Let's Have Some Fun(d)!

YieldMax promoted the one year anniversary of the YieldMax NVDA Option Income Strategy ETF (NVDY). The fund is a single stock, covered call fund with a crazy high yield. More correctly, it is synthetically long the stock, buying a call and selling a put for the stock exposure and then selling a call against that combo.

The chart compares it to the underlying common stock and a 2X version from GraniteShares. To get the total return of NVDY, you could add in the dividends which total $13.63 or 69% and the fund has almost doubled compared to a 210% gain for the common and 370% for the 2X. I always say with these covered call funds to plan on reinvesting most of the dividend because they can't outgrow the huge yield. NVDY has been an exception that proves the rule and it took 210% for the common to do it. Something like NVDY could fit into certain portfolios I suppose but it is hard to argue it is a proxy for NVDA, but it does benefit from NVDA's volatility. We know that the Tesla fund from YioeldMax has already reverse split, I will try to do a study of their older funds to see how many are keeping up with their payouts.

Back in January the Cambria Tactical Yield Fund (TYLD) started trading. It's kind of a risk on/risk off fixed income ETF. The strategy looks at yield spreads between T-bills and various income sectors like corporates, high yield, TIPS, REITS and so on. When spreads are narrow, the fund will own T-bills and when spreads are wide, it will own those income sectors. As I read the prospectus, TYLD is allowed to own some T-bills and some from income sectors. Since it started, it has just owned T-bills. 

It's Cambria, so I don't doubt the research but it would be very difficult to try to back test this. The idea makes intuitive sense to me, sort of applying trend following to top down income sector selection. I am a long way from wanting fixed income exposure that is AGG-ish in the slightest but the idea is interesting enough to share here and to follow it to see what markets look like when it makes its first rotation into an income sector.

A reader left a comment with the following portfolio equally weighted at 25%. A lot of sophisticated and expensive funds that blend together for an interesting result, it's somewhat all weather but compounds better than many all weather-ish funds tend to do.

I think the names are self explanatory, two of which I'd never heard of. It backtests to 2014.

It never had a down year which I wouldn't get too excited about, even all those years, that could be a matter of luck. What is interesting is that it is close to traditional 60/40 in terms of growth with about half the standard deviation. I'd say the same thing if it was VBAIX that was slightly ahead in terms of growth. I trust the standard deviation as being repeatable moreso than the CAGR. I am also struck by how heavy it is in various forms of long short.

LCSIX is a multi-manager fund which probably accounts for some of its 2.18% expense ratio. Click through to the fund page and then the fact sheet to learn a little more. According to the fact sheet it has a 0.62 correlation to managed futures so it is similar but different and a 0.24% correlation to equites, so a little closer to equities than managed futures. Carry looks like it is a small part of the fund, one of the six managers mentions it on its fact sheet blurb. 

I wanted to circle back to the FIG Replication portfolio. I've been critical of the actual FIG ETF, the Simplify Macro ETF, it is really struggling but I think the fund's idea for asset allocation works for the most part. I built the FIG Replication using a recently launched fund for the fixed income proxy which was short sighted, I thought about and realized there are plenty of fixed income funds that go back further in time that don't take interest rate risk so I rebuilt the fund with the iShares Treasury Floating Rate Bond ETF (TFLO) as follows.

Again, those percentages are how I believe FIG has allocated its assets, using different holdings of course. Let's compare the longer version to simple VBAIX.

The CAGR is a little better than VBAIX and similar to the Reader Portfolio but the standard deviation is a little higher than the Reader Portfolio. Repeated for emphasis, I think the allocation idea works but there's something in FIG's implementation that doesn't work.

Back to Cambria, when I was looking at TYLD I remembered the Cambria Trinity ETF (TRTY) which is also something of an all-weather/macro fund that allocates 35% to trend, 25% each to equities and fixed income and 15% to alternatives which is in the ball park for a lot of these types of funds. Like other funds in this category it too seems like it struggles a bit. Below is TRTY compared a home made version of their allocation with essentially the same funds as Longer FIG and VBAIX.

The result between TRTY and the replication I built is dramatic. We don't spend a ton of time talking about Sharpe Ratios but yikes, that is a huge difference for the same asset allocation. 

The idea that one macro fund could be all-weather enough to be the only holding is appealing on some level but as we have seen, they can be difficult to execute. 

A quick administrative note is that when I build these sorts of portfolio combinations to look at, I try to use funds that I don't actually own for clients whenever possible. AQR Managed Futures (AQMIX) is a good example. I use it for modeling because it is a good representation of the group, not necessarily the best, and it has been around for a while making for decently long backtests. I own a fund for clients that is similar to TFLO but am glad I thought of it instead of the much newer AGRH for the FIG Replication that I hope to revisit and now also the TRY Replication that we build today. 

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