The ETF Industry Had A Helluva Day

Yesterday I mentioned QuantifyFunds filing for a suite of ReturnStacked ETFs that leverage up two stocks 100/100. I didn't realize that four of them would be listing today. In yesterday's post I isolated a use case of barbelling returns and volatility into a narrow slice of the portfolio. I built the following as an example of how it could work. 

I'm not sure if there's a NVDA/HOOD ETF coming but both stocks are part of the filing. In 2022, Portfolio 1 was only down 3.98%, the Calmar Ratio is far superior but oddly VBAIX has a slightly better kurtosis. The idea probably has merit but to even entertain this, you have to be favorably disposed to the two stocks in the ReturnStacked ETF...or ETFs, more than one, that you choose. 

If it actually works, it could provide close to 60/40 returns, I suspect it would lag some longer term but with very little exposed to risk assets. We could probably tinker with this to get a little more yield with the 95% from income sectors with very little volatility. We could keep it mostly T-bills but include bank loans, catastrophe bonds and maybe box spreads.

An obvious risk is that the stocks selected for these funds have already had great run-ups. I don't doubt Nvidia can double from here, or even from its peak but what if it takes Nvidia much longer to double than the S&P 500? Again, valid concept but it might be very tricky to implement. 

The SPDR Bridgewater All-Weather ETF (ALLW) also launched today and I have thoughts. Here's some coverage and here is the fund page at SPDR. It's actively managed. Once a day, Bridgewater will send in the model for SPDR to implement. That doesn't mean there will be changes everyday. The description says it will hold global equities, inflation linked bonds and commodities. The literature lays out a quadrant type of approach similar to the Permanent Portfolio. Fun fact via Mike Venuto is that Bridgewater All Weather as conceived by Ray Dalio was influenced by Harry Browne and the Permanent Portfolio. That makes sense when you study them but it's fun to know that the two are actually connected.

ALLW is coming out of the gates with no commodity exposure. I'll check back tomorrow to see if that changes. From before the open, it had 25% in equities including TOPIX futures with what appears to be a notional exposure of about 4% of the assets. There's 36% in US dollars so maybe some of that will move into commodities when we look tomorrow. The rest is in TIPS of varying maturities. 

The Bloomberg article talks about All Weather and ALLW being a variation of risk parity which it notes has struggled for years but so far in 2025 it is doing well because intermediate and further out treasury yields have gone down. A heavy allocation to intermediate and longer dated TIPS doesn't interest me a whole lot but perhaps it will all blend together to create a useful result. 

The ReturnStacked guys hosted a Managed Futures Trend & Carry Flash Update Thursday at the close on YouTube. I don't know if that link will replay it or not. The funds appear to be struggling as managed futures and carry have been struggling. The funds use leverage to own 100% of two different things like US stocks and managed futures, US stocks and carry and some other funds. I'm not saying they are malfunctioning in any way but this has been a rough period for both trend and carry which is reflected in their respective prices. 

We've looked at these many times and I have been skeptical the whole time. Hopeful I guess but skeptical, I've never test driven any of their funds. 

The call seemed like a combo of explaining what has happened recently along with putting it in historical context as well as a bit of a hang in there sort of pep talk. 

The ReturnStacked funds were presented as getting core exposure returns with a hopefully uncorrelated alternative strategy on top. Since RSSY launched, you can see how the Vanguard S&P 500 ETF (VOO) has performed. If an investor uses RSSY as I believe it is intended, the investor would be getting some of their domestic core equity exposure from RSSY, maybe 10%. VOO is up almost 11% and RSSY is down about 6.5% (not the CAGR because the period is less than one year). So if a portfolio wants to allocate 60% to equities with 10% coming from RSSY but I'm not sure an investor would feel like they are getting anything equity index related out of RSSY in its first nine months. 

I was curious to see how just the carry portion has done. I stripped out the S&P 500 in Portfolio 2 by combing 100% in RSSY and 100% in ProShares Short S&P 500 (SH) which is a client holding. The number may not be exactly right but it paints a close picture. 

The backtest includes RSST and client/personal holding BLNDX which both do almost the same thing, combing equities and managed futures. I knew from the first phone call before BLNDX listed that it would work by how they talked about targeting an all weather sort of result and how they would do it which I believe differs from RSST. BLNDX is intended to differentiate with lower volatility and it has done that. Corey from ReturnStacked has Tweeted publicly about why RSST's volatility is so high but I didn't understand what he meant. 

A fund that blends together two negatively correlated assets together seems like it should have less volatility than, in this case, equities. 

Toward the end of the webinar in the parting shots segment, Adam Butler expressed the belief that investors should have both carry and managed futures, they behave very differently which they absolutely do. And he thinks investors should have both combined with equities (or bonds presumably) in one of the respective funds to make holding them a little easier which I would push back on. 

Using the example above, if a client portfolio has 50% in VOO and 10% in RSSY, that should get them to 60% equites. But the experience of actually owning it, the client had 10% in something intended to be equity exposure but has lagged behind by 17% in less than a year. In a stand alone fund, if there was one for carry, a client will understand that fund is for defense and diversification, that it is not an equity proxy. 

It's odd to me that there is no fund that isolates carry by itself, a point I've made before. AQR has carry strategies under the hood of some of its multi-strategy funds so I have to think it can work if they are sticking with it when they don't have to. 

The ReturnStacked guys talk about line item risk a lot. I think the line item risk to RSSY is much harder to explain than straight managed futures or any other alternative strategy that might have a negative correlation to equities.  

Where I see promise for the Quantify ReturnStacked funds that blend two volatile stocks, this reiterates the point of sifting through a lot of things realizing you won't use most of them. I've never believed I would use RSST or RSSY but I follow them very closely. I've learned a ton from studying them since they first launched. If you're managing portfolios for yourself or clients, stay curious and learn as much as you can. 

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.

The United States Sovereign Wealth ETF

Matt Zeigler hosted Jason Buck and Dave Nadig for a fun podcast that started out talking about the proposed Crypto Reserve and how that might mesh in or overlap with a Sovereign Wealth Fund. I believe any talk from politicians on this point has blurred the line between reserve and SWF which the guys spent a little time sorting out. 

We have an oil reserve already as well as a gold reserve which are sort of "break glass in case of emergency" assets while a SWF is more of a pool of capital that is typically derived from some sort of byproduct, like oil in the case of Norway, where that byproduct creates a surplus for the country. 

The US obviously does not have a surplus so the logic of more debt to create an investment fund seems flawed to me. As for a Crypto Reserve, Wyoming Senator Lummis proposed that the US buy 1 million Bitcoin. We're almost 1/4 of the way there from law enforcement related seizure. Dave Nadig said he views Bitcoin as a bet on the US' complete demise and that it is odd that the country would bet on something that benefits from its own demise. It could also be thought of as a hedge then against our demise. 

Keeping what we've seized, assuming it was done legally, is fine with me. Ditto with any future, legal seizures but it would be very damaging to buy a bunch of Bitcoin, going into more debt to do so, and then it turns out that it was all bullshit and it goes down 99.9%.

As the conversation evolved I started to think what might a US sovereign wealth fund look like. It might have been something the guys said but it occurred to me that it should be counter-cyclical, with a combination of assets negatively correlated to US stocks as well as uncorrelated assets. The fund needs to hold up during times of adversity but still generate a positive return.

I pretty much just pulled this out of the air. The only thing I labored over was defense contractors but decided to not include any because the government awards those contracts. USO is probably the obvious choice for a crude oil ETF but the contango deterioration has been brutal so BNO seemed like the better choice. I included SHRIX because it seems FEMA-ish. Going forward, I would actually allocate 4% to Bitcoin but the back test only has 1%. The idea there is I don't think it can go up another 22,000% from here and I don't think it can fall 80% unless, I say unless an 80% decline is on the way to a 99.9% decline. 

The results were fascinating.

In 2022, it was up 104 basis points (total return). It is not intended to be a surrogate for a 60/40 portfolio, although it was close in 2024, and it clearly will not and is not intended to look like the US equity market. Maybe it could be thought of as having some all-weather attributes. The correlation of the portfolio to the S&P 500 isn't that low at 0.64 but it was low in 2022 when it mattered. Obviously the portfolio avoids the sort of interest rate risk that would go with long term treasuries or other ways of extending duration. 

I don't know if it is still the case that a mutual fund can't be held by an ETF but if that still is the case, it looks like the Brookmont Catastrophe Bond ETF is coming in April. 

A quick pivot, Jose Ordonez from Alpha Architect put up a quick video about the pain of owning managed futures. Basically, any backtest involving managed futures will look fantastic, but the experience of actually owning managed futures is painful because the strategy loses 70% of the time, his number. In 2022, when managed futures was having its heyday, there were all of a sudden a lot of calls about putting 20% or more in managed futures. We pounded the table here why that was probably a bad idea. Maintaining an allocation makes sense to me but 20% is way too much. 

Lastly, Quantify Funds filed for 10 ReturnStacked ETFs that lever up to own 100% of two different stocks. According to the filing, one the funds would offer 100% to Tesla and 100% to Nvdia, another one is 100% Coinbase and 100% Robin Hood and so on. Eric Balchunas might call these hot sauce. I'm not convinced blending two names together like this will create the effect of owning the two underlying stocks, more like buying one of these ETFs would just be a way to add risk-on or long volatility which is interesting from a capital efficiency standpoint and barbelling potential return and volatility into a narrow slice of the portfolio as we regularly look at. I would of course expect these to get pasted in a serious market decline but sized correctly to concentrate potential return into a narrow slice of the portfolio, maybe you'd be concentrating potential declines into a narrow slice of the portfolio too. 

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.

Digging In With A Complex Model

I spent a lot of time Monday evening going down the Blackrock rabbit hole starting with their thoughts about adding Bitcoin to a portfolio which they say they're starting to do in their models. I've been in the same place on Bitcoin for many years now which is that there is definitely asymmetric potential so I hold it but it could turn out to be just magic internet money that disappears one day. I started with a very small position in late 2018 with the intention of letting it grow into a lifechanging piece of money or letting it fail and I still own it. 

The tradeoff for the asymmetry is pretty wild volatility which came on with bad intentions in the last few days. 

Some pretty big moves there. As I said the other day, if you're sweating this you probably have too much. 

Because Blackrock is adding in some Bitcoin to their models, I don't think they've done it across the board yet, I thought I would revisit a couple of them. It's probably not ok to list out all the names and weightings but I think we can paint a pretty good picture. One other point to keep in mind is that the portfolios are not static so whatever weighting they might have now in some sort of value oriented ETF has not been the same the whole time and I imagine funds come and go out of the models fairly regularly. 

The first model to mention is the Blackrock Diversified Alts which only has five holdings, four mutual funds plus 7% in a gold ETF. This model overlaps a lot with the next model.

The Blackrock Opportunistic Alts Portfolio is more interesting. It has 77.5% in alternatives like EBSIX and COMT which we've used for blogging purposes along with market neutral and multi-strat. It has 5% in short term tips and the remainder in "sector equities" but the funds are narrower technology themes not so much sectors.

The Blackrock Target Allocation 60/40 is closest to what we have fun with here. It has 47% in domestic equities split between market cap weighted, growth/value and factor funds. There's 13.5% in foreign equity, it can make sector bets which right now is 2.5% in tech, the 33% in fixed income is mostly allocated to IUSB which is a broad based index fund, it has 2% in gold and 2% in cash.

I backtested all three against the Vanguard Balanced Index Fund (VBAIX).

The backtest duration is limited to the newness of a couple of the funds. Diversified Alts and Opportunistic Alts are intended to differentiate from 60/40 and I'd say they do that. The next time equities take off, I don't think they would keep up but Opportunistic Alts was way ahead of 60/40 in 2023 and slightly ahead in 2024. The effect of all those alts, a little in short term debt and the thematics could be like the barbell approach we talk about here quite frequently.

Using Opportunistic Alts' asset class weightings I backested the following against VBAIX.

The Merger Fund is a client and personal holding.

Expecting tech or semiconductors to outperform longer term has been a good bet, more reliable than getting narrower themes correct. The tradeoff is that tech and semiconductors should be expected to go down more than the broad market too. Anyone positioning like this is hoping that the alts offset a good portion of the decline in that part of the cycle. The two barbells kept up over the longer term but there were several years where no progress was made as VBAIX was mostly going up. 

The Blackrock Target Allocation 60/40 has 19 holdings, there is some overlap like owning an S&P 500 fund and an S&P 100 Index fund. The returns aren't identical but man, I don't know about that. The result of the model has clearly been better than VBAIX but as we've seen in countless posts, there are much simpler alternatives. I really am hard pressed to know why someone needs and S&P 500 fund and S&P 100 fund. 

I used the above to compare to Blackrock Target Allocation 60/40 with its 19 holdings. BTAL is a client and personal holding.

The Simpler 60/40 is certainly holds its own against Blackrock's model and VBAIX but it wasn't better every year. No strategy or model can always be best. Their model is clearly valid, the results are good and they are managing it for you. If someone is managing a model that has as many moving parts as Blackrock Target Allocation 60/40 and it's going well, no need to do something differently in my opinion but if you're your own portfolio manager, you don't need to mimic a 19 fund model. 

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.

That Escalated Quickly

Monday was very ugly in markets. I am always leery of explanation fallacy but it seems like the market is weighing in on whatever is happening politically. All I can say about that part of it is that I can't begin to understand anything that we are doing right now, absolutely none of it. 

Moving to markets which hopefully we understand just a little better. 

The positive from this chart is that the decline seems kind of fast and fast declines tend to snap back quickly. Looking at the 2020 Pandemic Crash, that was a fast decline but it played out over several weeks and while in real time we could recognize it as more of a crash than a long slow bear market, it didn't feel that fast. 

The negative from the chart is that the market has been trading out sideways for three months without progress until moving quickly lower, breaching it's 50 day moving average a few days ago. 

Obviously there is no way to know what comes next. When these things start, I usually say something to effect of not knowing whether it's something serious or something that is soon to be forgotten. What I haven't said for the last couple of these is that I think the odds that this is a little more serious are greater than they have been in other recent dips. Treasury Secretary Bessent says success is measured now by a lower ten year Treasury yield where as the first go around, stock prices were were the scorecard.

That is a pretty fast move from 4.63% down to 4.18%, bordering on panic. Bob Elliot has Tweeted about bond yields going down right now, noting that they're going down for the wrong reason. If that's correct, ok but I don't know whether the administration views it that way. It might just be ten year yield is lower and that's good enough for them. 

As this has been brewing for the last however long, it clicked that I don't think selling is the best action here, at least not for now. The obvious flow from almost 20 years ago was that retail accessible products, mostly ETFs, would evolve to offer more sophisticated strategies making it easier to neutralize stock market volatility without necessarily having to sell to get more defensive. 

On Friday, I added gold to client accounts with GLDM. It's like GLD but quite a bit cheaper. Relative to a day or two, the timing was very lucky. 

BTAL and SH are clearly first responder defensives. I added SH for clients a little while and have been holding BTAL for them and personally since 2018. Gold can be a first responder, it often is but it's not quite as reliable as BTAL and SH. We've talked about client holdings CBOE and NOC as having some defensive tendencies. My theory has long been that CBOE can function as a proxy for VIX because the VIX trades at the CBOE. NOC as a defense contractor, quite a few of the names in that group were up today. The other three symbols are managed futures ETFs which are more like second responders, they may or may not help in a fast decline but I do have unyielding confidence in them for longer term, slower declines in case that's what this becomes. 

I'll throw in that staples and utilities were also up today which makes sense as historically defensive sectors but the story there could have been more about yields going down because it looks like REITs were up too. 

If things really get crazy (bad) for stocks then I would expect the first responders to continue to go up in price, growing to neutralize more of the portfolio and clients who take income out have enough to cash raised to get by for a while. 

All of this is my playbook for these types of events. What is yours? Your answer could be to just hold on no matter what and then rebalance at some threshold and that is absolutely valid as long as you can stick with it. 

I would get mentally ready for more deterioration in equities and be happy to be wrong. At this point, I don't know how much more defense I would want to add from here, I think I have most of what might be needed. 

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.

Always Read The Comments

Several quick hits today.

Barron's wrote about the difficulty of spending down accumulated assets in retirement. I am pretty sure this will be difficult for me if our savings play a big role in our month to month lifestyle. This was an article where always read the comments applies. As is often the case for this subject, someone talked about building a dividend portfolio and living off the dividends. 

SCHD is the Schwab US Dividend ETF which has yielded just over 3% most of the time. I used Global X S&P 500 Covered Call ET (XYLD) because it has a long track record but there are a lot of funds now that I think are far superior. SPMO tracks momentum stocks which have the tendency for a higher growth rate but give up yield and VOO tracks the S&P 500. 

The yields of Portfolios 1 and 2 are now higher than SCHD due primarily to XYLD having a higher payout than it used to. The yield on just putting all in the S&P 500 has trended down over the years to now around 1.25%. I chose a starting point of $700,000 because it is a lot of money to have accumulated but strictly following the 4% rule someone starting at $700,000 is not rolling in it. Even double that amount, you're not really rolling in it with a 4% withdrawal rate. 

Generically, dividends are not tax efficient. They are taxed at ordinary income. SCHD has historically paid "qualified" dividends which are taxed more favorably as capital gains but this is something to continuously track. Derivative income funds that track indexes might be taxed 60/40, you have to check. XYLD's distributions appear to be 60/40 but only a medium degree of confidence on that so check for yourself. 

I'm not a tax guy, the take from above is just that it's complicated but with that out of the way, would the dividend only approach work for you? The two portfolios built above tried to add a better CAGR than just going SCHD. My hunch is that using some of the newer derivative income funds instead of XYLD would have a growth rate somewhat higher than just holding SCHD. The portfolios also had a defensive component by virtue of going down far less than VOO in 2022 but the next large decline could be completely different where dividend stocks do worse which happened in 2008 because the few dividend ETFs from back then tended to be heavy in financials. There's no way to know whether the portfolio yields can stay above 5% but this seems viable for someone who cannot emotionally sell to meet their income needs. 

The Wall Street Journal wrote about buying Treasury Inflation Protected Securities through individual issues or funds. As far as individual TIPS, the taxation is tricky. Basically the interest is partially taxable and there is a tax owed on the bump up in the par value which is referred to as phantom income. That maybe an oversimplification but they are better to hold in an IRA account or Roth account. If you want actual inflation protection I think individual issues are better. If you want the effect of the price action in your portfolio then funds are fine. 

One comment said you're better off in commodity stocks to beat inflation while another said actual commodities are better than TIPS. Here's a longer term chart. XME is a client holding.

That the long term CAGR is so close is fascinating. You can see that the market started to care about price inflation around the time of the 2020 Pandemic Crash. 

Starting the clock in March 2020 gives a much different picture. When reported price inflation started to matter again, commodity stocks and commodities did their thing, they did what I think investors would hope they would do. 

Another commenter said they own WIW in their IRA and are getting a yield of 8.57%. WIW is the Western Asset Inflation Linked Opportunity and Income Fund. WIW is a closed end fund with about 30% leverage trading at a discount to its net asset value. 

The commenter did not say how long they have owned WIW but the fund is another example of how difficult in can be to hold closed end funds and take the dividend out as income. There have been some good years but also several years with very large declines. Someone who bought WIW at the start of the backtested period expecting the fund to deplete would probably be pleasantly surprised that the fund hasn't gone to zero but that is a lot of volatility to take on for that yield. 

Following up on yesterday's post about threats to Social Security. I cited CNBC as saying there could be a problem/delay getting survivor benefits. The idea there was there would be less human help which the article said could create obstacles for older people (hasty generalization coming) who aren't as handy using the internet. The implication was that doing it online would still be possible which paves the way for the surviving spouse needing help from a family member. 

If your parents are in their 80's or older, this might be something to start thinking about. God willing they live many more years but there are still eventualities at play here. I am unfamiliar with the part of the SSA website where this is done but my experience with fire related government websites is that they are designed very poorly and require reentering credentials many times in the process of doing whatever needs doing. Any of us as potential helpers of parents or in-laws if calling in or going to an SSA office is off the table need to be emotionally prepared for a long project to get this done if, again, the CNBC article I cited turns out to be correct. 

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.

The Latest On Social Security

CNBC laid out a path to Social Security essentially malfunctioning in the next few months in a manner that could effect new enrollees or people claiming a survivor benefit. The causes are attributed to personnel cuts and systems issues related to changes currently going on in government. Could the article actually be correct? I have no idea and if you don't work at the SSA, you probably don't either. 

If your reaction is to blame a politician or political party you've come to the wrong place. The focus here is on personal resiliency in the face of something negative. Regardless of the right/wrong of it or whether the article and the people quoted in the article are correct or not has nothing to do with what any of us need to do in case something happens with our current or expected payout.

As Barron's noted, Congress would need to vote on a straight out cut in benefits, one person quoted called the personnel and systems issues a "backdoor cut." 

There has been visibility for something along these lines for many years pointing to the 2034/2035 time frame when benefits would need to be cut by 21-23% if Congress doesn't take some sort of action. There is no reason for a potential, adverse change to catch anyone unaware. Hopefully it never happens and hopefully it doesn't happen so much sooner than had been forecasted but the threat is that something bad does happen not that everything goes exactly as it should. 

In terms of preventing or solving our own problem, how much of a problem is it for you if something goes really wrong with Social Security? My wife and I could make it work but it would be far less comfortable in terms of margin of safety. 

How long can you earn an income? Here, I'd change the framework from retire/not retire to doing something that brings in some money every month. This could mean a second career, some sort of part time gig related to your primary career, monetizing a hobby or any one of a hundred other ideas that could be floating out there. A retiree needing $60,000 year in today's dollars to live the life they want would benefit immensely from some sort of vocation that brought in $15,000-$20,000.

Is there a way to lower your expenses? Our biggest monthly expense is the mortgage on our rental. It's $1500/mo and will be paid off right after my 66th birthday. Could the math work in your favor for downsizing your house? This may not quite be the no-brainer it used to be but selling a mortgage free house for $600,000 and buying a $350,000 house for cash could be a great outcome in the right circumstance even if not in every circumstance.

I've been talking forever about cultivating my volunteer fire department experience into a backup gig if I ever needed to rely on it. I went out on just one fire last year. I was surprised to not get called more and wondered if I stepped in it somehow but they want me back this year. I'm going in two different directions with this. My hope is to never need this income stream but instead to be able to fill in to several different slots where/when needed when incidents happen in our county. 

In the next couple of years, our department will need to upgrade at least one of our water tenders (water trucks that carry 1500 up to 4000 gallons). A new one could go out on fires which is another revenue opportunity for some firefighter, maybe me. The one we get won't be this cool but you get the idea here of digging all the way in to something and playing a long game of cultivating your own opportunity in case you need it. 

What in your life interests you as much as wildland fire does me? Is there anything you can devote time to because you want to that might then help you out if you need it? In the meantime, hopefully you're having fun along the way as you do cultivate your opportunity. 

Part of this equation for me is always going to be taking care of health and fitness as best as we can. For me that means a low carb diet and lifting weights along with a couple of other things that I think are important but have less impact than not having metabolic syndrome (benefit of low carb) and gaining all the benefits of maintaining muscle mass. I'm not saying anyone needs to draw my conclusions on this point but I am saying it is in your interest to figure something out to try to stay healthy for financial reasons, quality of life and optionality. 

I'll close this by repeating a very obvious point from past blog posts which is that no one will care more about your outcome than you. I feel fortunate to have come to this conclusion a long time ago and managed accordingly.

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.

Endowment Style & Selling Volatility

Meb Faber hosted a webinar to support what his firm, Cambria, is doing with 351 exchanges and the upcoming Cambria Endowment ETF (ENDW). 

351's are kind of like 1031 exchanges in real estate. If you have a taxable portfolio of at least $1 million where selling or rebalancing would hit very hard tax-wise, you can exchange your portfolio for shares in a 351 ETF. You'd have the same cost basis but you'd have better diversification. Go to the Cambria website if you want to learn more. 

Moving to ENDW, we just mentioned this the other day, really just acknowledged that it is coming soon but the webinar added some color. ENDW is going to be leveraged, offering 130-150% of exposure. It's going to use futures to add the leverage but in listening to the webinar and the extent to which it is going to avoid domestic market cap weighted equities, I'm not clear how it will actually leverage up. For example, the fund is going to have exposure to shareholder yield ETFs from Cambria. That does differentiate from market cap weighting alright but I don't think there is a futures market for it unless a bank is going to create some sort of derivative for the effect. That's ok, we'll know more in April.

Here was an interesting slide that gives an idea of ENDW's likely allocation. The fund is expected to have the leveraged version. 

I built out the unleveraged and leveraged version with the following funds, splitting equities evenly between ACWX and SYLD and splitting fixed income evenly between TFLO and SRLN. Based on Cambria's other multi-asset funds, ENDW will probably have fixed income duration but that's a space I will continue to avoid.

The results.

I threw in 50/50 Cambria Global Asset Allocation ETF (GAA)/Cambria Trinity ETF (TRTY) because Meb talked about those two quite a bit as being core type funds, each one maybe even for use as a single fund portfolio. 

The returns of both the unleveraged and leveraged versions are good but there is a good bit of volatility. It's not clear that the volatility make the returns that attractive. We build portfolios here all the time with similar return profiles but with less volatility. Both the Calmar Ratio and kurtosis for both leave something to be desired. Obviously the actual holdings will be different, my attempts tried to be simpler than what ENDW will probably be but I also tried to be true to the equity exposures Meb talked about.

More important than all of that fun endowment stuff is a point made repeatedly during the webinar. The returns of market cap weighted domestic stocks over the last 15 years have been fantastic. They've been remarkably high in a way that could be very difficult to continue on. The returns are not unprecedented, the 1990's were similar as one example but then when it ends, the "backside of the mountain" as Meb put it can be pretty rough. Most of us of course lived through that from 2000 through to 2009. The S&P 500 hit 1500 in March 2000, then again in the fall of 2007 and then the third and final time in January, 2013. That's a long time for a broad based index to not make any progress. 

There were places to make money during that run, most notably foreign stocks and equal weight S&P 500, that ETF came out in 2003 and had very good years until 2008. It then had a huge snap back year in 2009. 

This part of conversation drifted into how things like Permanent Portfolio, Risk Parity and some other portfolios that differ from 60% SPY/40% AGG and which we explore here could rotate back into favor.

And a quick follow up that I meant to include yesterday about GraniteShares YieldBoost SPY ETF (YSPY) that we profiled on Wednesday. 

YSPY sells put spreads on SPXL which is the Direxion 3x Long S&P 500. The YSPY fund page still shows the short leg of the spread as having a strike price of $171.50 so this all makes for a great test right out of the blocks for trying to understand how YSPY will trade. Where selling puts is a bullish strategy, YSPY going down a similar amount as SPY isn't the worst possible outcome but the volume was thin and down 1.86% is far from the best possible outcome. From my perspective, there's no reason not to follow this and try to learn. Selling volatility is a valid strategy generally but you really have to be selective trying to do it in a fund wrapper. And since we mentioned it in the YSPY post, WDTE which also sells puts on the S&P 500 was down 1.41% on Thursday. 

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