The ReturnStacked ETFs crew sat for a podcast that covered a lot of ground and I pulled out a couple of nuggets to write about.
They talked a little bit about carry as an investment strategy and they have two funds coming out soon that include carry. One fund will be 100% stocks and 100% carry and the other will be 100% bonds and 100% carry. So like their other funds they will be leveraged. Carry is kind of a nebulous term because there are several different exposures that are referred to as carry. One is a long short strategy of commodity futures that goes long futures in backwardation (rolling to the next month is done at a credit) and short futures that are in contango (rolling to the next month is done at a debit). The other more common one is going long currencies with high yields like the USD or Aussie dollar and short low yielding currencies like the yen or Swiss franc.
While they were talking about carry, I looked to see whether there was an ETF doing the commodity version and I found the iShares Commodity Curve Carry Strategy ETF (CCRV). It appears to be a long only fund though that tracks closely to the Invesco DB Commodity Tracker (DB) which is one of the oldest broad commodity funds. CCRV might be a fine hold but it is a commodity proxy and I was curious to see how just the carry aspect does. If you know of such a fund, please leave a comment.
My interest in carry would if it ends up being an uncorrelated return stream and then from there, whether blending it with equities or fixed income into one fund gives any sort of useful result. I don't know when the ReturnStacked funds with carry will list but I'd need to see them trade for quite a while to draw any sort of conclusion.
One thing that was abundantly clear is they are all in on their belief about using leverage in the manner that the ReturnStacked ETFs do. That conviction is important of course but it is also important for anyone studying their funds, or other products built on unyielding faith, to be able to sift through information objectively and be appropriately skeptical.
Their first two ETFs are struggling for reasons I've spelled out before but that does not invalidate the concept. We've coopted their use of leverage to talk about leveraging down but they very quickly mentioned another way to incorporate leverage into a portfolio. A big part of their strategy is keeping the stock/fixed income allocation the same and then using leverage to added something on top. For them, something means alternatives and that is what their first two funds do with managed futures and what their next two scheduled funds with carry.
One of them quickly mentioned just adding a fund from AQR or another similar fund provider, PIMCO has some funds that do this too, to access what is hopefully prudent leverage. Putting 5-10% into a complex alternative that uses leverage is closer to what I do but it does run counter to the ReturnStacked premise of stacking on top. That's ok of course, take bits of process from various places to create your own process although I think I've been doing longer than they've been around.
They mentioned the model portfolios they maintain. You need to be an advisor or other investment professional to access them so I am not going to share the holdings. They used to have a version of what is now the Return Stacked 60/40 on a different website that was not behind any sort of wall if you want to look for it. Return Stacked 60/40 like its predecessor is a complex list of funds that are themselves very complex (most of them).
I built in Portfoliovisualizer with a couple of tweaks that I think are true to the portfolio in order to test it a little further back.
In 2022, the replication went down 7.27%, 60/40 was down 16.87 and Portfolio 3 which I'd say is simplicity hedged with some complexity was down 8.12%. You can decide for yourself which one is the most interesting but Portfolios 1 and 3 are pretty close with one being very simple.
A final point from the podcast, they talked about conversations they have with advisors who are just now learning about these sorts of portfolio construction concepts. The ReturnStacked guys made it sound like these advisors haven't had access to this sort of information or education which I can believe but I think the onus falls on the advisor to be curious enough to seek out new (to them) concepts as opposed to waiting for someone at their firm to get around to it years after the fact. It seems like everyone was talking about managed futures in 2022. It was curiosity that helped me find the strategy right after the Rydex, now Invesco, Managed Futures Fund started trading at the onset of the financial crisis.
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2 comments:
Not sure why the delay in the RSSY etf launching. I was going off ETF hearsay on X about the original launch. Anyways it does seem eminent.
Some thoughts:
Carry doesn't seem to be all that diversified from equities as much as managed futures (love or hate it, "crisis alpha). It seems to marginally help vol and returns over a long enough period, but could get smacked when risk hits (fast, heh).
On the other hand.. could be a nice alt to the "third stool leg" of managed futures.
Been disappointed with performance of the futures side off RSST, but obviously could be noise over a decade or more. I've honestly been most impressed by DBMF, but harder to get leverage in a tax-advantaged account where most of my investments are. Other leveraged products that include 1/2 global beta in them are BLNDX and QLEIX (AQR product seems great on its face to offer the ability to long/short so many different markets). BLNDX seems to had such a great start and might continue to perform, but wish it's vol was a little higher on the managed futures side.
Hi Greg,
The Tweet from Hearsay Jim had the effective date of the filing as April 10 which is further upstream in the process than the launch date. Your comments about carry make it seem like you've spent more time on it than I have.
I've fooled around backtesting long AUD short JPY as one version, very different than futures carry strategy and that does have some interesting results. LCSIX is new to me, I know LOTIX, so I will check that one one, it it captures carry in the way RSSY hope to capture then that will be fun to play around with.
Based on NFDIX and RDMIX, I know they're different management teams but there is some sort of connection, and then the lags for the Return Stacked suite, something just feels off, something with their implementation maybe? It could be noise as you say but maybe not.
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