A Sitdown With Standpoint

Eric Critten sat for Matt Zeigler's podcast with Jason Buck joining in. Eric manages client/personal holding Standpoint Multi-Asset Fund (BLNDX) which combines global equities and managed futures. There were some good tidbits in there to share. 

The origin of the fund came from conversations with advisors expressing similar ideas of what they were looking for in an alt; capture some upside soften the downside and do that with lower volatility. Those ideas also tied in what what Eric would want to do with his own money. 

Researching and backtesting led him to conclude that a mix of global equities and managed futures was the best way to achieve this. If you look at how the fund has done it is hard to argue with the conclusion but there was an interesting part of the conversation early in the pod about how difficult spring of 2025 was emotionally before just about everything bottomed a few days after the Tariff Panic. 

He didn't waiver, didn't deviate from the system or do anything but stick to the process but his comments made it seem he was worried. I know Eric personally and so this surprised me. They said that this period was the worst drawdown for managed futures in a very long time but I seem to recall late 2022/early 2023 being worse but maybe not. 

BLNDX is 50% managed futures (there's a little more to it than just saying 50% though) because that is optimal per Eric's research but the three of them agreed that no one is going to have that much of their portfolio in managed futures. Eric made an interesting comment in passing that if you're only going to have 10% in managed futures, you should use the most volatile exposures you can find. 

Let's check that out using AQR Managed Futures High Volatility Strategy (QMHIX), KraneShares Mount Lucas Managed Futures Index Strategy (KMLM) and Arrow Managed Futures Strategy Fund (MFTNX).

Although Portfolio 1 and SPY look very similar, Portfolio 1 was down much less than SPY at the 2022 low and although not shown, it was down less than VBAIX' low too. 

Another important topic in the discussion was that to be willing to own managed futures means being willing to look different which is not easy to do they said. You really have to want to look different and endure the times when that is difficult. 

I've long been willing to have the portfolio look different and I try to explain how the various diversifiers tend to behave to clients so they are not surprised. Part of the conversation on the pod was directed at Matt who is a practitioner and he gave an analogy of dogs and their owners who look alike. I think he was saying that investors who would be interested in alts will find their way to advisors who use alts but that wasn't crystal clear.

A final topic to point out was the idea that advisors should have a higher percentage of their money in managed futures than their clients. The idea is one we explored a long, long time ago that Meb Faber is known for but I may have beat him to the punch on the original iteration of the blog. I said that I have very little in equities so that I never get to a point where I am so worried about my portfolio that I neglect clients or that I am so busy trading my own account that I neglect clients. Meb's point is that as advisors our livelihoods, our actual business and our client outcomes all serve to lever us up considerably and so having a full equity allocation would just compound that leverage. 

A few weeks ago we looked at a portfolio that consisted of just nine or ten managed futures funds thinking that mixing that many would blend out some of the negative dispersion which it did. Let's update that though to include the funds we looked at already in this post. 

The portfolio with just the managed futures funds is not too compelling but Portfolio 2 is a little more interesting. It has a similar CAGR as Portfolio 1 with half the volatility (a little less volatility than AGG too). In the period studied, inflation compounded at 3.61% so the real return was just a shade above 300 basis points which is pretty good for someone who is looking to avoid equity beta which is the context here. 

If we add 5% of Direxion 3X Tech (TECL) at the expense of managed futures, the CAGR goes up to 10.03% while the volatility only goes up to 7%. The drawdown numbers of the TECL version also look pretty good if you want to go in an see for yourself.

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.

Jim Cramer's Retirement Advice

Jim Cramer had some simple retirement saving advice that downplays doing a lot of trading. As opposed to chasing short term gains, in this article he suggests putting close to half in index fund, then close to half in four or five individual stocks and then a little bit in some combo of gold and/or bitcoin. For someone who is younger, at least one of the stocks should be "speculative."

I'm not a huge fan of 10% into just one stock but I might be in the minority on that. 

That article also included some thoughts about the age that Millennials and Gen-z's think is the right age to retire; 61 and 59 respectively. There's probably not much that is new with those ages but they are at odds with the lack of progress toward being able to retire that many Gen-Xers find themselves confronting. 

One thought from me that I think might be new is that when you retire at 60, you forgo some number of years at what is probably your highest earning years. If you've done a decent job of avoiding lifestyle creep then your 60's provides a great opportunity to meaningfully add to your retirement balances. That assumes you haven't had your hand forced at work to retire early. 

It's not for me to say don't retire early, I've been seeing people from high school and college do it over the last few years, but it is important to dig into any financial tradeoffs.

Today's post cut short. We had to go looking for this;

With these guys;

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.

Checking Out Of Beta

There's been a lot of content lately about equities being too expensive and the potential index manipulation coming to market cap weighted indexes as they try to shoehorn SpaceX, Anthropic and OpenAI in. There are of course many pundits besides me chirping up about the visibility for more pain in bonds if price inflation remains elevated or even continues to work higher. 

All that might be enough to make someone want to check out from the typical equity beta/bond beta construct entirely and do something completely different. I don't know about completely, but maybe very different will do. 

Part of the inspiration comes from updating the 75/50 portfolio. The basic idea is a portfolio that captures 75% of the upside with only 50% of the downside. It's not easy to pull off but if you play with the numbers, you'll see it works. Although it is not easy to pull off (repeated for emphasis) the way that ETFs and mutual funds are evolving, it is becoming a little more attainable. 

The versions include funds that we don't use too often for blog purposes but they allow for a little longer backtesting. The mix has no bond duration and other than the small slice to Direxion 3X Tech (TECL), the holdings mostly do their own thing when compared to equity beta. TECL of course is equity beta but it's more about adding positive convexity. TECL would account for a disproportionate amount of the growth but be a very small drag, due to its weighting, when equities go down a lot.

GPAIX and MBXIX are in the realm of multi-asset, multi-strategy funds. They aren't totally uncorrelated to equities or VBAIX but they do often deviate from them by quite a bit. Gold has the potential to hedge a few different things and we talk about SHRIX and client/personal holding Merger Fund all the time. 

The growth rates are an easy observation. The version with just gold doesn't quite capture 75% of the upside while the other two do better than 75%. All three offered a little less downside in the fast declines, in the 2020 Covid Crash they were down a lot less though and they were very effective in the much slower 2022 decline. 

If you want to keep up with equities, this is not the idea for you. In the same nine year period, the S&P 500 compounded at just over 15%. 

The fund universe has expanded dramatically since the backtest's start date so anyone actually interested in trying to build this sort of portfolio for themselves would have more funds to choose from and would be able to diversify a little better. Instead of just one managed futures fund, that portion could be split into two different funds. We've explored the dispersion in managed futures performance many times and having a couple of different funds would probably give a better result.

The 50% in GPAIX and MBXIX could probably be split between four or five funds not just two. Merger arb is great but 15% is more than I would want in real life and if I was willing to allocate 15% to catastrophe bonds, I would probably split that between two funds. 

Getting 60/40-like returns over intermediate and longer periods with a lot less volatility is an outcome that I think many people would be pleased with but it requires being uncomfortable in random short term periods when the sort of portfolio we built today lags by a lot, 2019 and 2023 would have been rough in this context. 

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.

Barron's Says To Lift Weights

Over the last few months it seems like Barron's has expanded its coverage of retirement related issues including a lot of content about health and fitness. This is an important part of the equation of course, one I spend a lot of time trying to learn more about and hope that more people take an active interest. 

There have been a couple of articles this weekend, one was about the costs of biohacking and some potential investment angles too. The other article was a simpler look at exercising.

The biohacking article is far beyond what I am interested in doing. There was mention of a company called Radence that has a $50,000 entrance fee and then $50,000 annual fee to use tech to find problems earlier than other means (how it was represented in the article but I can't vouch for that), do countless blood tests and so on. 

There was a mention of Bryan Johnson who might be the most well known biohacker. He is constantly taking blood samples, tracking just about everything in his body and he takes "upward of 100 supplements a day." There is a documentary on Netflix about Johnson called Don't Die: The Man Who Wants To Live Forever. It's difficult to watch

A little less dramatically there was talk of the role GLP1s now play in everyday life and the various wearables that people can use like Garmin or Apple. 

GLP1s seem to be miracle drugs. I am not even a little bit dismissive of that, they work. The side effects are brutal though, that is something not to be dismissed either. They seem to be constantly finding new things that GLP1s might help with beyond Type 2 Diabetes and obesity like Alzheimer's and most recently cancer. These are all things that a ketogenic diet address too. I've seen commentary that says GLP1s mimic keto diets but Gemini says no. Fair enough but if you can get the same or similar benefits with keto without the side effects of GLP1s, that's worth looking into. 

I don't use any wearables. I have nothing negative to say about them, I just don't feel the need to monitor my stuff in that manner. My wife has a Fitbit watch but doesn't go all in with her metrics, it's convenient for getting texts bluetoothed from her phone, but she does track her sleep closely. 

Over optimizing has a lot of negatives and I think what Johnson does is way beyond that line. Doing 1/4 of what he does is way beyond that line. I don't think wearables go down that road. The idea of spending thousands of dollars on a recurring basis seems like throwing money away. 

The article on exercise didn't have a lot of depth to it. As we get older, certain things naturally diminish and vigorous exercise can slow the diminishment which is probably obvious. It goes deeper than that though. The article didn't get into it and you can follow @mangan150 on Twitter for more details but weightlifting triggers countless metabolic processes that have the effect of slowing down the aging process both at the metabolic level but also in terms of appearance. 

The article mentions grip strength as being an important indicator but it did not include retaining the ability to walk fast. Both are important and easily worked on. 

If it's useful for anyone, this is my typical weightlifting routine, I do it twice a week, Monday and Thursday.

• Skip rope
• Deadlift
• Romanian deadlift
• Incline dumbbell benchpress
• Pushups
• Landmine squats
• Leg press
• Dumbbell rows
• Farmers carry
• Landmine rotations
• Chin ups 
• Narrow incline bench (triceps)
• Squat with a dumbbell on a wedge (kind of like goblet squat, not sure the proper name)

Just one set each, it usually takes 50 minutes. 

One most Saturdays I do a mini workout where I do a set of jump rope and then three or four of the above. Another mini workout includes cleaning the bar twice, then doing two front squats and two overhead presses all as one set. Most other days I do a longer jump rope session. 

For diet, I usually don't eat until around 11:30 so a form of intermittent fasting but more precisely it's time restricted feeding. My first meal is usually either eggs with cheese (no carbs), a package of smoked salmon (packaged as one serving from Trader Joes) which is also no carbs or some combination of meat at cheese. With the meat and cheese, I usually put it in a low carb tortilla which has two carbs. I usually have a Quest bar (4 carbs) which gets me to the middle of the afternoon in the single digits of grams of carbs consumed. Contrast that with one bowl of Wheaties which has about 30 carbs. From there I am not too worried about dinner but I do avoid rice and pasta.

The list of metabolic benefits from reducing carb consumption seems to be endless, again follow @mangan150 for more details. 

It is up to us to figure all of these things for ourselves. You might disagree with every conclusion I have made for myself but hopefully you actively engage for your own health outcomes.

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.

You Need More Bonds! No You Don't!

Robert Pozen wrote an essay for the Wall Street Journal arguing for 90% in equities/10% in a money market after having carved out some sequence of return mitigation in a separate account. The simple reason underlying his premise is how much better stocks do than bonds. 

Cliff Asness has been on the other side of this trade for at least 30 years. Asness' firm is of course a big believer in risk parity which the most basic version means leveraging up the bond exposure such that the risk from the bond allocation equals the risk of the equity portion. Cliff notes that the Sharpe Ratio for 60/40 is better than 90/10 which pans out in this backtest.

Pozen is obviously correct about stocks returning more than bonds which shouldn't be a surprise. For what it's worth, the AQR Multi Asset Fund (AQRIX) which is risk parity-ish shows a lower Sharpe Ratio than 60/40 or 90/10 per testfol.io since its inception in 2011. The data I show above goes back to 2003.

I tried to build a do it yourself risk parity strategy. I started combining Direxion 3X Tech (TECL) with TLT but the result wasn't compelling. I asked Copilot for an assist saying I wanted to approximate AQRIX and it gave me 36% in 3x S&P 500 (UPRO) and 64% in EDV which is Vanguard Extended Duration. 

The result looked almost exactly like 2x AQRIX so in Portfolio 5 I cut the numbers in half and added 50% in the Merger Fund which is a client and personal holding. 

The result for Portfolio 5 was actually helped by path of daily resets for UPRO which of course cannot be counted on to repeat in the future.

I can't imagine too many people would build and run Portfolio 5 in real life, I think it would be difficult to endure large drawdowns and of course there is no scenario where I am using an ETF like EDV. If interest rates ever go up to a point where the compensation for the volatility is adequate, I would buy individual issues, not ETFs.

But this was a good exploration leading to this quote from Ben Carlson;

"As long as you understand the trade-offs, there is no optimal portfolio. In fact, the sub-optimal portfolio you can hold onto is much better than the optimal portfolio you give up on."

Looking for the optimal portfolio even if it doesn't exist is certainly entertaining and the act of looking allows for occasionally refining what we actually do. I try to be consistent to bring up this point about some portfolios not being ones that investors would want or be able to hold on to.

I agree with Ben about the importance of people figuring out the portfolio that is optimal to them. That's a combination of giving a reasonable chance of reaching whatever the goal might be but that also ensures not succumbing to panic. We all have emotions, the important thing is not succumbing to those emotions. 

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.

Avoiding Personal Retirement Calamity

Let's start with some more retirement doom from a few places. Barron's has all sorts of numbers in a new article about how stretched and stressed retirees are. Because of increased inflation or concerns that inflation might persist, 58% of retirees have some sense of insecurity about inflation shortening how long their assets last. There were 19% struggling, 5% were "living the nightmare" but there were also good numbers with people who are comfortable and living the dream.

Alicia Munnell is sounding the alarm over the increase of out of pocket medical expenses and to a lesser extent, Medicare inflation going up at a higher rate than the COLA adjustment for Social Security. That doesn't mean people are going backwards though. A 10% bump in Medicare might be $25/mo while a 3% COLA for Social Security might be $120 as a simplistic example. 

I am obviously going to take the Munnell article as a chance to make a bigger priority out of diet changes and exercising vigorously. The simplest path is to eat less sugar (carbs) and do some sort of resistance training with weight. If someone can get ten years into retirement without needing polypharmacy and constant doctor visits, how much less money are they spending? As my contemporaries and I all get older I see this play out in terms of who is having more issues come up and who is having fewer issues comes up. This may not be easy to implement but it is very simple; cut carbs and lift weights. 

Bill Bengen, the founder of the 4% rule for sustainable retirement withdrawals, sat for a podcast with Morningstar. I would guess that most people view the 4% rule as a set and forget sort of thing but based on the podcast and some other interviews he's done, set and forget is pretty much the opposite of what he is doing. He is constantly researching and refining. Lately, the safe number in his estimation has been more like 5.8%. The biggest threats as he sees them is the combination of high price inflation and lower stock returns. 

He places a lot of emphasis on the potential for higher inflation to really jam up a lot of retirement plans. Where we have used the phrase "something's gotta give" if someone does hit the amount of money saved that they think they need, something extreme might have to give if inflation really gets out of hand. I don't think he was making a prediction though, it seemed more like he has concern that inflation might go up quite a bit. That's a subtle nuance and I might not be wording it very well.

My take on the 4% rule has always been to try to simplify it, whatever you got, take 4% or more realistically, take 1% per quarter. The growth in the portfolio will address keeping up with inflation. Obviously, when markets go down, there is visibility that a retiree would have to take less. Bengen thinks that most people cannot be flexible enough in their spending to weather a 25% drop in their portfolio leading to a 25% drop in their income. He might be right, there's certainly truth in that but I don't know how universal it is. 

One way to mitigate this is to set aside cash in an attempt to manage sequence of return risk. Something like two year's worth of regular expenses would last through most bear markets. 

There's been a lot of content lately about the rise in bond yields and whether there is more trouble ahead. I certainly don't know if rates will go up but I do think the volatility is here to stay and as we've been talking for several years, bonds with duration have become source of unreliably volatility. 

All the above makes up a cocktail of reasons why I place so much importance on adding robustness to portfolios using tools that take different approaches to offsetting equity volatility without taking on the volatility of bonds. 

Most of what we build overlaps with each other, some combo of equity beta, managed futures, bond substitutes that have almost no volatility and a little bit of negative convexity. Here's another version;

The only one not in my ownership universe is SHRIX. I use  a different cat bond fund for clients but SHRIX is more useful here for having a longer track record. 

With just over six years to backtest, the portfolio was close to VBAIX most of the time but much of the improved CAGR comes from only being down 3% in 2022. 

For people who are truly desperate something called a home equity investment contract might be an answer. Basically, you sell some of the future price appreciation of your home to get cash now. The way it compounds though you might actually get zero or close to zero when you sell your house. Like I said, for people who are truly desperate. This is not HELOC to consolidate debt or remodel the kitchen. About the only application I can think of is using this to pay for something that was very medically expensive. Someone has $300,000-$400,000 and needs to spend $150,000 for something not covered? That might be desperate enough. You can't get kicked out of your house but the smaller portion of future gains that you sell today might become all of your appreciation in the future leaving you with almost zero. Save your life but be able to stay in your house? Yeah, maybe.

The world is getting more complicated but I think my message is very similar to what it has always been in terms of health, having a simple withdrawal strategy (the way Bengen constantly tinkers is not simple) and a robust investment strategy. Building other income streams in order to be less reliant on the portfolio is a logical (to me) extension to try to reduce the odds of personal, retirement calamity. 

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.

Coincidental Coincidences

This will be fun and starts off with a coincidental Tweet about something we looked at the other day, sizing equities correctly. 

Cullen then replies;

From there, this guy Brad appears to actually get mad at Cullen for essentially saying "don't forget about inflation." Click through, do you think it's a bit or is Brad actually mad?

Obviously, a lot would have to go wrong to exhaust $10 million in most circumstances but it is important to understand price inflation and why more attainable relatively large numbers might not be the golden ticket that they first appear to be.

However much you end up with will simply be a source of income. If sustaining that source is important then taking 4-5% will be about it. Having $2 million accumulated at retirement age is nothing to scoff at, most people will not have that much in today's dollars. The income available to mostly ensure sustainability is $80,000-$100,000 which again, that's pretty good but not killing it. 

Combining that $80,000-$100,000 with $50,000 in Social Security is pretty comfortable I think and will get the job done for plenty of people but it is not so much that something very expensive, I am thinking health related, couldn't derail that "comfort" quickly. 

The combination of a down market coinciding with something medical that is very expensive and maybe a roof or plumbing catastrophe and that $2 million is going to get much smaller. The market will come back after some period, I would certainly spend the money on a medical problem and I can't imagine there's any getting around a roof or plumbing catastrophe, but the ability to generate the same income could easily be diminished. I wouldn't count on $1.3 million sustainably paying out $100,000 every year.

It's that sort of combination is why we spend so much time on trying to find additional streams of income beyond an investment portfolio and Social Security. Whether anyone thinks of that as working with a negative connotation is up to them but I would say it doesn't have to be negative. 

I started talking about this ages ago and then recently my involvement with the Del E, Webb Foundation just sort of fell out of the sky. It was a volunteer position for what turned out to be almost five years and now as a board member pays a stipend that is not big but big enough to cover a decent chunk of what I expect our fixed monthly expenses to be a few years from now. It would be enough to relieve some of the burden we would otherwise place on our portfolio if I ever decide to retire from my day job. It's the sort of "work" that others in the group have done into their 80's. 

When we talk about these things, I usually include something about being willing to have a long runway to creating an income stream so I think it is a funny coincidence that happened with my Foundation involvement. 

The willingness to play the long game with planning is vitally important to figuring out a successful path through retirement and I don't just mean financially. 

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.