Hedge Funds Seeking To Derisk?

First, three quotes from various articles over the last few days.

"While much of the $4 trillion hedge fund industry now aims for steady returns to cater to risk-averse clients such as pensions, Haidar runs a high-octane strategy where double-digit gains or losses are frequent." 

That first one was about the Haidar Macro Fund which fell 25% in April. I thought the assertion that hedge funds might now be catering more to risk adverse investors was interesting and reiterates the importance of the proper time horizon for whatever it is you're trying to achieve.

“Investors started to add some resiliency to portfolios...”

And

"...lessons in the risk of making hasty decisions during an era of whiplash market swings."

Sorry if the context is a little difficult to read but both quotes address reacting to market stressors which will be much harder to do in case emotions are dictating an investor's actions. Managing a portfolio is a series of decisions and it is not possible to get 100% of those decisions correct. If some number of decisions are going to be incorrect then the focus shifts to minimizing the consequences of the incorrect decisions. 

Reacting in the middle of a panic by doing something big will increase the odds that an incorrect decision will have an outsized, negative consequence. When things were at their worst in April, I tried to convey the idea that selling at that point was a bad idea. Obviously, the index action back then tells us that people were indeed selling. Someone shaving down their equity exposure by a couple of percent, to appease the market gods, may not have been optimal but could have provided emotional relief without creating a serious problem that needs to be addressed, possibly with another emotional decision. 

Contrast that with selling down half the equity exposure. Now what? Is the tariff market event over? What if this person gets back in and the market immediately whooshes lower? Many years ago, I used to say that finding out you had too much equity exposure after a large decline is a bad spot to be in and that is probably what happened to people who did meaningful selling early last month. 

Sprinkled in with all of the face melter, leveraged ETFs that have been launching have been some more all-weatherish funds and some asset allocation funds tying in to the quotes above. We talked about it once or twice before it listed but the the Cambria Endowment Style ETF (ENDW) started trading on April 10th. It's an actively managed funds that will include equities, fixed income, real assets, and alternatives and will leverage up by 30-50%. 

The fund has a lot of holdings and for now the factsheet doesn't have a lot of detail but as I tried to assess the holdings it occurred to me what I thought I was seeing. 

NTSX is the WisdomTree US Core Efficient ETF aka the 90/60 fund which leverages up such that a 67% weighting in it equals 100% in a 60/40 proxy like VBAIX leaving 33% left over for alpha seeking or leveraging down. The difference between the two as far as I can tell at this point is that ENDW can own some alts (it has a couple of different managed futures funds currently) and commodity exposure (real assets). Without knowing how often the fund is repositioned, the exposure to alts and commodities appears to have not been a point of differentiation but it may not be that simple. Either way, with just a month under its belt, it looks exactly like NTSX.

I think I was expecting ENDW to be a little more quadrant-ish but so far that hasn't been the case. 

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