolios so I took a look of course. I pick on them a lot but they are very smart guys and the work they do is interesting. In one of their many models was a fund I don't recall seeing before, I probably just missed it, the Newfound/Resolve Robust Momentum ETF (ROMO). The fund is sort of a risk on/risk off swinging from equities to treasuries based on momentum. Right now it has 84% in iShares S&P 500, 9% in an EFA ETF and then some random bits in treasury ETFs including a small weight to iShares 1-3 Year Treasury ETF (SHY). So it can hold T-bill ETFs which is important to note.

The Cambria fund has symbol GAA and I think is comparable to what ROMO is trying to achieve. In 2022 it was down 19.5%. I don't understand how a momentum/trend sort of strategy as it proports to be didn't end up in T-bills, or end up in T-bills sooner, which it can own. This reminds me of a mutual fund from Newfound that had symbol NFDIX. It leveraged up 75% each into stocks and bonds and it did badly before finally closing.

The chart is from a blog post I wrote in April. Looking at ROMO, I don't know man, it doesn't seem like they can make their ideas work in the mutual fund or ETF wrappers. This is part of why I have been so skeptical about the ReturnStacked ETFs. Something just seems off.

RSBT is the oldest fund in the ReturnStacked suite, it is 100% bonds with AGG-like exposure and 100% managed futures and is the yellow line on the chart. The blue line replicates RSBT. The red line is an unlevered version of the same allocation and the green line is just the AGG. 

The same exercise with RSST which is 100% S&P 500 and 100% managed futures is a little better but....

It doesn't appear to be solving any problem. I really just wouldn't with any of there funds and I will be the first one to own it if I turn out to be wrong. 

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