New Fund Fact Finding

The guys at RCM Alternatives had a blog post that was right out of our playbook here in terms of looking at alternative strategy funds as substitutes for plainer vanilla stock and bond exposures. They listed out quite a few funds that I've never heard of so looking at them was fun. Today we'll dig in and see if any of the funds should go on our radar. 

The first question in the post was about how to categorize various types of alts which can be difficult, the article said, with the blending of strategies in one fund as well as the blending of assets classes in one fund. This is where the idea of expectations can help. That's an important question and issue for any holding in your portfolio. For example, a fund with the word arbitrage in the name is unlikely to keep up with the stock market when the stock market is up a lot. An inverse fund is going to go down a lot if stocks are up a lot. When stocks go down a lot, sectors like tech and discretionary are probably going to go down more. Bitcoin is likely to be very volatile far more often than not. 

On this point, we've gravitated labeling alts with influence from Jason Josephiak as first responders and second responders and the third category that I coined was horizontal lines that tilt upward. I guess another type would be alts that are legitimately uncorrelated, that just do their own thing.

The first grouping of funds were intended replacements for 60/40 due to the "limitations" that the current environment poses for the basic portfolio. 

The Standpoint fund is a client and personal holding that I write about frequently. The Q3 All Seasons Tactical has symbol QAITX. In its description of QAISX, RCM refers to it as an absolute return fund but I didn't find that term on the fund's page. It generally has equity and fixed income exposure via derivatives and ETFs and there is an element of capital efficiency here as well. 

The fund is the same age as BLNDX. QAISX outperformed VBAIX by a good bit in every year except 2022. Based on the holdings I see now, I would bet that it got caught with too much duration and it fell 37% versus 16.87% for VBAIX. In doing a quick read through, I was unable to find whether the find might be levered up like PIMCO Stocks Plus Long Duration or maybe one of the ReturnStacked Funds. If so then maybe that decline isn't quite what it appears. Generically, if a fund creates the effect of an entire portfolio with just a 50% allocation, then of course it would go down more in nominal terms in a year like 2022 (expectations).

Also mentioned in this section of 60/40 replacements was RDMIX and RSST. RDMIX just changed its strategy a month ago and RSST is less than two years old so it is too early know whether they can turn out to be replacements for something like VBAIX. 

The next category was "equity replacement" which I am not going to drill down on. Regular equity exposure still works just fine, is much simpler and much cheaper. Some sort of "equity replacement" around the edges to add some sort of attribute or effect, maybe, but in terms of a core exposure, I would not abandon plain vanilla equity exposure. 

Next up, bond replacements. 

I've never heard of either fund but at first glance they do appear to differentiate from AGG which makes them worth looking at. CWXIX, the Catalyst fund, uses option combos to create income along with treasury bills. It seems similar to client holding BOXX. The fact sheet is useful if you want to check it out. The Rational fund does almost the exact same thing. Like I said, they appear to be differentiated and if eyeballing them as being similar to BOXX is correct then it would be worth learning more because they create a pretty smooth ride akin to how people hope bonds will behave. If you play around with those funds, you might want to truncate any backtesting, there's either a distortion in the early years or the funds changed strategies. 

The RCM post closes out with a catch all of "stand alone diversifiers" that includes Bitcoin and Ether products, a couple of trend following funds and funds that short the VIX. Around here, we think of anything crypto related as being asymmetry so size it prudently. We look at managed futures all the time, check out the funds if you want, a couple are new to me, maybe there will be something interesting there. The VIX is very difficult to get right on both the long side and the short side. We wrote frequently about the Simplify Tail Risk ETF (CYA) that I believe shut down for getting VIX trades wrong...although for all I know there could have been no getting VIX right. 

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.