Wait, What Do These Funds Do Again?

The crew at Return Stacked ETFs filed for two more ETF that look very interesting and very complex. I will do my best to articulate what they are doing. I understand it but we'll see if I can articulate it. Hat tip to ETF Hearsay on Twitter.  

Instead of combining equities with managed futures or bonds with managed futures like two of their other funds, one fund will be a blend of equities and "carry" and the other fund will be a blend of fixed income and carry. Like the first two funds they will be leveraged 100% exposure for each asset/strategy in each fund. 

Per the prospectus, the way the fund will implement carry will be across four asset classes, equities, fixed income, currency and commodities. Carry looks at owning an asset class versus the opportunity cost of not owning the asset class. If stocks yield 2% while most money markets yield 5% then it would own a money market (or other cash proxy) and sell equities short. With currencies, which is probably the most familiar use of the carry trade, it would short the dollar against higher yielding currencies or go long the dollar while shorting lower yielding currencies. This will be done actively which I take to mean that the fund could avoid shorting equities if the manager thought that was the right thing to do. 

Commodity carry is a little different, using a "convenience yield" versus costs that can include storage and transportation. You can click here and scroll down to page six if this interests you.

Again, RSSY will be 100% stocks, 100% carry and RSBY will be 100% bonds, 100% carry. This will be interesting to say the least. I have no idea what to expect. A Google search for carry funds came up empty. I asked ChatGPT and struck out. The Invesco Currency Harvest ETF (DBV) is a carry strategy ETF but just with currencies and you can see how it is done. I threw in client and personal holding Merger Fund for some low vol alt context versus 60/40.

While DBV's performance doesn't seem at all noteworthy, I have to believe that Return Stacked ETFs believes this is a winning idea and will have data to validate the strategy. No fund has a terrible backtest.

Where we are fascinated by ETFs democratizing access to very sophisticated strategies these funds certainly fit that bill. I won't prejudge because I have no idea (repeated for emphasis) but where we talk about simplicity hedged with a little bit of complexity in portfolio construction, these funds might be a way to create a portfolio built on simplicity hedged with a little rocket science or four dimensional chess. 

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