Checking In On The United States Sovereign Wealth ETF

John Davi from Astoria Advisors hosts a weekly CIO call and I listened for the first time yesterday. John has some interesting views and things to say. One bit I've seen from him in a couple of different places is that right now he likes the Schwab US Dividend ETF (SCHD), presumably for broad-based exposure because his firm also offers and uses narrow based funds too. 

Is 2025 going to be a good year for SCHD as a broad based or core holding relative to other strategies or factors? There's no way to know of course but if 2025 turns out to be a bad year for the S&P 500 then there's a pretty good probability of SCHD doing better than market cap weighting (MCW) and maybe most of the other factors. 

For the last couple of years, I think a lot of people gravitated to just using market cap weighted in their accounts, that seems like it has been the conversation and for 2023 and 2024 the returns for MCW have been great. MCW also did great in 2021, 2020 and 2019. Occasionally of course, MCW gets pasted. 

The table is interesting because despite all the great years over the last ten, MCW was never the best performing factor. It certainly has been valid the whole time. It was no more valid in 2023 as it was in 2022. It just so happens that 2022 was a year that it went down a lot. The quality factor was the top performer in just one year. It was no more or less valid in the other nine years beside 2023 when it was the top performer. 

So maybe SCHD will be the one to own this year but if it is, then statistically, it is unlikely to be the one that does best next year. The ten year compounding for all five factors was greater than 10% which is enough to get it done. The next ten years may not compound at such a high rate of course but whatever the market gives, they'll all be somewhat close.

A point that I haven't made in a while that I think the table mostly confirms is that if you choose a factor, just stick with it no matter what. There is potential in a relatively bad year to get impatient, then chase the one that just did best but then last year's best becomes this year's worse and then it just repeats. Maybe the answer is having a couple of different factors. Sure, but whatever blend someone might choose will also have individual years where that combo will be wrong. 

A 50/50 blend of momentum and quality had a better ten year growth rate than every single factor listed except for market cap weighting but like market cap weighting, it was never the top performer in this study. To someone with the wrong mindset, that blend didn't work. Again, for the wrong mindset. 

A portfolio with an enormous weighting to one or two broad based factors is not really what I do but it clearly can work but just like any other strategy you can find, it won't always be optimal. 

To what extent are you using AI. My wife uses if for writing bios of dogs that go up on the website for the rescue she runs and occasionally for writing email replies. When I do a Google search, more often than not I am hoping it will default to Gemini for a more useful result. I have also used Grok and chatGPT to do more problem solving (may not be the best term) queries. I've never gotten a real result from something that is too vague like "what is the optimal portfolio allocation" but I asked Grok what is the optimal weighting for BTAL to reduce standard deviation of a portfolio by 25%?  The answer was lengthy. First it summarized what I was asking, then defined some terms, worked through three different formulas doing a trial and error to get to a 16% weight in BTAL being the answer, explaining why the wrong answers were wrong.

Then I asked What is the best alternative strategy available in a fund to pair with BTAL to reduce volatility? So not even asking for a specific fund, just a strategy and it spat out AQR Managed Futures (AQMIX) which we use all the time for blogging purposes. I looked at the sources that Grok was relying on and none of them were posts I wrote so it was just a coincidence I guess.

This isn't necessarily game changing but it does nudge up the productivity of the time I spend researching which is useful. 

I'll close out with an update on The United States Sovereign Wealth ETF that I made up and first wrote about on March 5. The prompt was a mention of the Cambria Global Asset Allocation ETF (GAA) somewhere and since the market has done so poorly, I though it would be worth revisiting.

The first chart goes back to the mid February high for the S&P 500. Both USSW (I'm giving my fake ETF a symbol that isn't already in use) and GAA have held up well. Flat with very little volatility is a good outcome for what has been a lousy tape. I am surprised how similar VBAIX and HFND were for the period.

To revisit a longer period, I removed HFND because its inception was late 2022. 

Speaking of AI, Grok seems to like the portfolio.

With SHRIX correctly framed as a catastrophe bond fund, this portfolio shines as a diversified, defensive play for turbulent times—think inflation spikes, market shocks, or disaster seasons. Its 10% SHRIX allocation adds high-yield, low-correlation income, but event risk looms. It’s light on growth, favoring stability and hedges over capital appreciation. If 2025 brings volatility or disasters, you’re well-positioned; if it’s a bull market, you might lag.

If any ETF providers are interested, please reach out via Twitter or Bluesky DMs. 

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.