Wednesday Fund Roundup

Here's a snippet from Tiger Global on how they do things.

 

You can get a little more clicking here. If you know about their story then you might conclude they didn't quite follow their own tenets but just because it ended badly doesn't mean there is utility to be gained or some influence to be had. I've used the example of John Hussman quite a few times, he does a great job of framing the prevailing bear case and has influenced me to think about risks being elevated or not, that's useful. It's hard to think he draws the correct conclusion about how to position in light of elevated risks but still, there's plenty to learn.

It made more sense to sell down positions as part of a defensive strategy during the financial crisis, I did a little of this when as the S&P 500 breached its 200 day moving average (DMA). That bear market was very typical of how bear markets start which is to say slowly, over a period of months with most of the declines coming on the back 2/3rd calendar-wise. The "bear" markets in late 2018 and at the start of the pandemic were not typical for how quickly they happened making a 200 DMA-based strategy far less effective. That's ok, no single strategy can be the best for all times.

Now though, it becomes much easier to maintain positions in diversifiers for a bunch of reasons including there are far more than there used to be, offering many different targeted outcomes. This makes it reasonable to hold certain diversifiers for longer periods than previously made sense. Maybe, perpetually holding an inverse fund isn't a great idea but maybe there can be a longer hold period for certain diversifiers. I've held GLD personally and for clients since it started trading, for example. It's not perfect but it works often enough for me to believe in it. 

Here's a chart with five diversifiers, symbols blocked out, YTD versus the S&P 500's 20% decline.

 

As tools to blunt the full brunt of the stock market's decline, I'd say they've helped. Not like an inverse fund or maybe a strategic fund more targeted to actually go up when stocks go down or like an exposure that "should" have a negative correlation to stocks but still, helpful IMO.

Here are the same funds for a longer period with the S&P 500 added for context.

 

On the second chart I left the tickers of the treasury ETFs in there. IEI is 3-7 years while SCHO is more generically short term treasuries. The blocked out symbols are all for absolute return-ish funds which have done better for the longer period studied and which have mostly done better in 2022.

Anyone thinking it is acceptable to have a permanent, short-term maturity treasury allocation and is somewhat actively engaged in their portfolio construction should be open to the possibility of having a permanent absolute return-ish allocation too. If the returns are similar over longer periods and the strategies rely on different things then it is reasonable to conclude an allocation to absolute return in conjunction with short term bonds won't change returns too often but will diversify risk even if we're talking about one-off type risk events. 

This morning on ETF IQ on Bloomberg, they featured the FolioBeyond Rising Rates ETF (RISR). The way Eric Balchunas explained it, the fund primarily buys interest only derivatives of mortgage bonds which do well when rates go up because prepayments go down when rates go up. You're not going to refinance into a higher interest rate. This has the effect of giving the fund a negative duration.

 

YTD it is up 29% vs down 20% for the S&P 500. That result clearly helped offset equity portfolio declines this year. I am inclined to look at a fund like this and think, if it can go up 30% in six months, it could go down than much and Eric essentially asked that, he asked what happens when interest rates go down. Fund manager Yung Lim said in a bull market, they can buy call options on treasuries to get the negative duration from generally around negative 10 to negative 5 but that negative 5 is as far as they would likely go.

Sort of a worlds colliding, I worked with Yung a little bit when I was at AdvisorShares and his firm, Treesdale, managed a couple of funds for them.