Sizing Up Multi-Strategy

One of the pre-market Bloomberg emails gave a positive mention to the Cambria Global Asset Allocation ETF (GAA) because it is up in what of course has been a tough tape for equities this year. We've looked at GAA once or twice. It is an interesting asset allocation that targets 40% in equities, 40% in fixed income and 20% in alternatives. I think the strategy borrows a little from all-weather and Permanent Portfolio....a little. 

A fund like GAA seems like it could be looked to as a single fund portfolio. I put the following together to try to put the single fund portfolio idea into context. 

GAA is not a proxy for equity exposure, I don't think Bloomberg is implying that so much as pointing out that it is holding up well so far this year. Comparing GAA to VBAIX and PRPFX makes sense, all three are multi-asset even if the weightings and exposures are a little different. 

The growth rate for GAA is noticeably lower than VBAIX and PRPFX and somewhat lower than Portfolio 5 which could be thought of as a simpler, build-it-yourself version of GAA. The lower growth rate isn't automatically bad but I do think the compensation for a lower growth rate should be lower volatility and holding up better during various types of declines. The drawdown results for GAA are a mixed bag meaning it has not been reliably better, just better sometimes. Portfolio 5 does give up CAGR versus VBAIX and PRPFX but the volatility is a good bit lower than the others and the drawdowns have been considerably lower than the others.

Portfolio 5 includes AGG which of course I want no part of. I think the reason why several of the Cambria funds, including GAA, have high volatility numbers is the firm's willingness to hold longer duration fixed income than what we play around with here and what I do in clients accounts IRL. 

If we swap out AGG and replace it with TFLO which is a floating rate ETF, the CAGR goes up by 14 basis points and volatility drops by 27 basis points which are not dramatic numbers but helped meaningfully in 2022, leading to a performance improvement of 601 basis points. 

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