Put It All Into FMAGX And Forget About It?

Yahoo had an article about....wait for it....people 55 years old and up retiring early because they feel emboldened by portfolio growth over the last few years. They post an avalanche of retirement doom and then this. Both can be true. The vast majority of Americans of all ages could be woefully undersaved while those who are not undersaved could easily have enough to retire earlier than they planned.  

Make of it what you will but there was this comment which is constructive for digging into sequence of return risk and maybe a couple of other things.

Well congrats on your good 'TIMING,' recent retirees; you just got LUCKY! I was in the Magellan fund in the early 2000's and my 10-YEAR return at one point was -0.5% !!! Yes, you heard it!!! You got lucky and I didn't!!! Timing Timing Timing!!!! And watch out below; these returns are NOT sustainable. Especially when the left get power again.

Gaming this out, if he retired on Dec 31, 2000 with $400,000, here's where he stood after ten years taking 4% per year.

The time period comes pretty close to capturing his experience. Carrying it forward to today, if he stuck at 4% withdrawals, he's about 25 years into his retirement and he has more than double what he started with. 

Yes, he would have been better off in SPY but back then, Magellan seemed like a good bet. This reader's bad luck for timing is a great example for defining sequence of return risk, it was a terrible time from a market standpoint to retire. I'm not saying there wouldn't have been real fear in this scenario, the scenario bottomed out at $152,000 in March 2009 but markets worked over his long term.

Above, I said Magellan was a good bet which it was and maybe is now, not sure about that but no matter how good something might appear to be, the comment implies he put it all into Magellan. No matter how good something might be, it should be obvious what a bad idea that is. Maybe the fund would have done very badly versus the market (not the case for this guy) or maybe the market itself would do badly (that was the story with this one). Back then, bonds were fine to invest in. 

Same scenario with 60% Magellan, 40% in intermediate treasuries.

He would have compounded at 3.7% which of course is not so hot but not negative. At the low, he'd have been at $265,000 not $152,000 and at the end of this ten year run, he'd have been down a couple of hundred bucks in nominal terms not $100,000. Being 100% Magellan wouldn't have caught up to 60/40 until late 2021 all the while running at about half the volatility of 100% Magellan. 

For a little more context for unlucky timing versus lucky timing, if he had put his $400,000 into Magellan at the end of 2009, taking out the same 4% along the way, he'd now have $1,578,000.

Back in 2000/2001 it was obvious we were in some sort of serious market event but no real sense that something like a lost decade could be coming other than probably Grantham or Hussman. The market action of the financial crisis wasn't as collectively new because stocks had just cut in half a few years earlier but the real estate aspect and the rest of it was new. 

Most events have a combination of some familiar aspects with some that seem different and it's not that events don't all end at some point leading to new highs but that each path might be different. This is why you diversify equity exposure and why you diversify your diversifiers. 

This example is also why I always talk about optionality and resiliency both in life and in the portfolio. For anyone believing in the importance of this in a similar manner, the path to their ideas for optionality and resiliency will probably be unique. I think it is easier now to add portfolio resiliency thanks to dramatically improved access to sophisticated strategies that didn't exist when this guy loaded up on Magellan. Creating optionality and resiliency in life probably needs to come from within. Success comes from being motivated for whatever reason versus the outcome of being forced to take whatever part time job you'd least want to take.

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 Unnecessary Anguish

Today's post starts with this image from a paper about alts published by Simplify.

Simplify says their funds focus on the upper left quadrant. Not included in the lower left, that I would mention so we don't forget about it is litigation finance. I am aware of one fund that doesn't have daily liquidity. I'm not going to use funds that don't have daily liquidity but the way things evolve, this might come in a daily liquid vehicle or be added to a multi strategy fund. 

Cat bonds are in Simplify's illiquid bucket but there are three dedicate mutual funds and one ETF in the space. As a quick note, I use SHRIX for blogging purposes because it has by far the longest track record but I use a different fund in real life. Hedge funds aren't liquid but there are countless funds with daily liquidity that do track hedge fund strategies. The Unlimited suite of ETFs are all hedge fund-like so if you're interested it's accessible. 

Then we get to royalties and again, there are more than a handful of companies that collect royalties that are usually in the MLP neck of the woods. There are a outside of natural resources but they don't appear to be very yieldy. This brought me around to Dorchester Minerals (DMLP). I've looked at this name a couple of times in the past but not sure whether I ever brought it to the blog. DMLP collects royalties from oil and natural gas with a very wide geographic footprint including the Permian Basin. It fits in with our recent conversations about seeking yields in the face of a decade to nowhere for stocks. 

It has had a good yield all the way through but man it is a wild ride at times. 

Dennis Eckersley might say that it goes down 30% just to stay in shape. 

The growth rate numbers for Saba Closed End Fund ETF (CEFS) are pretty much identical to DMLP over its shorter lifespan but the drawdown pain is quite a bit less. The 40% drop in the Covid Crash was big but nothing like some of the drops put in by DMLP.

Now here is the lasted on the GraniteShares NVDA Autocallable ETF (ANV). The chart compares ANV to the common and the YieldMax for NVDA.

The chart is price only. What is interesting is that during that big lift for the common for April into mid-May, ANV didn't move. Then in that serious decline from mid-May early July, ANV didn't move. So far, ANV has paid out $2.07 in distributions including the one that will pay later this week which annualizes out to an 18% yield compared to a 40.14% distribution rate posted on NVDY's website. 

To even consider a single stock autocallable or single stock covered call fund, or one of the put sellers for that matter, it is very important to realize you are not buying the common stock. NVDA is the reference security but that is not what you're buying. To buy ANV for NVDY you need to believe that the common won't blow up but these are not the common repeating for emphasis. If NVDA goes up 100%, you're not going to get anywhere close to that from ANV or NVDY.

Does harnessing the volatility of NVDA or another stock that has funds like this referenced to it interest you? Does it fit into your strategy? I am spending time on how to make portfolio's yieldier. That won't mean blowing up the portfolio as it sits now, it means adding a little yield here and there and while the odds are low that I will end up with a single stock autocallable or YieldMax product "yielding" 40%, there's no need to ignore how these both evolve. 

Buying DMLP in this context would probably just result in anguish for clients but understanding the name a little helps me define the space some. MLPs are yieldy and could play role in the context we've been talking about. My nit to pick as I mentioned the other day is that a 20-25% weighting in MLPs is a terrible idea, if stocks go down a lot, there's a good chance MLPs will go down a lot too. That has been the case sometimes but not in others so I'd assume the worst on that front but a lost decade doesn't necessarily mean down a lot, it could mean down a little to up a little, very little. That is where I'd want to dial up the yield. Not blow up the portfolio, just dial up the yield a little bit. 

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. 

TBG Loves BX

A reader left a comment on yesterday's post about navigating a lost decade for stocks using the TBG Dividend Growth ETF (TBG). Yesterday was part 2, here's part 1. The portfolio we looked at in part two as follows; 

In part one we just put 25% in SCHD but yesterday we updated it to include IQLT and AIQ. IQLT in foreign quality stocks (owning foreign if domestic does poorly makes sense) and AIQ is a nod to a paper from Goldman Sachs that said not to completely abandon innovation (the AI theme).

The idea of using SCHD (and then adding IQLT) was simply to avoid market cap weighting which by definition would do relatively poorly in a lost decade for stocks and focus on more dividend, quality or valueish factors. The buyback ETF PKW and Cambria's shareholder yield funds might have a seat at that table too. 

So what is TBG? It is an actively managed, concentrated portfolio of stock picks and SCHD tracks an index and is much cheaper.

TBG's stats range from just slightly better than SCHD, like the CAGR, to noticeably better like it's Sharpe Ratio. This is a little surprising given that hot potato Blackstone is the largest holding in TBG and has been since the fund's inception. Parsing Gemini's explanation, TBG might be trying to optimize its portfolio by having holdings that offset the volatility contributed by BX. BX is currently in a pretty big drawdown so TBG has lagged SCHD in 2026 so far by about 900 basis points. Portfoliolabs has a pretty good comparison of the two funds.

Grok says 8-15 (yeah that's vague) of TBG's 36 holdings are in growth indexes versus 5-20 out of SCHD's 103 holdings. In trying to answer the reader's question, TBG appears to be growthier than SCHD so that fact could work against it in our lost decade premise slightly. Interestingly, BX has a 2.55% weighting in SCHD. It does have some yield to go along with its volatility. 

TBG's track record is short but despite what the chart shows, there is a good bit of differentiation from year to year between it and SCHD.

TBG went down a little less than SCHD in the Tariff Panic of 2025 but it went down a little more than SCHD when we attacked Iran. Over the long term, TBG could certainly turn out to be the better mousetrap but my hunch is that its growthiness would be a bit of a headwind if there ends up being a lost decade for equities. 

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. 

Beta & Carry

Goldman Sachs posted a research paper that makes for a good follow up to our recent conversation about a potential lost decade for domestic equities. 

There are a couple of high level points from the paper to mention. First is that higher inflation is bad for 60/40. They said that higher interest rates which are associated with higher inflation make equities less attractive. That's a point about tradeoffs and is a widely accepted truism of markets. And if yields keep going up, that of course is bad for bonds with duration. 

I would push back partially on higher rates being bad for stocks though. Rates moving higher, everything else being equal, yes would be bad for stocks but if we get into a period where rates stay generally higher than we've seen, I think equities would adjust to that and eventually work higher. In this context, I don't mean rates going into the mid-teens like 45 years ago, just higher than they've been, 6-7% maybe instead of 4-5%. 

The basic conclusion is to underweight equities without bailing on innovation, specifically they mean AI. They say there is a poor backdrop for equities now but completely avoiding innovation is too risky. 

Most of their scenarios point to below average growth for equities except Goldilocks inflation plus an AI boom. The diamonds are the suggest equity weightings in the various scenarios they identified.

The follow up is to build on the yieldy portfolio we looked at the other day which did ignore innovation. We'll try to build some innovation back in with GlobalX Artificial & Technology ETF (AIQ). Goldman talked about foreign equity exposure too so I also added iShares International Quality ETF (IQLT), a new one for blogging purposes, as follows.

The version from the other day just put 25% into SCHD. Goldman included risk parity in their study but their results don't favor it so I included a version weighted for risk parity from Finominal too. 

 The inflation adjusted numbers were;

Looking backward, the ideas we're exploring have nowhere near 60% in domestic equities so a long run where domestic equities did very well, portfolios that were much lower in domestic equities aren't going to keep up but the results can still be plenty valid. Eight years is a decently long time to see how these different types of holdings mix in with each other. If there is a lost decade coming for US equities, having more yield and some all-weatherish attributes makes sense to me. The yield for the portfolio is just over 6% which is high but not frighteningly so, the drawdowns were reliably shallower and Portfolio 1 was up very slightly in 2022. 

A huge challenge to this entire concept is being able to discern between regime change versus a just a bad year. The key is realizing there's no reliable way to do this. I was able to sidestep quite a bit of the financial crisis (my posts at Seeking Alpha from back then corroborate this) by simply recognizing that bad things happen when sectors grow to 30% of the S&P 500. I was able to sidestep the meltdown in bonds with duration by asking the very simple question of whether yield adequately compensated the risk. 

The things I think are problematic for domestic equities now include erratic bond behavior, clear and obvious excesses in the capital markets related to tech, price inflation and there are others. There are always risk factors so now is no different in that context but I think the threat level has elevated. If somehow we do have a stretch where domestic equities do poorly, yes I think you need some foreign equity and I already do. I think the portfolio would need some yieldiness and it already has some. I think the portfolio would need some absolute return and it already does and I think it would need some crash protection which it already has.

That is all predicated on not believing I can predict anything. Believing or realizing risks have elevated is not the same thing as making a prediction. If something bad happens, the question then will be did I have enough of those things and here, right now, there is no way to know. The process in this post is unrealistic for me because I can't see reducing clients' equity exposure from 50-60% down to 20-25%. If things present themselves in an obvious way (it could happen), then reducing some exposure in favor of a little more yieldiness and a little more defense is in the realm of being practical. 

I'm trying to come up with a clever tag line for this idea; Yieldy Beta? Beta & Carry...I don't know, we'll come up with something. 

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. 

EFT Go Boom

The Opportunistic Trader ETF (WZRD) is down 97% year to date at Friday's close.

This is not a fund we've ever looked at here but Gemini thinks that the fund got hurt buying ODTE options and that those trades went wrong. ODTE stands for zero days to expiration. Assuming it's as simple as Gemini reported, going long volatility in that manner is a tough way to make a living.

VistaShares closed the Bitbonds 5 Year Enhanced Weekly Distribution ETF (BTYB). The fund allocated 80% to five year treasury notes and 20% to selling Bitcoin calls in an attempt to double the yield of the five year. When I looked, it seemed like it was doing what it was supposed to. The concept seemed solid to me as a sort of barbelling to magnify the yield. It did not trade like a hot potato so I am surprised it closed so quickly.

Something that I am getting a kick out of, there's finally going to be an ETF comprised of publicly traded exchanges, the Van Eck Global Exchanges ETF (TIKR). I first brought this up many years ago on the first iteration of the blog. The following is a list of the probable constituents. 

I've owned a publicly traded exchange for clients almost since they first started to go public quite a few years ago. From the bottom up, I believe they are cash flow machines and from the top down, it's an easy way to add non-bank financial exposure. 

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. 

Time To Get Yieldy?

The other day I mentioned starting to think about how to gameplan having a lost decade for stocks. That's not an attempt to predict anything, more like if it happens...then what? 

In the last lost decade for stocks, bonds did pretty well which helped the traditional 60/40 do relatively well considering equities floundered.

If there is another lost decade, it is plausible that factors like quality, value and dividends would do better than market cap weighted or growthier factors and sectors. Looking at the first backtest, Portfolio 1 did noticeably better than plain 60/40 while Portfolio 2 with value did only somewhat better but my premise is that bonds with duration will not help in the manner they did in the 2000's. IEF compounded at 6.77% in that period which I would not count on happening again, and simulated DBMF compounded at 8.84%.

Putting 40% into managed futures is a non-starter. It did great in the 2000's and while I think that sort of performance would come close to happening again, what if it doesn't? If stocks can't be counted on for a few years then diversifying your diversifiers becomes even more important. 

Yield sources are one way to fill in the gap. For the last ten years, VBAIX has compounded at 9.87% but if equities are lost for a period and bonds end up not being reliable then getting close to that 9.87% is not going to be realistic but that doesn't mean a portfolio can't be productive if equities flounder again. 

Obviously the vast majority of the return has come from yield not growth. Here's how I built it.

Managed futures can do well but aren't yieldy beyond T-bills and merger arb doesn't have any yield to speak of but I think absolute return would be important in a lost decade for equities. The portfolio could be yieldier I suppose but I wanted to have something of a diversified portfolio and I think 50% in funds that don't completely sell out for yield accomplishes that. The portfolio is a little heavy in credit risk which could be diluted a bit with the breadth of today's products. The current 3.13% yield from SCHD is nice of course but that pick is more about a factor that might do relatively well in a lost decade for market cap weighting. 

It has been ages since we mentioned Annaly Mortgage (NLY). It's been around for almost 30 years and the track record is surprisingly strong for something that can't realistically keep up with it's payout.

Yielding 12.28% over the long term, it's only eroded by 2.74% per year. That's impressive. In a way, a lost decade strategy is similar to bridging to the next financial milestone that we talk about every so often. Hopefully a lost decade for market cap weighting doesn't turn into a lost 28 years.

Long time readers might recall that I've had negative things to say about MLPs in the past. I certainly was down on any suggestion about putting 15, 20 or 25% into MLPs as some have said (this was before the financial crisis so probably less of that now) but what I actually said was they should not be expected to magically go up when stocks go down and I still feel that way but they can be plenty yieldy. Correlating to equities that don't do much while kicking out a high yield works in this context. 

I used QYLD for this exercise for the sole reason that it has a long track record. Derivative income funds have evolved to do a better job of compounding positively than QYLD or XYLD have been able to do. Derivative income will not be able to keep up with their reference indexes which needs to be understood. The scenario we are building looks for yield and even a little bit positive growth on a price only basis would be a win for this part of the strategy. The growth would more likely come from SCHD or a similar fund and managed futures. 

Portfoliovisualizer gives a better picture of the yield versus simpler 60/40.

The starting point in 2017 assumed $400,000. Taking all the income out would leave the portfolio at $490,000 as you can see which would not have kept up with inflation. That it didn't compound negatively on a price basis seems like a positive and FWIW, the total return averaged out to CPI plus 6.23%. 

Repeating, there is far more choice as financial products have evolved. Personally, as I work on figuring out the autocallable space (which wasn't available in ETFs until last year) a 5% weighting there and maybe 2-3% to a crazy high yielder (avoid the most volatile stocks and avoid crazy CEOs) would allow for dialing up the equity exposure some. In the template we're working from, eliminating bank loans and/or MLPs could make room for autocallables and a crazy high yielder while dialing up the equity beta some. This might result in the same portfolio yield with more opportunity for price appreciation. Keep any allocation to autocallables or crazy higher yielders small. 

A little more equity beta is something to consider. If a lost decade includes lower volatility, then that would push option premiums down, everything else being equal, lowering the yields on some of these holdings. If a lost decade includes lower volatility but with higher interest rates, that could help offset some of the premium compression because of the role the risk free rate of return plays in options pricing. This table from Copilot explains it better.

The actual numbers are more of a guess but the directions make sense. I included JELH in there because it's new and I am curious. 

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. 

Autocallable "Terrordome"

Janus Henderson has entered the autocallable terrordome as Eric Balchunas calls it. Janus has two funds for now, they do something that is unique to the current autocallable ETF market. We'll get to Janus in a moment but want to circle back to the Calamos Autocallable Income ETF (CAIE).

Autocallables are structured notes that pay out a very high yield as long as the underlying index or common stock doesn't go below a certain price or percentage drop. Banks issue these to generate fees and they hedge out their risk.

I am both fascinated by them, they often yield 12-14%, but can't get over the nagging feeling that there's more risk to the story than bad things don't happen until until the underlying index drops 40%. 

After 13 months, I can't imagine there are too many complaints about the result. If the S&P 500 had been flat over the 13 months then the price only return would likely be down by the amount of the distributions. If markets were meaningfully lower, autocallable funds should be expected to have some degree of sensitivity when declines occur and you can see that in the chart. 

CAIE is an income product, autocallables are an income niche. I used Finominal's optimizer to try to understand what it thinks the relative risk of CAIE might be. I equal weighted CAIE, ANGL which is specific type of junk bond fund, CWB which is convertible bonds and USMV which is min volatility equities. I ran the optimizer for risk weighting the four funds.

Again, I optimized for risk weighting. CWB is the riskiest of the four with CAIE not that far behind. For kicks, here's the four funds equal weighted compared to Finominal's risk weighting and VBAIX.

That one may not be too interesting but there you go. 

Back to Janus which listed JELH which is high income and JELM which targets a lower income. The funds being so new, it's not clear what the yields will be. Gemini has the average weighted coupons of the respective autocallables at 12.7% and 9.4%. So maybe those will be close?

The point of differentiation as reported by Bloomberg news and Bloomberg columnist Matt Levine is that the structured notes include crash protection sold to ETF providers that carry 2x and 3x ETFs. If a company drops more than 50% in a day like Lucid did recently with a 57% decline, a 2x fund is probably going to get wiped out. The crash puts as they're apparently called, will cover the difference between 50% and 57% for the fund provider. Buying the insurance prevents the banks' capital from being wiped out, only the people speculating on the 2x ETF.

That's a simplified explanation but this concept seems similar to catastrophe bonds. It's a form of risk transfer which is interesting to me. 

The two funds own autocallables on individual stocks. They own many different stocks in this context not like the GraniteShares single stock autocallable funds. 

Looking at the full holdings, I counted seven banks, the screenshot shows BNP Paribas and JP Morgan. Not all the autocallables have 2x ETFs so they don't all have crash protection embedded. Chevron, CVS and T do not but NVDA, AVGO and PLTR do have 2x ETFs. 

CAIE targets a yield of 14% but JELH might only be 12% combining autocallables and autocallables with crash protection built in. My initial thought is that the Janus funds should yield a little more. Selling crash protection probably dials up the risk a little. It's early days so that initial thought could be wrong. 

Lately I have been thinking about how to adapt the portfolio if we go through another long stretch like the 2000's where the indexes compound far lower than "normal." Making portfolios a little more yieldy, maybe with equity income added in with the straight equity exposure. That's a developing thought but it places importance on learning more about vehicles like these.  

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.