Friday Night Fun!

First up is a sensational headlined story from Barron's: Eating 400 Calories a Day From These Foods Could Raise Your Dementia Risk Risk By Over 20%. The food they are talking about is processed food. A 20% increase is not significant but in there is a brutal statistic that Americans get 56% of their calories from processed foods. Google Type 3 Diabetes. What you'll find is the idea that Alzheimer's and the like are diabetes if the mind because it is caused by too many carbs and processed food jam packed with industrial seed oils. Draw your own conclusion after looking it up but regardless of what you conclude, there's no one who says to eat more processed food. 

Brett Arends looks at whether $1 million is still enough to retire. He says a couple of things I've been saying forever including that replacing some percentage of your income is a silly thing focus on he also seems to be fond of annuities which I am not but either way. While it makes sense to plan out based on expectations of income, sustainable portfolio withdrawal rates and spending needs to create a financial plan, it is important to also build in plenty of flexibility and optionality into that plan in case things go wrong or take an unexpected turn. 

Last one from Barron's looks at what they refer to as "thematic" ETFs. I put the word in quotes because the article uses it for a catchall that includes sectors, factors and extremely narrow exposures. Also included in the conversation were funds managed by Cathie Wood. 

The tone of the article was to be negative on these funds, they can be "dangerous" and so on. Lumping in a minimum volatility factor ETF with an ETF that focuses on K-Pop, seriously, there is an ETF for that, makes all of us dumber. If you buy a fund managed by Cathie Wood, you are buying the active manager. At times that might look smart and other times, most recently, it will fill you with regret. We just looked at factor funds and most of them will lead by a little sometimes, lag by a little other times but mostly track market cap weighting most of the time. Suboptimal at times? Maybe, sure. Dangerous? Seems unlikely. 

For the narrowest, most esoteric ETFs ideas, the way I've always framed it is from the top down, is there some theme or idea that you think is promising? You might take the time in that scenario to learn about a couple of different companies in the space and "oh, look there's an ETF that tracks the space, maybe I should spend some time learning about that too before I invest." In some of these very narrow spaces a stock might be your best bet but for other themes it might be that ETF. It is very unlikely that the ETF will malfunction as opposed to the investor choosing the wrong theme or buying at the wrong time. Look at Cathie Wood's funds. They are heavy in things that went up 100-200% a couple of years ago and stayed heavy in them as they dropped 50-70%. The ETF doesn't have a different level of danger versus the stocks it owns. 

A quick check-in on single stock ETFs with a look at the Tesla complex. 

 

The purple line is the underlying common. The blue line under that is the 1.5X long version. If it were tracking perfectly longer term it would be down 57% not 54%. The light blue at the top of the chart is the 1X inverse. If that was tracking perfectly longer term it would up 38%. The pink like is the one that seeks to track exposure with a synthetic long position plus selling some calls. That has only been trading for a few weeks and for now seems to look more like the 1.5X long version than the common but it's too soon IMO to draw any conclusions. 

Are the ones that have been around longer tracking close enough to consider them as longer term holds? That is up to the individual of course but a point I make regularly is that while they can deviate wildly from the common they usually don't. I have no interest in owning anything related to Tesla but I think it is useful to track the single stock ETF space. It seems very plausible that a use case could emerge if they collectively can last (AUM issues so far) even if for me, that will never involve Tesla.  

Lastly here's a link from StandPoint looking at some of the largest alternative strategy funds. The funds vary in terms of complexity but this is a good research tool. 

Really the last thing as I hit the button to publish. If you like football, check out the FCS playoffs with two games on ESPN2 tonight and another one tomorrow morning on ESPN (noon eastern time). The action in FCS games is almost always great.