Another curmudgeonly post from me about complex-complexity. At some point this year I started talking about portfolios being simplicity hedged with a little complexity. In subsequent posts I divided complexity into simple-complexity comprised of one, maybe two different strategies under the hood of an alternative strategy versus complex-complexity which is how I describe funds that are multi-strategy or multi-asset, a fund purporting to be global macro would be another example of complex-complexity.
A good example for complex-complexity is the Rational ReSolve Adaptive Asset Allocation Fund (RDMIX). That fund provides exposure to equities, fixed income, managed futures, global macro (which can be its own multi-strategy) and volatility.
With complex-complexity like RDMIX there is the layer of each allocation/strategy doing what it is "supposed" to do or is expected to do and an additional layer of how each of them might interact with each other.
Here's RDMIX with StrategyShares Newfound/ReSolve Robust Momentum ETF (ROMO), the ATAC US Rotation ETF (RORO) which we looked at in August and the Vanguard Balanced Index Fund (VBAIX) which is a proxy for a 60/40 portfolio.
YTD, RDMIX looks good. It had a great start to the year but in the last six months it is the worst performer of the bunch down 12.2% per Yahoo Finance.
Quick reminder on RORO it goes long equities with just a little leverage when lumber outperforms gold, risk on, and switches to longer dated treasuries when gold outperforms lumber, risk off.
ROMO is new to me. Obviously the ReSolve guys are involved with the fund. You can read this blog post to learn more about ROMO but the short version is it uses momentum and trend to own either equities, treasuries or a combo of the two.
RORO and ROMO are not as complex as RDMIX but there is more than one thing going on with both of them and they each rely on the same thing working the way it is supposed to which is that treasuries should be a good place to hide when equities are struggling.
Part of the description for ROMO is "avoiding significant and prolonged downturns." If you learn about RDMIX, I believe you could conclude it is trying to deliver an all-weather result. And a fund that talks about risk off is clearly trying to insulate against equity declines. They're not doing that. They all back test very well of course but then the first real world event that comes and the funds don't do well.
Here's ROMO since it's inception against VBAIX.
It looks like it missed the bounce in the 2020 Pandemic Crash and it looks like it has missed the recent bounce in the last few weeks. Right now the fund shows a little over 17% in equities. If it was that light in equities when VBAIX lifted, then that would account for the recent lag.
The YTD chart for ROMO, above, tracks almost exactly to VBAIX which I doubt is what they have in mind.
I continue to believe it is much better to have as much of your portfolio as possible be plain vanilla. Do you have any exposure to big technology that goes narrower than a broad index fund? Is it down on the year like all tech is? That's easy to piece together. Do you have any defense contractors, stock or ETF? Is that up some on the year? That's easy to piece together. Do you have any single factor diversifiers like managed futures? Are they generally doing what they are supposed to? A couple of mine are and a couple are not. Do you have any simpler, low volatility alts that are intended to be horizontal lines that tilt up? Are they doing that? Simple attribution makes it much easier to understand what is going on in your portfolio which I believe makes it less likely to make bad, panicked decisions.
I'm glad these complex funds are being issued. They offer potential robustness to portfolio that used to be much harder to implement but with more choice should come more selectivity.
I have no intention or interest in buying any of the funds mentioned in this post either personally or for clients.
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