Too Clever By Half?

One of the biggest themes we focus on is simplicity versus complexity, knowing when to use the former (more often than not) and when to use the latter. Here's an interesting read about Yale trying to sell a bunch of complexity because it believes it has to as a response to threatened cuts in federal funding. 

There's a never ending supply of complex products and strategies for us to dissect and that really is a lot of fun but there is utility as well. A lot of simplicity hedged with a little bit of complexity as I talk about portfolio construction means taking the time to sift through the complexity and recognize when a fund might be too clever by half.

To that end, I wanted to try to better understand the potential utility of the Pimco StocksPLUS Absolute Return Fund which has a bunch of symbols but we'll use PTOPX. The fund uses leverage to access 100% in equities and 100% in absolute return similar to the newer ReturnStacked suite of ETFs.

As a core holding, I'm not sure there's really any meaningful differentiation versus 50% in the S&P 500 and 50% Vanguard Market Neutral (VMNIX). Putting 100% into PTOPX is there for context and not something that too many people should consider.

And maybe not much that is compelling about the fund as a complimentary holding either. The following from the Fidelity page seals it for me. 

It has been a while since it was additive to a portfolio performance-wise.

And because it is sort of related, Paul Tudor Jones was on Bloomberg this morning talking about constructing a "volatility adjusted" portfolio comprised of stocks, gold and Bitcoin. The new ReturnStacked US Stocks &Gold/Bitcoin ETF (RSSX) does a variation on this. 

Corey Hoffstein Tweeted a formula of 100% to stocks, 80% in gold and 20% Bitcoin inline with what RSSX does to create Tudor Jones' trade. Unlevered you could cut those in half. I asked Copilot how to do this and it said stocks 40-50%, gold 30-40% and 10-20% in Bitcoin which is essentially what Corey said. When I play around with it on Portfoliovisualizer, I get 50% equities, 44% gold and 6% Bitcoin.

I've been very skeptical about the ReturnStacked funds. Anytime I play around with them, I never get a compelling result with them. After just two weeks of trading, there is no conclusion to draw about RSSX. It is of course interesting but I personally am very wary of this type of complexity.

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.