Keeping It Simple Sunday

Here are some fun tidbits from my reading this weekend. 

First was an article about 10 Defensive Funds That Bucked The Tariff Selloff. The author dug pretty deep to fund a couple of the funds including the Forester Value (FVILX/FVALX/FVRLX). The fund goes back to 1999 but only has $4 million in assets and is a one star fund. Keeping the fund open must be a labor of love for the manager and his firm. 

Barron's said the fund was up 12% this year thanks in large part to its position in put options. Testfol.io has it compounding at 2.23% from inception up to the end of 2024. The fund is a non-starter for me but is there anything interesting to learn from their asset allocation? Maybe, maybe not but that is the point, can something in what they do improve our process? 

This approximates their asset allocation, not their holdings, as of year end. There was an "other" category so I rounded up a little.

OK, so not so much. The replication looks exactly like the SPY/AGG combo. In 2022, Forester was up 12.29% while the other two were down mid-teens. In 2008, Forester was up 3.57%. So it's been crisis alpha but apparently struggles the rest of the time. 

S&P Global had a quick writeup about how well low volatility is performing during the current market event and then cited previous adverse events where it has done relatively well to then conclude that just holding that factor over the very long term will outperform as it has done previously. Who is to say whether that conclusion will stand up going forward but this excerpt hits on a key point I started making ages ago regarding avoiding the full brunt of large declines and the math supporting the 75/50 portfolio (capturing 75% of the upside with only 50% of the downside).

Suffering less downside, on average, than the S&P 500, but participating slightly more during rebounds, repeated again and again, has historically led to a widening margin of cumulative outperformance for Low Vol versus The 500 over the last 25 years...

Actually pulling off 75/50 is very difficult but the influence of trying to smooth out the ride over your long term, whether that is just putting it all into a low vol fund and forgetting it or using tools to create a similar effect is doable, I obviously prefer the latter, using tools to create the effect. We've all seen or read about having a portfolio that allows you to sleep at night and this concept is a path to that outcome.

I know I'm probably picking on these guys but here's how RDMIX has done over the last three months. 

Earlier this year the fund changed its strategy to be 50% equities, 50% treasuries and 100% systematic macro. EBSIX is Campbell Systemic Macro and I used AOR for a 60/40 proxy because charting VBAIX on Yahoo is distorted for a capital gain paid out in late March. 

I don't believe anyone is suggesting a 100% allocation to RDMIX but this backtest puts things in context. UTEN is a new ETF for blogging purposes, it's just ten year treasuries, it's new so not that useful for what we usually do here but for a year to date study it fits. 

Testfol.io has RDMIX down about 10.5% versus portfolio 2, which uses their concept, being down about 2.5%. This is a great example of taking bits of process from others to create or improve your own process. The guys running these funds are very smart but the plight of RDMIX appears to be consistent with their other funds. Any sort of fund with the word macro in the name is complicated enough. I have a macro fund in my ownership universe and other that an rough couple of days in the middle of this, I'd say it's done well offsetting the volatility of the simple (equity) exposure in the portfolio. If the macro program in RDMIX is helping, it's hard to see.

Lastly, Man Institute dissected the current malaise of managed futures and compared it to previous market events where it took the strategy time to get moving. The big idea was that the trends take time to establish themselves and then the strategy needs to allocate into those trends. There have been a couple of instances where maybe managed futures got lucky because it didn't the time to readjust, it was already correctly positioned. The conclusion was that investors need to be patient.

I can buy into the need to be patient. I've invested a ton of time into trying to understand the strategy and I have unyielding faith that it can gain its footing if equities continue to do poorly.  However...I say, however, it is infinitely easier to be patient with a mid or low single digit weighting than a 20% weighing. I said I have unyielding faith but ok, what if that is wrong? It's infinitely easier to endure the consequence of being wrong with a mid or low single digit weighting than a 20% weighing. If managed futures "works" in nine out of ten crises, that means it won't work in one out of ten crises (obvious statement) and maybe this is the one it just won't "work." 

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