A Macro Moment?

A couple of interesting ETFs to look at today.

First is a filing for the USCF Endowment Alternatives ETF. The target allocation will be 35% to private equity, 20% to private credit, 20% to a combo of commodities and infrastructure and the last 10% to real estate. Most of the fund will be in exchange traded products so it will be targeting some holdings it believes can serve as proxies for private assets along with up to 15% in actual private assets. 

I don't have much interest in private assets, maybe zero interest, because of the fees, complexity and illiquidity but the idea of exploring proxies for private assets is interesting as is the way this ETF might blend assets together. Looking through the prospectus gives the impression that this is intended to be a differentiated return stream from a 60/40 portfolio. There's also an element of permanent portfolio influence with large allocations to various quadrants....or quintiles if that is the correct word. I backtested as follows with one version using a private equity ETF and the other using just the S&P 500.

And the results compared to VBAIX.

PSP has been a rough, long term hold. Since inception it has compounded at 3.19% versus more than 10% for the S&P 500. When we've ever done an exercise like this involving private equity proxies we use Blackstone and KKR which have wildly outperformed PSP. The problem with trying to model with those two is that they skew the results favorably but possibly not repeatably. We'll know more if this ETF ever lists but replicating this version of the endowment portfolio may not provide much differentiation. 

The version with VOO has a nice uptick in growth versus VBAIX with a little less volatility and the Calmar Ratio is better too but the kurtosis is far inferior. 

The next fund started trading today in Canada. LongPoint and ReturnStacked partnered on the ReturnStacked Global Balanced & Macro ETF. I don't know whether there will be a US version or not but the idea is intriguing. 

I built two leveraged versions and one unleveraged. QSPIX and MBXIX are funds that generally fit the description of macro and we use them occasionally for blogging purposes. QSPIX has very little equity beta, so the return stream is more differentiated. MBXIX seems to have much more equity beta any time I look at and in the unleveraged version of the strategy, having more equity beta might be a good idea. 

Now tweaking their idea to have closer to a normal allocation of plain vanilla equities at 50%, 25% in AGG and 25% in one of the macro funds as noted.

The overall numbers are not dramatically different versus VBAIX, Going year by year, the portfolio with 25% in QSPIX has several years that do deviate quite a bit from VBAIX but that was only a big positive in 2022 when that portfolio was only down 4.78% versus 16.87% for VBAIX.

The two funds I chose may not be great representations for this sort of use but macro is difficult. As opposed to being a first responder defensive or second responder, I think the strategy is best thought of as being uncorrelated. There is also the complexity factor. Usually these funds have several things going on at once and there could be times where the various strategies under the hood could work together fantastically well like in 2022 but there could be periods where they do not work well together and do poorly. Macro can be a great strategy but maybe not the most reliable strategy. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.