Eric Crittenden who manages the Standpoint Multi Asset Fund (BLNDX) sat for a podcast with Matt Zeigler and Jason Buck. Disclosure that I know Eric personally and have owned BLNDX since day one personally and bought it shortly thereafter for clients. It was 90 minutes and had a lot of meat on the bone. We're just going to hit a couple of points.
They spent time on the struggles of managed futures and the matter of factness that no strategy will always work. I think Eric pegged managed futures as "working" about 85% of the time meaning it functions as a diversifier when investors need it to, 85% of the time. I would add, the strategy should not be expected to be an outperformer when equities are doing well, it is a diversifier.
Part of the story of why the fund exists is that stand alone managed futures has line item risk for the reason I just said above. Combining stocks with managed futures creates what Eric has previously described as being an all-weather portfolio. BLNDX is having is having rough year but since it launched, there have been quite a few copy cat funds that have come along.
The other big reason that BLNDX exists is that considering multi-asset diversification, Eric believes managed futures is a better diversifier than bonds. I agree up to a point. Managed futures are a better diversifier but not weighted at 40% in place of bonds. Diversify your diversifiers.
Each portfolio is 60% S&P 500, 40% in the ticker symbol used to name the portfolios. All four of the alts are in the managed futures, systematic macro realm. Eric used those terms interchangeably in the podcast.
Obviously all four were much better in 2022 but not this year at the April lows. The results of all four are compelling versus AGG but not mind blowingly good. Obvious to anyone reading this blog, I think bonds with duration is the wrong place to be, let alone 40% in that asset. Where bonds are a diversifier for equities, 40% in just one diversifier is too much. 40% in managed futures is too much. Managed futures is taking its turn for struggling. The struggle is a much smaller issue at 5-10% of a portfolio than 40% of a portfolio. With a mid single digit weighting, you can afford to hold on until the next time managed futures goes up 30% when stocks drop. You can't do that with 40% and I don't think you can do that with 20% either.
One final point from Eric was that based on his research and contrary to his own bias, don't be too aggressive rebalancing. He didn't say don't rebalance but in terms we might use here, let the market's ergodicity work for you.
We've spent a lot of time on the MBB/RISR combo, it's sort of a pair trade where RISR is a hedge for mortgage backed securities. We've been using MBB but it occurred to me there must be other MBS ETFs and of course there are. Here's a list from etfdb but I do not believe all of them are MBS so study accordingly.
All five of the above have 50% in RISR and 50% in the symbol shown for the name of the portfolio. For the same period, 50% RISR/50% MBB compounded at 8.52%, had volatility of 5.89% and the max drawdown was 6.6%. The max drawdown numbers all hit in August, 2022. MBB's max drawdown by itself came a little later in 2022 down 16.91%, the AGG max drawdown that year was 17.38% and iShares 10-20 Year Treasury ETF (TLH) bottomed out down 32%.
LMBS by itself somehow never had a drawdown greater than 6% but the other four were all down 12.5% to 15.5% at their worst in 2022 but have more than recovered. So maybe a couple of these other ones are a refinement to using MBB but there is still the reality that even if the pair works, if the MBS funds all go down a lot but assuming RISR works and offsets the decline, someone putting the trade on might be sitting on a 15% decline on the one component of the pair. With enough of a drop, just rebalance but looking at a 15% drop in a bond fund might not be easy to do.
Closing out, July 1st is Bobby Bonilla Day. The Mets pay him what amounts to annual annuity payment of just over $1 million every July 1st. It's a deferred compensation plan on what would have been a $5 million salary in 1999. The Mets invested the money with Madoff, seriously, believing they were getting the better end of the deal. Bonilla will keep getting these payments through 2035.
I mentioned that I recently started subadvising for a couple of advisors one of whom has several professional athlete clients. Forget about what is optimal, this sort of contract structure would be immensely beneficial for a lot of players. Bonilla's agent back then, Dennis Gilbert did him a huge favor.
