A Practical Application Of Return Stacking?

Corey Hoffstein from ReturnStacked ETFs and Newfound wrote a quick blog post to support the ReturnStacked Global Stock & Bonds ETF (RSSB). RSSB leverages up to offer 100% exposure to both equities and bonds. The following graphic from his post pretty much sums up the argument.

The free 10% can go toward maybe adding potential alpha or helping to smooth out the ride or whatever else an investors might come up with, maybe going hog wild with Bitcoin asymmetry. Corey suggested that 10% go toward funds that I would describe as being in the realm of all-weather. I replicated Corey's idea with Portfolio number 2 as follows.

That nets out to 60/40 plus the free 10% going to ARBIX. Below, I compared it to VBAIX and I built Portfolio 3 that I think delivers almost the same thing as Corey's idea.

NTSX is the 90/60 ETF. It is leveraged up in such a way that a 67% weight to it is the same as putting 100% into VBAIX. BIL is the SPDR Treasury Bill ETF which is a cash proxy. Both Portfolio's 2 and 3 had a little better growth with a little lower volatility. 

None of the three will protect against a huge downturn like we had in 2022.

The two alternative strategy portfolios were pretty much right in line with VBAIX in 2022. If we spend more time looking and built more into the free 10% we might get better results. As presented, I also tried AQRIX to see if that was any better but it wasn't, I'm not sure something like Portfolio 2 is worth doing. If there is any value to Portfolio 3 it is that the 23% in BIL will help protect against sequence of return risk by setting cash aside for income needs. It doesn't protect against a decline, it segregates cash for income needs. All three portfolios are proxies for the same thing but the first two will not protect against an adverse sequence of returns. 

Both alt portfolios are closer to leveraging down than leveraging up. We've explored quite a few ways to leverage down that have yielded better results than today's post by incorporating negatively correlated assets which none of these do. Today's exercise is maybe an prequel to what we've explored before. Where today portfolios are very simple, they give some good context to the other concepts we've looked at over the last couple of years. 

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.