Simplify posted a short paper in support of some of their liquid alternative funds around the idea of replacing 60/40 with 60, 20 in fixed income with the rest divided evenly between Simplify Managed Futures (CTA), Simplify Market Neutral Equity Long/Short ETF (EQLS) and the Simplify Quantitative Investment Strategies ETF (QIS). The description for QIS reads like it is along the lines of a multi-strategy, multi-asset fund.
I certainly an very critical of some of their funds but a couple of them appear to do what they purport to do. To their credit, the company is trying to democratize sophisticated strategies but in some cases there is something in the implementation that doesn't work or maybe the strategies just don't lend themselves to an ETF. The knowledge base is good and the ideas are interesting like the one in the paper we're looking at today.
QIS and EQLS have very short track records, less than a year, and CTA isn't much older at just over two years. For what it's worth, CTA's chart looks very similar to AQMIX and EBSIX which we use here regularly for modeling portfolios which is a positive for CTA IMO. "Rethinking" 60/40 is always going to intrigue me of course so I wanted to play around with their idea with substitutes that have longer records for us to look at.
Benchmarking to the Vanguard Balanced Index Fund VBAIX which is a proxy for a 60/40 portfolio we can the following results.
It does offer improvement. The CAGR is 200 basis points better which is quite good although the standard deviation is about the same. A big chunk of the long term outperformance is attributable to 1000 basis points of outperformance in 2022. The two have been close every other year except this year where through April, the replication is ahead by about 400 basis points.
Although I usually bag on Simplify, the blend they wrote about seems like a pretty good idea even if I wouldn't be in too much of a hurry to use their funds. A 60/40 portfolio, generically speaking, can get the job done. The 60/20/6.66/6.66/6.66 tracks pretty closely to to 60/40 most of the time but sidesteps it when 60/40 hasn't done so well. It would be nice to have a better sample size before drawing a firm conclusion. I'll try to follow up on this one in a few months to see if anything has changed.
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2 comments:
Looking at the simply graph f performance over the last year or so, does this reinforce using this tactically instead f as a fixed portfolio allocation?
That is a great point. For purposes of blogging and trying to learn the assumption is a static allocation but in real life, I am a believer in dialing up or down exposures based on market conditions. My own preference is maybe not "tactical" which implies to me more frequency than how I approach it but the bigger idea of not remaining static is a good call.
In the past I used to talk more about across the board changes in client portfolios but that evolved into a compliance no-no so I don't do it anymore.
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