Old School Alts, Represent!

With all the time we've spent learning about new alternative strategies (new in that they've become accessible in funds for retail sized accounts) and how to incorporate them into a diversified portfolios, I thought it might be worthwhile to revisit a couple of older school alternatives to see how they're doing through the current event.

The chart shows a couple of Hussman funds and the Permanent Portfolio. I threw in Guggenheim Managed Futures (RYMFX) because we've been using that as a benchmark of sorts for months and Vanguard Balanced Index (VBAIX) which is a proxy for a 60/40 portfolio. 

 

The chart does not include the 2022 bear market. PRPFX' path in interesting. It's taken a different path to the same result as VBAIX. Both are multi-asset but PRPFX obviously allocates to precious metals and where you see the two funds diverge, those divergences coincide with big moves in gold. During the GFC and a little beyond, gold did very well and PRPFX outperformed by a mile. Then from about 2013 to 2016, gold struggled and so too did PRPFX. 

Hussman Strategic Total Return, the purple line, looks very similar to the type of alt that sets the expectation of being a horizontal line that tilts upward. It usually owns various types of bonds but under certain conditions it can own equities, notably REITs, mining stocks, utilities and a couple of other things. Hussman Strategic Growth (HSGFX) looks like an inverse fund but I don't think that is the objective. 

Now here's the bear market.

 

The old school alts are generally working. HSGFX, the thing that looked like an inverse fund coming into the year, looks like an inverse fund this year. Where HSTRX looked like a horizontal line type of alt before, it fails that expectation this year. PRPFX seems to be doing a great job. It captured the upside of VBAIX over a long period, albeit with some big divergences along the way, while being down only half as much this year. 

 

Portfolio 1 is 75% SPDR S&P 500 (SPY)/25% client and personal holding BTAL, Portfolio 2 is 100% PRPFX and Portfolio 3 is 100% VBAIX. The ten year numbers are awful for PRPFX because gold went down for about 4 years from 2013-2016. Going back to 2002 and PRPFX has a CAGR that beats VBAIX by 74 basis points annually thanks mostly to how well gold did in the first decade of this century. 

I can see where PRPFX could be useful as core position but it should be obvious that it is capable of both leading and lagging other core holdings like VBAIX, maybe for a long time. If gold declines for the next four years the way it did ten years ago, it would be hard to see PRPFX doing well by comparison. It possibly being useful does not mean it must be better. 

Let's play around with PRPFX in a portfolio that does a little return stacking and a little leveraging down.

 

Here's how it did back to 2016.

 

It won't keep up with 100% equities in a bull market but it's result against VBAIX is compelling. It outperforms by 118 basis points annualized, a slightly lower standard deviation and meaningful outperformance this year. It should be understood that most of the annualized CAGR outperformance is thanks to this year. That's ok though. Looks like VBAIX on the way up but down way less in a bear market? That's