Early today the Rational/ReSolve Adaptive Asset Allocation Fund (RDMIX) sent out it's monthly report providing an update on how things are going. RDMIX is a multi-asset and I would say multi-strategy fund that uses a lot of sophisticated strategies along with some amount of leverage. I've written about the fund a few times, it is intriguing and I'll repeat that despite what I am going to say about it, it is legitimately sophisticated.
Just because it is sophisticated, doesn't mean it works. Maybe the strategy doesn't lend itself to a mutual fund, maybe there's something off in the implementation or maybe it's something else but look at the result from the literature versus a benchmark they chose. When I look at that chart, I see the fund taking a much more volatile path to the exact same result. I don't know why anyone would want that.
The group that runs this fund is involved in a lot of things, putting out a lot of thought leadership to support other funds and what appears to be partnerships with other fund companies. I enjoy their portfolio theory content.
Buried deep in their work product domain is a portfolio that I don't think we've talked about before that is laid out as follows;
- Standpoint Mutli-Asset Fund (BLNDX) 25%
- Newfound Return Stacked Managed US Stock & Bonds (NFDIX) 45%
- RDMIX 30%
BLNDX is a personal and client holding that blends equities and managed futures. NFDIX allocates 75% each to stocks and bonds. I take this portfolio to be an attempt to deliver a better risk adjusted return over 60/40 which we'll proxy with Vanguard Balanced Index (VBAIX). Portfolio 2 in the following study is something I concocted a few weeks that is 60% BLNDX and 40% AQR Multi-Asset (AQRIX) which despite its name is a risk parity fund but far more active in its strategy than RPAR Risk Parity ETF (RPAR) which has been a dreadful hold.
Obviously it doesn't go back that far but we have what we have. I referred to a slightly different version of Portfolio 2 on October 11 but the comparison to the three fund portfolio from the Rational/ReSolve guys is new.
The BLNDX/NFDIX/RDMIX combo, Portfolio 1, was hurt badly in 2022, and lagged considerably in 2020 and this year. We've talked about NFDIX in other posts. For whatever reason it is a tough hold. It was down 27% in 2022 and yes I realize the idea is to size it accordingly to then stack diversifiers on top of it but the 25/45/30 portfolio is their idea and it has struggled mightily against the BLNDX/AQRIX combo I pretty much just pulled out of my butt and underperformed VBAIX in nominal returns and has a lower Sharpe Ratio.
Repeated for the 100th time, when you're exploring these advanced ideas, be careful of being too clever by half, that is, being too smart for your own good. Plain vanilla equities are the thing that goes up the most, most of the time. I've been clear that I don't think intermediate and longer term fixed income diversify the way they used to which is where I think some of the alts we explore can fit in to provide the effect that I believe people want from bonds. Could something like AQRIX work as a small slice, I don't know, maybe? But 40%? Yikes, no.
The struggles of NFDIX shows us that anything can have a bad run (or maybe not work in a fund wrapper). How we size something into the portfolio determines how big of an impact a bad run does or does not have on the portfolio. While any individual alternative strategy can have a bad run, it's not a realistic probability that all of them will fail in the same market event. If you disagree with that then don't use them.
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.
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