A bunch of quick hits today.
Bob Elliott from Unlimited Funds blogged that for Q2 2025, equity long/short was the best performing hedge fund strategy and that managed futures was the worst. This is why it is important to diversify your diversifiers. A 20% allocation to managed futures would have made that first week or two in April even more difficult.
Larry Swedroe had a helpful post looking that the problems and risks of holding levered and inverse funds longer than the one day reset periods that most of them have. Yes, the vast majority do deviate away from what they "should" do over longer periods. But invoking Karl Popper, it only takes one negative to disprove a theory.
100% SPY compounded slightly better than 50% 2x S&P 500/50% cash but the 2x/cash combo's volatility dropped by more than the CAGR it gave up and the max drawdown was a little less. The worst deviation between the two was in 2020 when Portfolio 2 lagged by 740 basis points. Of the other 19 full and partial years available to study, the two were within 100 basis points of each other seven times. The deviation was greater than 300 basis points only three times, including 2020.
The Simplify Short Term Treasury Futures Strategy ETF (TUA) is another one that disproves the theory. The way TUA leveraged up, 20% in TUA and 80% cash "should" look like UTWO.
Leverage in pursuit of a portable alpha strategy can work, I am just not a fan of how some of the recent funds implement it.
Speaking of Simplify, they had a Tweet promoting their Hedged Equity ETF (HEQT) and comparing to to a plain vanilla 60/40 like you might get from VBAIX.
Long story short, JHEQX is a proxy for HEQT with a longer track record. There have been three years of meaningful deviation between JHEQX and VBAIX. In 2022 that deviation favored JHEQX by 800 basis points and in 2019 and this year, the deviation favored VBAIX. Nothing can always be best. Is one better than the other? That's hard to say but JHEQX/HEQT as a replacement for VBAIX seems like a valid observation.
And we'll close out on an email I received touting a model portfolio that gave specific allocations, not symbols but market segments. The model also allocates just over 1/3 to individual stocks which you don't see very often. I built out a replication as follows;
For real estate the model says it uses private real estate but VNQ is a simple ETF.
It's possible that whatever they can access for "private real estate" can differentiate but with what we can see, the drivers for differentiation are the common stocks not the bunch of ETFs compared to just putting all that into ACWI. In the 14 full and partial years to look at, Portfolios 1 and 2 varied by more than 200 basis points four times. The model compounded by 32 basis points less than Portfolio 2 and with more volatility but the Sharpe Ratios were pretty close.
Yes, it is possible that the actual ETFs they choose could turn out to collectively be better mouse traps but this is a key thing to look for; differentiation. There's very little differentiation and what little there is does not favor the model. I don't think there's much advantage to owning a bunch of ETFs to get the same result.
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.
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