A Different Path To Efficient Capital

A short post today with an example of a different kind of capital efficiency. The first three portfolios are all 10% Direxion 3X Technology (TECL) and 90% catastrophe bonds. The name of each of the three is how often they rebalance. 

All three outperform 60/40 with less volatility and a lower beta. It's not something that anyone should do with their money but it is a simple example of a concept we frequently discuss. A small exposure to a volatile holding is providing a lot of growth to the portfolio. If TECL does something hideous, that would be unfortunate but far from ruinous. 

Diversifying the TECL sleeve would make sense but might not be crucial, clearly 90% in SHRIX is a terrible idea. 

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.

What The Hell Is Wrong With Gold!?!

It doesn't matter! Or, I don't know! For the last few months gold has not been much help as a diversifier uncorrelated to equities. The S&P 500 has been choppy but not necessarily trending lower but maybe we'll view that differently in a couple of weeks. Gold though made a lower high in early September and had arguably been trending down for the duration of that chart. Frequently, on individual days that stocks go down, gold goes down too. 

Maybe we can figure out why but that doesn't change anything. This is a great example of why you diversify your diversifiers and why I am big on small exposures to diversifiers with disparate risks. Stocks are choppy and reported price inflation is escalated. Gold should be killing it right now but it isn't. Diversify your diversifiers. 

The following image is telling and fascinating even if not surprising. 

SPXT tracks the S&P 500 excluding the tech sector. Who knows if this is the start of something serious in the market or not but for now, not all correlations are going to 1.00.

There were a lot of tech and tech adjacent stocks that got punched in the mouth over the last few days including Intel, AMD and Sandisk. Reddit got my attention too.

Yowza! 

It's not the end of the world to get caught in one of these, that can happen every so often and probably goes with the territory of owning individual stocks or even industry funds. SOXX and SMH, both semiconductor ETFs, were down 8% and 7% respectively on Friday. The important thing is sizing. Before the last week or two, semiconductors made up about 18% of the S&P 500. Owning 20% or 22%  would be unlucky but not ruinous the way 40% might be. 

Figuring out how much you own of various things like sectors or countries or anything else in a portfolio of ETFs is not too difficult but I don't think it is a common practice believe it or not. ETF providers want holders to know. It just requires looking at the holdings and then a little math or spreadsheet work. What am I saying? Now AI can do this work even faster. 

Finally, I took this screenshot before the open as a follow up to the WBMO fund we looked at earlier this week. 

It's just one day but we were skeptical of WBMO. Here's the same four at Friday's close. 

The idea underlying WBMO is interesting but I think it will be more volatile than other broad, multi-asset funds. 

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.

A Daily Interval

On Wednesday of this week, Alphabet (GOOG) reported earnings that were not well received by the street. A couple of the metrics missed, raising questions about whether the company is spending too much money on capex for AI, too much relative to what they can make back. Earlier on Wednesday I saw an ad for the T-Rex 2X GOOG ETF which has symbol GOOX. 

We've looked at leveraged products from several different angles including the idea that the more volatile the underlying, the more the 2X fund will deviate from it's reference security when looked at over longer periods. Looking at GOOX, it's been pretty close to 2X most of the time, not all of the time but most of it. 

Here are the month by month results.

Of course it is not perfect but many of the individual months are pretty close. Many of the stats are 2X too....except growth rate which is 50% more than the reference security. 

Figuring out the capital efficiency is interesting. There is clearly no assurance that GOOX will capture 2X GOOG for more than a day despite many months where it has come close. Stocks that are a little less volatile have less volatility drag and have the opportunity to come closer to 2X over a longer period. 

Sandisk (SNDK) is far more volatile than GOOG and so SNXX has been more like 1.1X over the shorter period that it has been trading. I would also throw in that since the start of 2026, GOOX is down far more than 2X GOOG. I think it is useful to revisit these every so often even if the likelihood of using them is very low. 

Related to leverage, the 2026 ReturnStacked Symposium was held in Chicago this week. During the event they Tweeted out photos with quotes attributed to the speakers like the following. Last year, after the event they shared a lot of the content so we'll see if they do that again this year. The content and the theory of course fasciate me.

We haven't been able to make it work best by stacking them all. The following is a variation of what we've looked at several times before. 

Both portfolios have the same 40% to equities, the same 20% to managed futures replication, the same two fixed income funds and then in the portfolio leveraged with RSST, we added APHPX which is like a global macro fund. The premise from ReturnStacked is not about leveraging up, it is about adding diversifiers without having to give up equity or fixed income exposure. 

I also ran it with 40% in JAAA as opposed to an additional alternative and that also lagged by a similar amount. The lag is slight and it is only a touch more volatile so it's not bad, it's less volatile than AOR which is 60/40 and had a higher Sharpe Ratio than AOR too. That's good but the leverage isn't adding anything versus not being leveraged. 

The problem is highlighted. I think RSST versus SPY/DBMF is a reasonable comparison, one we've used before and RSST seems to always lag. I've said this before, I'm not sure this is actually solving a problem. 

Last one is about the tokenization of funds. Here's another angle on this related to interval funds,  evergreen funds or any other fund that does not have daily liquidity. We are not yet at the point I am going to describe. The big idea is that it will soon be possible (probably) to buy a tokenized version of something like Ark Venture Fund (ARKVX) or the KPC Litigation Finance Fund and be able to sell it on chain without the limits or gating. ARKVX was profiled in this context in that link I dropped and KPC is a fund I've written about once or twice before, it doesn't have a symbol.

You can think of the tokenized version of a fund as being a different share class of a fund like mutual funds have. That's a little too simplistic but it paints a good picture. Whatever limits there are to buying the funds through the actual company like being accredited or needing an advisor would still be in place. It is not clear to be whether those restrictions would still be in place for someone buying a fund on chain. 

One big issue though could be the pricing when you try to trade on chain. Maybe it will be close to NAV but maybe not which is a risk but there is a price that you'd be able to get out if you had to. 

This concept will make its way to brokerage accounts which will make every aspect easier. Again, it's very early, we're not there yet, this is simply a concept that I think could be useful. A small slice into something like litigation finance interests me but there is no scenario where I am giving up daily liquidity. Maybe as described it's more of a step toward daily liquidity. 

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.

A Clear Path To Catastrophe

The new VanEck Wealth Builder ETF (WBMO) looks interesting. It sort of comes from a model portfolio of ETFs that VanEck has been running for a little over two years. It's not a precise description but it appears to be similar. 

• 44.8% Domestic equity
• 7.7% Foreign equity
• 38.2% Fixed income 
• 8.6% Alternatives; gold, bitcoin, inflation, infrastructure, energy

I was able to tease out a backtest from Grok but fair warning, the numbers from Gemini were different. 

CAGR: 15.21%

Annualized volatility: 11.81%

Sharpe ratio: 0.91 (using ~4.5% risk-free rate) / 1.29 (rf = 0)

Total return: +45.71%

Max drawdown: –12.39%

The hypothetical backtest goes back to January 11, 2024 which is not a huge sample size but in that time frame we can make a comparison to SPY, VBAIX, PRPFX and AQRIX.

AQRIX is a multi asset fund and I think that it speaks well for WBMO that it was close to AQRIX. The fund is not a static allocation so the back test of just taking a snapshot today and going back a couple of years isn't that tight but I do tend to think that stats related to volatility can stand up even if the growth rate is off by a little. So that's the positive. The....maybe not negative but to me questionable is some of the largest holdings. 

• SPYM 17.52%
• QQQM 11.72%
• SMH 3.08%

There are some holdings with larger weightings between QQQM and SMH but SPYM and QQQM are the two largest and SMH is also in the top ten. There's a lot of overlap there. I think having the S&P 500 and NASDAQ 100 in the same portfolio is questionable. I asked Gemini about SPYM and QQQM and its initial response was to rationalize it by talking about making an active decision on cyclicality and mega cap tech and that SPYM/QQQM was a cheaper alternative than the only other choice of buying an actively managed fund instead.

Buying a more expensive actively managed fund is not the only alternative, not even close. Gemini backed off of that assertion. I asked if SPYM/QQQM might be an attempt at capital efficiency to increase the equity exposure with volatility and beta and Gemini said yes to that. My last question on this point was with all of that, does the 3% to semiconductors via SMH support the idea of capital efficiency or does it support my skepticism about overlap and questionable portfolio construction?

The 3.01% weight to the VanEck Semiconductor ETF (SMH) is the ultimate piece of evidence supporting your skepticism of overlapping index exposure.

It completely undermines the "clean tracking" or "capital efficiency" narrative and serves as a classic example of unnecessary duplication in portfolio design.

Ok, skepticism doesn't have to mean it's a bad fund but there are ways to get the same beta and volatility, if they are operating at that level, without overlapping like this. I do take a dim view of this sort of portfolio construction but you can check out Meb Faber's thoughts on his Twitter feed, I think he's said even harsher things. 

Now autocallables. One of the Innovator ETF guys was interviewed by ETF.com at Future Proof and part of the conversation was about autocallable ETFs. Innovator has two of them (at least two anyway), ACEI and ACII. The dispersion between the two is a great example to learn from without needing to dig all the way into the complexity of these funds.

ACII targets a 9% distribution and owns a series of autocallables on broad index ETFs. ACEI targets a payout of 13% or so and owns autocallables on individual stocks. 

A useful building block of understanding that we've been working with is that everything else being equal, the higher the yield of an autocallable fund, the more volatility it should have. ACEI and CAIE have very similar yield targets and the volatility is similar but ACEI appears to have really struggled. 

ACEI owns autocallables on individual stocks and CAIE owns autocallables on a more volatile variation of the S&P 500. Because of this, ACEI is more exposed to single stock volatility, it's more sensitive to equity volatility, versus index volatility for ACII and CAIE. 

This is another example where it's easy to get taken in by a mid-teens distribution but a 9% payout with less volatility is a very solid outcome and likely to be far less difficult to hold onto. If you want to step in, just keep the sizing right. A 60/40 portfolio with 40% in a bunch of different lower yielding autocallable funds seems like a clear path to catastrophe. 

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.

Good, Not Riskless

Abnormal Returns included this link about managed futures in its post today. It doesn't offer anything new but I thought of a way to look at them versus what we've done before. I mentioned once before that Testfol.io can go back to 1987 with simulated KMLM.

The chart does a good job of explaining the potential benefit of managed futures. You need to look closely in some instances but KMLMsim diverges from the S&P 500 and 60/40 at almost every negative turn. 

Since then, it's been less reliable. 

From Jan 1 2008 to now, KMLMsim has compounded at 3.42% versus 11.30% for SPY and 8.43% for 60/40. A long time ago at other URLs for my blog I theorized that T-bill rates at zero or close to it hurts managed futures. Managed futures funds hold a lot of T-bills so for much of the period in the bar chart when rates were very low, there was 300-400 basis points of T-bill interest those funds weren't getting. When I was side-gigging with AdvisorShares I had opportunities to ask people about my theory and was routinely told it wasn't a factor. It was a factor. 

T-bills now have yield. Of course T-bills had yield in 2023, 2024 and 2025. Obviously yield is not the only factor driving returns, if it was, there'd be no argument to own managed futures. Holding managed futures in that recent three year period meant riding out a combo of whipsaws and choppiness which are both obstacles for the strategy. If that's too many excuses then you probably aren't interest in managed futures. 

The other thing today is that I wanted to dig in a little on the Innovator Equity Managed Floor ETF (SFLR). It's in the neighborhood of being a buffer fund but it's also the opposite of a buffer fund. Instead of protecting against the first 9% maybe or 15% down, exposing holders the the decline beyond that first 9%, 15% or whatever the objective is, SFLR offers no protection against the first 10% down, the floor so to speak, but then offers protection against for the rest of the way down after the first 10%. 

Except when it doesn't. 

The fund puts on an option combo. This is from the most recent fact sheet. Obviously it is stale but you can see that it sells calls to pay for a ladder of puts.

SFLR has a beta of 0.61 and is unlikely to keep up with SPY. That's not a negative, it is important to understand going in. If the market is up a little, then yeah, it will probably be pretty close but up a lot and the calls will cap the upside. 

The fund is at risk of "not working" in a long drawn out decline like 2000-2002. Gemini worked through an example where it thought SFLR would have been down 30-35% versus 50% for the S&P 500. The reason has to do with how the market kept going down and the new puts that were purchased along the way were at lower strike prices giving more room to the downside. The 10% floor would have kept getting set lower. 

The other type of scenario flagged was a very fast decline and snapback. Depending on when that happens in relation to when the calls expired, the fund could miss out on the snapback. None of that has happened so far though.

Once you realize that this will not keep up with the S&P 500 when the S&P 500 is up a lot, it becomes easier to accept SFLR has had a very good result.

Generally speaking, including a fund that could have decent upside, not full but decent, while helping to bring down the portfolio's volatility is a valid approach stressing having the correct expectations. It will not have full upcapture.

Going full floor or full buffer is probably a bad idea. In the 2000-2002 scenario, it would be easy to think the fund wasn't working correctly and give up at the bottom. Having the correct expectations includes understanding these funds relying on options combos to deliver some sort of managed result are not infallible. SFLR might be a good fund but it's not a riskless fund. 

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.

A Clear Source Of Volatility

We've taken a couple of looks at the Northern Trust 2055 Inflation Linked Distributing Ladder ETF (TIPD). The example we came up with for a use case was to cover property tax for most or all of retirement. Our property tax in Walker is about $2000 so $60,000 in TIPD should cover it. The inflation rate for things like Medicare or homeowners insurance typically exceeds the inflation rate used to adjust TIPS.

The chart compares TIPD with UTHY which tracks 30 year treasury bonds. TIPD bottomed out with a 12.5% drawdown on a price basis and is currently down 9.5%. It has a holding maturing in December which will be the big payout for the year. The duration of the fund will slowly go down as we move closer to 2055 but it will be sensitive to interest rates for many more years. For a little context, TIPA which is the Northern Trust fund maturing in 2030 is down a little less than 2%.

Everything is working as it should but when we work on some of these ideas (theories), they are always interesting but it is important to check in on what actually owning, in this case TIPD to cover 30 years of property tax is really like. 

If someone can devote $60,000 or maybe a higher amount for a more expensive county to such a narrow purpose then maybe it makes sense but it will be volatile. I would not devote 10% of my nest egg for long term property tax coverage but 5% might be reasonable.

Clearly TIPD would be a source of volatility, repeated for emphasis.

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.

My Experience With Amazon One Medical

A recurring theme here is the extent to which everything about the healthcare system is broken. We generally have long wait times, insurance is absurdly expensive and we are collectively very unhealthy. Most people take a lot of medication, not only for whatever issue they have but also medication to manage the side effects of the medication they take to treat whatever issue they have. 

Neal Templin's latest article for Barron's looks at how he uses AI to help with health stuff. One example he gave was about whether to use creatine or not. One way he would not use it was to get an opinion about getting a heart ablation. He said he saw his doctor and then got a second opinion from another doctor. AI could have played a role in his ablation though. In that instance, AI could have helped him come up with better questions to ask his doctor and his second opinion visit. Better questions, not conclusions. 

A couple of weeks ago I said that I had signed up for Amazon One Medical (AOM). I hadn't had a physical in a while and needed a new doctor. I tried going the conventional route with Banner in Tucson and they couldn't get me in until March. 

On October 7th I enrolled in AOM, had a video consult with a doctor on October 9, got blood drawn on October 16th and had the follow up to go over the bloodwork on October 23 (all good!). AOM is a few things. It can match you up with a doctor which is what I did and it takes my admittedly crappy health insurance which is another form of optionality, cheaper insurance. Through the AOM system, the doctor sent orders through to Sonora Quest which didn't go too smoothly. I went to the one in Prescott Valley and they didn't know what to do. I called in to AOM customer service and they are very good, the rep sent me the orders through the portal which I printed and took in with me to a Sonora Quest in Tucson. 

In addition to matching me with a doctor and the customer service number, there is a concierge type of service for simple medical things, like refilling prescriptions or getting a new prescription for something like a urinary tract infection (their examples). That sort of consult is pretty much available immediately. Concierge is my word, if you think there is a better or more accurate description, please leave a comment. 

There was a little bit of a learning curve for me and I probably still don't have it all dialed in. I couldn't figure out how to find the orders for my bloodwork. It wasn't an issue for AOM to send it as I described but still. I also had trouble figuring out how to circle back to the same doctor for a follow up. On a different call to AOM customer service the rep said to think of it more as a clinic which made sense but I was able to find the same doc and follow up with him.

A fair point here is to wonder, well is the doctor any good. I have no real basis to know. I found him on LinkedIn and he's been practicing since 2002. He seemed to know things and he was personable. 

If you've been reading my blog for a while you might know that I am a health enthusiast, I get teased in the fire department about being a health nut which is fair. When I had the follow up with the doctor he said something to the effect of "you weren't kidding about exercising," he could see that in my numbers. I also got a couple of "wow...for your age" comments which I take as supporting the idea that a couple of simple habits (lift weights, low carb diet) can slow down the aging process on cellular and metabolic levels.  

Good health and fitness is optionality, I've made that comment 100 times. If you're skeptical about AOM or any other telehealth and think the quality of care might not be great, you might be correct for someone who needs more care and more interventions. The optionality in this context is being able to get away with substandard care for now because I just need bloodwork every so often, if something pops up, hopefully I'd be catching early. 

I am acutely aware how fortunate I am to not need any clever doctoring or need to manage any sort of chronic malady. I believe lifting weights and greatly reducing carbohydrate consumption is how to avoid chronic conditions that require medication and then more medication to treat the side effects of the first medication. I realize I said that above. 

Amazon One Medical solves a problem for me which is why I am sharing this, maybe it solves a problem or two for other people too.