Fun With Funds

Barron's had an article about the Vanguard Global Capital Cycles Fund (VGPMX). I'm not really interested in the fund so much as an allocation implementation that is a holdover from when this fund used to be called the Vanguard Precious Metals and Mining Fund. 75% of the fund is in global value stocks with the remaining 25% in mining stocks which is a huge overweight to that industry.

The fund goes back further than 2019 but the current manager started in 2018, so the period here gives us a clean slate to look at. ACWI is the iShares All Country World Index ETF and XME is client holding SPDR Metal and Mining ETF. The result surprises me, I'd have guessed that 25% in miners would be a real drag on returns. 

VGPMX' outperformance looks like it can be attributed to the fund going up in 2022. It doesn't look different versus ACWI in 2019, 2020, 2021 or so far in 2024. Blending 25% in with ACWI helped in 2022 but otherwise it's not much different than 100% in ACWI. I really am surprised this doesn't create an easily observed differentiated return stream. XME fell 50% in 2015 and then made it all back with a 106% gain in 2016. That sort of volatility with a low-ish correlation has a place in a diversified portfolio but I think 25% is well past the point of diminished returns. 

And speaking of derivative income funds, a Twitter ad prompted me to circle back to the Defiance S&P 500 Income Target ETF (SPYT). I mentioned it in March when it first started trading. The differentiation to this one is it sells 0dte call spreads as an overlay to holding the S&P 500 and it targets a 20% annual yield. A little more specifically it sells a close to the money call option and buys a call with a higher strike price. For Monday, June 24 it is short a 15 point spread having sold a 5470 and bought a 5485. 

With covered call funds, gains are capped up to the strike price of the call that was sold. With SPYT, if the index has a huge rally, the fund could participate in gains above 5485 on Monday. 

The credit from selling that combo every day accrues for a monthly distribution. So far it has paid three dividends, totaling $1 which works out to about 5% so it's on track to get close to 20%. 

As is common to these, there is an obvious lag to market cap weighted S&P 500. You can add 5% back in for SPYT, Personal holding ISPY paid out three dividends totaling $0.98 since SPYT's inception which adds 2.3% in for its total return. XDTE is similar to ISPY but it sells options the morning they expire where ISPY sells options in the late afternoon the day before they expire and for that one you can add back 5% to get its total return.

Small allocations to this space seems reasonable for bringing in a little more yield to a portfolio but they consistently set the expectation that they will not keep up with the broad market. Having the correct expectations is very important for these. If the NAVs can compound positively, not all of them do, and they pay higher yields, that's pretty good but again, not all of the NAVs compound positively and maybe with enough time to study, we might see that none of them compound positively. 

Finally as a funny coincidence, while I had the tab open writing this post, I found an article at WSJ about derivative income funds and buffer funds. I don't write about the buffer funds. The short version from me is just don't. Really just don't with the 100% downside protection funds. The market isn't going to go down 100%. If you actually think the market could go down 100% you should sell now and not rely on the buffer funds to work. 

Of course I read the comments. Always read the comments. A lot of commenters were skeptical of the promise of higher returns with lower risk that these funds offer. I read the article twice and I didn't see where the article said that and of course they do not have higher returns with less risk. If the article says that and I missed it, so be it but they most certainly should not be expected to have higher returns with less risk. In theory, a sequence of returns could play out that way but with the derivative income funds I think anyone using them should expect lower returns, lower volatility and higher income. Not all will deliver on those expectations. With the Defiance put selling funds, the erosion is huge unless you reinvest the dividend. If the full dividend is reinvested then so far, they do have a positive total return.

JEPY is a good example with its so far limited time frame. There are no negative surprises in that screenshot. Even here though, it is important to understand that the underlying index is up a ton, it is up an amount that should not be counted on to repeat frequently. Occasionally, yes it will be up that much but not frequently. The few small dips along the way did not damage JEPY in real time and I believe the daily nature of the trades would help the fund avoid getting decimated in a serious decline. Before anyone adds 1+1 and gets 11, I would expect JEPY to go down plenty, just not get decimated like down 80% in a down 30% world but it might go down 40% in a down 30% world or maybe, if holders are lucky, it would go down less. I can see how it would go down a little less but I would not bet heavy on that outcome. 

The comments on the article that are suspicious of investment products are right but that doesn't mean they're not worth learning about. The comments about keeping it simple with plain vanilla equity exposure are right but that doesn't mean a blend heavily tilted to plain vanilla with a small allocation to a derivative income fund must be bad. 

It's only partials from two different years but that income profile might make sense for someone.

One point that the article did not make in talking about the risk to retirees of having too much in equities and then the market dropping a lot. I would argue you are far better off having a combination of cash, a holding or two that you are confident will go up when stocks drop and a holding or two that will trade like a horizontal line that tilts upward no matter what is going on. And if you don't believe in those last two then just have cash set aside. How much to set aside is up to the individual but I would keep in mind that typical bear markets range from 18-30 months. 

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.

Weekend Updates

Jeff Ptak from Morningstar Tweeted out that the Stone Ridge LifeX funds we've been talking about lately have started a "conversion" to the ETF wrapper. It's a little confusing but it appears that when the cohort reaches age 80, the ETF will convert to either a longevity pool for males or females, depending, that is referred to in the filing as a closed end trust or holders can simply cash out. 

The big idea remember is that these funds annuitize the income stream similar to an annuity without being an actual annuity. As the age cohort ages beyond 80, the people who live the longest get the most benefit from what should be increasing payouts until age 100 when the survivors split what ever is left. 

I've been consistent in saying these funds are an evolutionary step toward more ways to annuitize income beyond the annuity structure. The conversion of LifeX from mutual funds to ETFs, assuming Jeff is correct, is probably an improvement. The holdings are simple enough for the ETF wrapper, not everything is, and so the soon to be named Longevity Income ETFs might get some tax benefits that are unavailable to the mutual fund wrapper. 

I will repeat from previous posts on these, I don't know if they are the answer but this is a space to keep tabs on. If they do what they're supposed to, these funds could end up being a difference maker for people who are somewhat undersaved.

Now an update on covered call funds. From now on, we should call them derivative income funds as the options strategies used go beyond just selling call options. The chart goes back to the inception for the ProShares S&P 500 High Income ETF (ISPY) which sells 0dte call options. I continue to test drive ISPY in one of my accounts to see if I would ever consider it for client accounts. 

The green line is the S&P 500, XYLD is the Global X Covered Call ETF which sells close to the money calls that expire monthly, JEPY is the Defiance S&P 500 Enhanced Income ETF which sells 0dte put options and OVL is the Overlay Shares Large Cap Equity ETF which owns the S&P 500 and sells put spreads on the index. 

The Yahoo chart captures price only. In looking at the chart I think there are four different types of return streams. OVL has some appeal compared to plain market cap weighted (MCW) S&P 500. I've looked at it many times and it seems to always be very close with just a little more yield, Yahoo shows it yielding 2.98%. During the 2020 Pandemic Crash, it fell the same amount as MCW. In 2022, at its low it was down quite a bit more than MCW. On a total return basis, it has had a better CAGR than MCW by 49 basis points but with more volatility. 

From the start of the chart, so not its inception, JEPY has paid $3.54 in dividends. Adding the dividends back in would give a total return of 7.8% which is pretty good but is a reminder of why reinvesting most or all of the dividend is important. To its credit, JEPY's volatility has been far below the MCW index but anyone spending the dividends is enduring some serious erosion. 

Looking at ISPY, we can add back about 4% in dividends to get a more accurate total return number. That is still noticeably behind MCW which might not be so bad but I think I see the spread between MCW and ISPY getting wider. However long it takes the S&P 500 to gain its next 100%, if ISPY was only up 60%, would that be tolerable? There would be many different answers to that and it would depend how ISPY was being used. It's probably not idea as a core equity holding for an investor who needs "normal" equity market growth for his plan to work. As a smaller, non core holding to enhance yield a little or dampen volatility or if an investor can figure out some other factor to pair it with to get a better result in either absolute returns or risk adjusted returns, that certainly could make sense. It could also be part of the solution for an investor who does not need "normal" equity market returns. 

XYLD doesn't really have any upcapture on a price basis. Yahoo shows it yielding 9.56% which is a little higher than what ISPY is on pace to annualize out at but lags far behind ISPY on a price basis. It also, unfortunately, goes down almost the same as MCW during tumultuous events like the Pandemic Crash in 2022. What I mean by that is it captures most of the downside of MCW with very little upside.

I think part of the process of ongoing portfolio management is to circle back to strategies, funds and correlation studies like we regularly do here. Aside from being fun, it is time well spent in search of the occasional idea that can be added to the portfolio. 

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.

Don't Assume Asymmetric Returns

Jason Buck from Mutiny Funds and creator of the Cockroach Portfolio gave a web presentation about Cockroach via RCM Alternatives. We've looked at the Cockroach Portfolio several times before. Its original was influence by the Permanent Portfolio created by Harry Browne which allocates 25% each to stocks, long bonds, gold and cash. The big idea is that no matter what is going on in the world, at least one of the four will be going up. 

The Cockroach divides into four quadrants plus one more. I realize that's a silly way to word it but I think it better captures how Mutiny presents it.

As we've said previously, trying to mimic it with exchange traded products doesn't really work due, I believe, to the limitations of the funds available to recreate the volatility quadrant. I am intrigued by the portfolio and even though mimicking it to get any sort of reasonable CAGR may not be realistic without the 4% Bitcoin allocation (a point we figured out in previous posts), that doesn't mean there isn't some bit of process or influence we can't take away. 

One thing I learned in the web show today is that the Cockroach leverages up, the four quadrants are actually 50% each and then 20% to crypto and gold which is split 4% to crypto and 16% to gold.

Now knowing the actual Cockroach leverages up, here's an updated replication using retail accessible funds.

It still isn't quite right of course for a couple of reasons. I used VMNIX as a proxy for carry because we compared that fund to currency carry and they were similar but at this point, I don't know what variation of carry that Cockroach uses. As we said yesterday, there's no fund that tracks the version of carry built around futures yield. If you run this without Bitcoin, the CAGR going back to mid 2017 which is as far as it goes because of TAIL's inception date was 4.03%. With Bitcoin, the CAGR jumps up to 10.96%. That's a powerful argument for barbelling in the context we talk about all time here. 

In terms of looking forward, I don't think it makes sense to model it to rely on Bitcoin performing anywhere close to what it's done in the previous X number of years. Even if Bitcoin goes to $1 million, it wouldn't come anywhere close to matching previous gains. 

Where this post is a step toward figuring out whether a portfolio resembling the Cockroach could come together to blend decent upcapture with an all-weather effect when the next crisis comes along or just in the face of the next "regular" bear market, I built the following. 

The weightings are adjusted to get to an unlevered version. With the capitally efficient funds now trading, you could get the leverage in there up to 120% pretty easily but we'll stick with a simpler approach for now. 

Instead of true volatility products, I used client and personal holding BTAL. The long term bleed of TAIL and to a lesser extent VIXM is a much larger drag than the huge weighting I have to BTAL for this post. 

VIXM obviously had serious crisis alpha during the pandemic crash but BTAL still did well.

In the web show, Jason mentioned that the income quadrant averages out to a 15 year duration. He said if you have a diversified portfolio then something you own should make you want to puke and for him, I guess it's his fixed income duration. Using a floating rate vehicle as a substitute, as we've been talking about for ages, removes another huge drag on returns as we try to figure this out. 

The version I built for this post was certainly all weather during the pandemic crash and 2022 which is interesting because they were two completely different types of events. If you take away the 2% allocated to Bitcoin and add it to gold, the CAGR drops to 6.74%. Going forward, Bitcoin is very unlikely to repeat its past performance (repeated for emphasis). 

Part of the drive underlying the Cockroach is the threat that equities lag for an extended period similar to the 1930's, 1970's and much of the 2000's. I think that concern, although valid that it could happen again, really hampers returns. They go up in more decades than not. I get not wanting a "normal" 60% in equities but investors who need growth for their financial plans to work, need more than a 1/4 of their assets in stocks. 

Tweaking it to 40% equities and no Bitcoin as follows.

It looks a lot like 60/40 in terms of growth, with only half the standard deviation and it retains the all-weather benefits from 2020 and 2022.

Including a percent or two to Bitcoin for it's asymmetry makes sense but I didn't want to skew the result to something that I don't think can be repeated. 

Regardless of what you think of the long term result, good or bad, a portfolio with this sort of low volatility is going to have quite a few years that you lag far behind more typical benchmarks. Finally, I would reiterate the importance of understanding when something is very unlikely to be repeatable like the blue line portfolio. Bitcoin was up 10X in the period studied. Of course that could happen again, but, repeated for emphasis, I don't think it should be modeled in looking forward. 

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.

Looking For Crisis Alpha In Too Many Places

On Tuesday, Corey Hoffstein from Newfound Research and ReturnStacked ETFs gave a web presentation to explain carry in support of the ReturnStacked US Stocks & Futures Yield ETF (RSSY). The fund leverages up to provide $1 of equity exposure and $1 of exposure to futures yield (carry) for each dollar invested in the fund. RSSY has brought in a mountain of assets so far.

The fund blends a core exposure, equities, with a differentiated return stream in carry. I may have missed it but I don't they actually explained the carry strategy they are implementing. Basically, it goes long futures that are in backwardation and short futures that are in contango. You can look those terms up if you're unfamiliar. ReturnStacked has shown in many papers and blog posts that carry is legitimately a differentiated return stream so while I will push back on a couple of things here, that's not one of them.

As Corey said in the presentation, it appears there is no retail-accessible product that offers carry exclusively. It is embedded in quite a few multi-strategy and global macro mutual funds including from AQR. I'm surprised with the huge increase in interest in alternative strategies, that there isn't a fund in this space. Maybe that's not the right question but it bugs me there is no fund for this. 

I mentioned this a couple of weeks ago, carry appears to be a cousin of managed futures. They both generically trade the same markets. Where carry goes long and short based on yield curve dynamics, backwardation versus contango, managed futures goes long and short based on a trend of some measure, most commonly a ten month trend. In that post, I said that I would guess managed futures would be a more reliable diversified than the way RSSY implements carry.

Managed futures "worked" as crisis alpha during the popping of the internet bubble (there were no mutual funds yet), the financial crisis (only one mutual fund), the 2020 pandemic crash and in 2022. You can click through here to the SG Trend website and see for yourself. 

Corey gave the impression that carry wasn't as reliable as managed futures during adverse market events. According to this paper from Resolve, carry "worked" as crisis alpha in the popping of the internet bubble, it was spotty during the financial crisis enduring a four month pronounced drawdown in 2008. it went down less in the 2020 Pandemic Crash (differentiated return stream, not crisis alpha) and it did well in 2022. 

As I develop my thoughts on this variation of carry, I think it falls in between managed futures and absolute return leaning more toward managed futures. 

The other day we looked at the Simplify Quantitative Investment Strategies ETF (QIS). After writing that post I found a short paper on the Simplify site positioning QIS as a fixed income substitute like 60% stocks, 20% traditional bonds and 20% QIS. Maybe, carry could be positioned as a fixed income substitute that is a little more volatile than most income sectors? Carry as a more volatile fixed income proxy and QIS as a absolute return type of fixed income proxy blended together? I don't know, and there isn't an easy way to backtest the thought and no devoted carry fund now to start studying. 

When RSSY has enough track record to study, we can play around with that for blogging purposes with 20% in RSSY, 20% in QIS, 40% in an S&P 500 fund (that plus 20% RSSY would give us 60% equities) and so we don't leverage up, the last 20% in cash. 

I'm intrigued because of the theories at play here but I still do not see ever using these funds though.

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.

He's Mad As Hell And Not Going To Take It!

Laurence Kotlikoff was interviewed by Think Advisor and boy howdy he has some strong opinions. The title of the article is Advisors Do Retirement Planning All Wrong so you have a sense of what's coming before you even start reading.

First up, he calls 401k plans "abject failures." If I am reading him correctly, he believes Congress and the various parts of the chain that comprise "Wall Street" are working together to make money at the expense of plan participants. He even includes FINRA and the SEC in this idea. 

He goes on to say that;

I don't really know what he means here. Encouraging people to buy mutual funds? Ok, there could be conflict of interest there. The part about investors not saving more, the rest of that paragraph is completely lost on me. The argument that employers are weaponizing the manner in which they match employee contributions, so they are paying 5% to employees to make a few basis points from mutual funds if as he says they are in cahoots? I can't see it. 

If there really are kickbacks, obviously that is bad. In my limited sample size, 401k problems with lousy fund choices or expensive fund choices come about from HR people who don't know what to do and end up buying an expensive plan from a third party administrator. I've seen that with small companies first hand not large companies via clients who rollover into an IRA when they retire. More likely than nefarious conspiracies is that very few people upstream from the employee actually care about employee outcomes. That is easy for me to believe and is consistent with what we say here all time, paraphrasing Joe Moglia, that no one will care more about your retirement than you. 

Kotlikoff believes advisors are "telling clients the wrong things about retirement planning to maximize their profits." He specifically goes after advisors because they tell clients to take Social Security early so that they can bill more on managed assets. Read the comments on any Yahoo or Barron's article about retirement and you will find tons of comments accusing advisors and the media for being part of a conspiracy to get people to wait until 70. My message has always been the same. The only generality from me on SS is taking the time to understand how it works and then do what you think is best for your circumstance. I plan to wait until 70 so my younger wife has a larger survivor benefit if I die early-ish. I would encourage her to take it when I am 70, she would be 64 and two months at that point.

There are of course conflicted an incompetent advisors which is why regulatory bodies exist. I have to believe that a professional in any field who is so woefully conflicted as Kotlikoff believes, he really is pounding the table on this, will quickly be found out, lose business and have trouble replacing lost customers. 

He is critical of the process that gets a client to thinking they need to replace 85% of earnings in retirement. Ok, I am with him there, I've been making that point at various blog sites for close to 20 years. Using the income replacement method, we've worked this down to 35-40% because you don't need to save for retirement after you retire, hopefully a mortgage is paid off, you're also not paying Social Security tax after you've stopped working. 

Of course income replacement isn't actually the best way to run the numbers. It doesn't account for people who live below their means. We write about taking an inventory of expected expenses, then building in a budget for unexpected one-off expenses (so a little guesswork there) and then an ideal discretionary bucket. This process could lead to a number that has no connection to how much money you made. 

Where I diverge with Kotlikoff on this point is the very widespread, premeditated attempt by advisors to steer clients into feeling undersaved in order to sell them more expensive investment products. If you work in the industry and believe I am wrong about this please comment but after a little over 20 years in this part of the industry, being an advisor is so much easier when you don't spend all day talking to clients who are terrified they don't have enough money or are worried about running out of money. Quite the opposite, an advisor who spends most of their time growing their practice would have more time to do that if existing clients felt more secure not less. 

There are many references to a "20% chance of being destitute without Social Security." That never gets defined nor is a source for that cited. 

The interview makes its way back to 401ks where he adds that one of the flaws is putting "people who are cashflow constrained into an account that lowers their current taxes, it's an incentive to spend more." I have no idea what that means either. 

He has ideas on how to replace everything with a different system. It is far more collective than I would ever want with far less autonomy but feel free to comment if you think his suggested changes would be an improvement. 

A more realistic problem with the 401k system is not the platform itself, yes it could be improved, but not enough effort is spent on educating participants and maybe people are not motivated enough out of their own self-interest learn on their own. 

Maybe I am naive as to how much of a cesspool the advisory business is, conflicts and incompetence do exist, I don't think it is anywhere near as bad as Kotlikoff says. 

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.

The Futility Of Factors?

Bloomberg wrote about factor strategies and the ETFs that track those factors. They included this table.

There's a lot here I don't understand. Growth is up a lot more than 1.5%. Whatever they mean by Revisions or Trade Activity, I am not aware of ETFs that track these. If you can figure out what I am missing please leave a comment. 

We've looked at factor investing before and as we revisit it today, really this could be Part 2 from yesterday's post about the challenges of being patient. 

The first chart compares one popular factor with a multi-factor fund and simple market cap weighted (MCW). Multi-factor has outperformed for the entire study but it's lagging the other two by a lot this year. Momentum is the laggard for the entire period but this year it is up almost double MCW and about 4x multi-factor. None of these, or any other factor you might be interested can always outperform but they are still valid strategies. 

One of the worst investor behaviors would be to chase the heat of momentum upon seeing it has had a terrific six month run to start this year. If you dig in to enough factor funds, I think you'd find many terrific runs that were then followed by underwhelming results. But they were just as valid when they were underperforming as when they were outperforming.

IVE is the iShares S&P 500 Value ETF and the chart captures a decent stretch where value had a run versus MCW. As you can probably guess, value has been left far behind MCW in recent years. For the last eight years, MCW has almost doubled up the return of IVE. It's not that value is not valid but man, it has been a long time since it did something relatively positive for a sustained period.

Even within strategies, there can be meaningful dispersion. Here are three different multi-factor funds.

For investors who prefer to stick to broad index exposure, I think multi-factor offers the potential for a somewhat differentiated return stream but I do not believe it is realistic to look at several multi-factor funds and choose which will will outperform going forward. I think studying the funds, differences in implementation could be isolated but that is not the same thing as being able to guess which one will outperform.

Here are a couple of different blends compared to 100% MCW.

The dispersion above is a lot less than I was expecting. I don't do a lot with factor funds or multi-factor. I think true diversification is easier to be found using alts with much lower correlations to MCW or in a couple of cases, negatively correlated to MCW. I don't doubt there is a way with factor funds but I haven't found it yet. 

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.

Patience As An Investing Skill

We've all seen Tweets or notes in articles or other places where someone says something like $1000 invested in Amazon in nineteen ninety whatever would be worth a gazillion dollars today. Reactions to that sort of comment might be some mix of hindsight bias, regret and maybe a couple of things. We've talked about this before. The prompt today is a passage from Phillip Fisher shared by Koyfin that addresses the power of holding stocks, or now ETFs too, for a very long time. 

I'd never seen this before but holding on in the manner Fisher describes is something I try to do. My longest tenured clients have had some holdings for a full 20 years now and quite a few more names for 15 years. Holding a stock for than long will be challenging. Take a look at the long term chart of any stock you think has been a great performer for a long period of time and you will see some painful drawdowns. In 2018, Nvidia was down 30% versus 4% for the S&P 500 and in 2022 it was cut in half versus 18% for the S&P 500. The Nvidia example ties right in with the Fisher quote. 

Let's look at a couple of stocks compared to the S&P. Coincidental to the Fisher quote, I bought client holding Motorola Solutions (MSI) in 2013. The catalyst was a deadline for emergency services having to drop wide band radio frequencies in favor of narrow band which meant new radios for anyone still using wide band. A quick side note, this was not the only time where my involvement with Walker Fire helped with my day job. The other stock is Johnson & Johnson (JNJ) which is simply a very blue chip type of name which is one of the 20 year holds I have. 

When we talk about expectations for a holding, I expect something like MSI to outperform over the long term but not so with JNJ. Some of the drawdowns for MSI were far worse than the index. JNJ is far more of a yield story having been a 3-ish percent yielder for a long time so where Yahoo charts don't capture total return, you could add about 30% more to the JNJ result, still far behind the S&P 500. JNJ mostly stayed with the market but then started to disconnect around the time FANG stocks became a fad and has continued lately as we call those stocks the Magnificent Seven. 

For maintaining a diversified portfolio, the attributes of both stocks are important.

We know one name was far ahead of the market and the other lagged. The compounded growth of both is a little better which is fine but what is noteworthy in this study is the worst year. Trying to smooth out the ride is a big priority for reasons we've talked about hundreds of times, and up 1% in 2022 makes a great case for why a stock with JNJ's attributes is important to hold if you use individual stocks. In 2018, the 50/50 blend was up 12% versus a 4% drop for the S&P 500. The ten year result is competitive with the index but in 11 full and partial years available for us to look at, the 50/50 lagged the index six times.

Think about that. Slight outperformance long term but lagged in individual years more often than not. At the beginning of the post I mentioned the challenge of holding on for 20 years. This 50/50 we're talking about is a slightly different type of example that makes the same point. Can you live with that? That is the challenge of being a patient investor. 

Weak stock performance is going to happen and not a reason all by itself to sell if you're an investor as opposed to a trader. The next time the stock market drops 30-40%, I'd expect certain holdings like MSI to fall more and I'd expect some holdings to go down less (or maybe even up in a couple of instances). Don't frame this as infallibility because anything can happen at anytime, think more in terms of reliability. In 2008, JNJ was down just under 8% and in 2022 it was up about 7%. While that seems reliable to me, it's not infallible for future market events. 

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.

The Most Important Part of Portfolio Management

Randy Forsyth got on the capital efficiency/risk barbelling bandwagon in this week's column. Obviously I got a big kick out of that. Michael Hartnett from BofA apparently said something to the effect of 70% in T-bills "clipping" more than 5% and 30% in YOLO like the artificial intelligence theme. 

One of the comments, always read the comments, mentioned that this is what Nassim Taleb talked about doing ages ago. I got the idea from Taleb probably 16 or 17 years ago and enjoy writing about it. Taleb talked about 90/10 instead of 70/30 but it is the same concept. 

I wanted to try to model Harnett's idea of 70% T-bills and 30% AI. I did a search of AI ETFs at Vettafi and cherry picked the Clockwise Core Equity and Innovation ETF (TIME). As well as Nvidia and SMC have done lately, the ETFs are more inline with the tech sector, TIME has done a little better but quite a few of the thematic funds have lagged broad tech which surprised me.

In addition to 70/30, I tested how much TIME would equal 100% S&P 500. It turned out that a 39% allocation since the start of 2023 did the trick. With so much allocated to T-bills, it makes sense that the standard deviations of the barbell portfolios is so much lower. The 2022 results, not captured above are also interesting.

We can only get the last 11 months of 2022 but it is still interesting. TIME did far worse than the S&P 500 in 2022 but owning 30% or 39% in TIME, the rest in T-bills was not catastrophic.

The numbers are real but I don't know how realistic it is to think we can pick the best performing fund in a theme. There's a couple of layers there. First is picking the theme. That seems plausible but there really are a lot of funds on the Vettafi list that have done poorly. Great, you got the theme right but the fund chosen didn't capture the effect which is a serious risk to this concept.

This could be built simply allocating to high conviction ideas from several different parts of the market. I could backtest that with my top performers and it would look great and I could backtest it with names that have not done as well and the result would be underwhelming but realistically, if you split 35% between 5 different stocks, the results would be mixed.

The better takeaway is more along the lines of how risk is managed, maybe allocating a little to asymmetry to maybe dial down the volatility elsewhere in the portfolio or using alternatives to manage volatility and risk. It doesn't get said often enough but really, the most important part of portfolio management is mitigating risk.

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.

Creating A Successful Outcome

A college buddy shared on Facebook that he is unexpectedly out of work and looking for a job. I know nothing of his financial situation so I am not talking about that. More generically, this is another anecdote of someone in their mid-50's who has had his hand forced. The reality is that it is not easy to find a job at that age, pretty much my age, that pays about the same. That might be unfair that we can't easily find jobs but I think people would accept that as mostly true.

This is going to happen to more of us. How vulnerable are you if this happens to you? If you don't think you have a lot of money saved, can you save more? Can you create an income stream somehow? How about more than one? We look at these things all the time so I won't rehash this again for this post but get started figuring this out now, before you need it, hopefully you never need it but the sooner you start the better off you'll be. 

Barron's wrote about expat living which is something we've looked at quite a few times. One aspect we haven't hit on but that Barron's looked at pretty closely is that it can take a while to create residency status in another country and even longer to gain citizenship. So it's another example of something retirement related where it is better to start early. 

There are plenty of places in Asia, eastern Europe and South America where people can live very comfortably for just a couple of thousand per month. Part of the equation is very inexpensive healthcare costs. I've questioned a few times whether the situation in Ecuador has gotten to a point that makes the country an inadvisable choice these days. Another college buddy is visiting there right now and he's posted a ton of pictures and video from Cuenca, although he is covering more ground than that, and if the political and gang related headlines are causing strife in day to day life, he doesn't appear to be finding any evidence of that. 

I will reiterate the idea though of keeping a hopefully paid off home in the US in case there is ever a need or desire to come back. The rent from a US property might cover all expenses in some countries allowing savings to keep growing and give more optionality on when to take Social Security. Even just a five year "adventure" to another country could have a hugely beneficial impact on retirement outcomes. 

Larry Swedroe had a long writeup about the LifeX mutual funds from Stone Ridge that we've looked at quite a few times. Basically, these funds turn into longevity pools at age 80, offering the potential for higher incomes than 4% from your own account. They are not annuities but they do annuitize the income stream. As opposed to be extremely expensive like regular annuities, these are merely not cheap although Allan Roth thinks the price is more than fair. 

As I have been saying, the concept of annuitizing without annuities is useful and Swedroe offers a couple of other points we have not explored here. Even if these are not the solution, they are at least a  step towards a solution.

A related idea that that tries but is not better than the LifeX funds is converting 401ks into annuities as we looked at a few weeks ago. Plan Advisor looked at whether target date funds could be converted into annuities. So, they are trying but I would run screaming from the room waving my arms frantically above my ahead if I was pitched a target date fund that converted into an annuity. 

There was an interesting point made though...interesting if it's correct which is that "participants already think some kind of guaranteed income is built into their plan." I'm not sure I believe that but if it is true, that would be a serious gut punch when they learn that is not the case. 

To the extent that "no one will care more about your retirement than you," actions like problem solving, learning about alternative forms of retirement living and keeping informed on investment product evolution is an important component to creating a successful outcome. 

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.

Wading Into Quantitative Investment Strategies

Bloomberg had a longish writeup about quantitative investment strategies or QIS. The very basic idea seems to be that it is in the neighborhood of being strategy replication. From the article, QIS are usually structured products or swaps that target risk premia with the following list of different strategies provided in the article.

Risk premia is a fancy term often ascribed to alternative strategies. AQR has a fund called Alternative Risk Premia with symbol QRPIX. The text book definition is the difference between expected return on a security and the "risk-free rate of return" which is how T-bills are described. 

QRPIX has an interesting chart. It was negatively correlated up through 2022 and while the correlation is still negative, for the last year, both it and VBAIX are up over the last year with QRPIX having doubled the return of VBAIX in that time. QRPIX' standard deviation is pretty high for an alt, just a little less than VBAIX.

The Simplify Multi-QIS Alternative ETF (QIS) is a newer fund that would appear to be in the same arena. 

The chart tells you that QIS comes at it differently than QRPIX. Where QRPIX looks more like managed futures, which is one of the strategies used in QRPIX, QIS looks like it is trying to be a horizontal line that tilts upwards like merger arbitrage or convertible arbitrage. Simplify says the objective for QIS is absolute return with income so a result that looks similar to arbitrage makes sense to me. 

Bloomberg says that the QIS products from the banks, so the structured notes and swaps as opposed to these two funds, "come with a handbook about exactly how they work." Later in the article there is more conversation about the transparency. The literature for QRPIX seems somewhat transparent other than there is a lag but there is good color. The page for QIS seems to be less transparent.

QRPIX uses a lot of leverage to build a long and short book with strategies that include "equity, global macro and managed futures." There is also an aspect of risk parity. As of March 31, the risk, not the holdings, was allocated with 15.6% to commodities, 14.7% to currencies, 17.8% to equity, 15.8% to fixed income and 36.1 to "stocks and industries" which I presume are narrower, more idiosyncratic bets in the equity market.

The QIS info pages say the fund allocates to 10-20 quantitative investment strategies in equities, interest rates, commodities, currencies and credit. It's an ETF so the positions are published, here is a partial screen grab.

Again, that is a partial list only. The fund primarily accesses QIS in the manner described in the Bloomberg article with total return swaps. There is a debit put spread on the S&P 500 which all by itself is a bearish position but I can't find anything to indicate what the current strategies are. So if there is better transparency for QIS, it's not that easy to find on the website.

Is there any reason to consider either of these funds or any others that might track one version of QIS or another? If there is a reason to buy QRPIX, I think it would be because an investor believed it to be a better mousetrap. It's managed futures-ish (with a couple of other things thrown in too) in terms of what it has done over the last six years. 

The reason to consider QIS is a little different. Look at this backtest.

Again, it is insanely short because of how new QIS is. Client/personal holding PPFIX sells index puts that are very far out of the money as one type absolute return stream, floating rate debt is a different type of absolute return stream so it relies on different things than PPFIX and has different risks than PPFIX. Arbitrage, not in the back test, would be a third type of absolute return stream. QIS could potentially be a fourth type of absolute return stream. It would need to prove that it can actually deliver an absolute return stream and if I was going to consider QIS, I'd want to make sure it doesn't over lap with arbitrage strategies. 

The word arbitrage is not in the prospectus so it potentially is a fourth kind of absolute return stream. The appeal then would be a new tool for diversifying your diversifiers. We can see in a year or two if it starts to prove itself out as I am describing which is based on the expectation I believe is being set by the fund but of course I could be wrong or the fund might not be able to execute as hoped for if my impression about the expectation is correct. 

I'll just close out on the idea of giving something a year or two, or longer, to prove out. It is important to really play the long game with these sorts of things. For as much as I talk about managed futures and as happy as I was with the exposure during the financial crisis, I stayed away from the strategy for 8 or 9 years until buying Standpoint Multi-Asset (BLNDX) in early 2020. 

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.

Diversification Is Alive & Well!

Yesterday we asked if diversification was dead. It is of course not dead but bonds became a far less effective diversifier years ago, long before 2022 when interest rates started going up. The reason I say that is with rates on their way to zero, the risk to holding longer duration bonds went up. The risk was there for years, 2022 when when there was a consequence to investors who took that risk. 

Avoiding long duration bonds was a big theme to my writing (and portfolio construction) for a long time, still is, but then the thought evolved to where I started saying that long duration fixed income has a source of unreliable volatility that makes it very difficult to model it in to a portfolio with any confidence. 

Finomial drew a similar conclusion about fixed income awhile back and posted this paper where they subbed in 40% into managed futures. I would say that is a very big bet but the math in their backtest supports it. 

Obviously, their study is compelling but it is not clear to me that the intention is to suggest anyone actually put 40% into managed futures. I would argue that the 40, or whatever percentage not in equities, be spit amongst various attributes in order to diversify your diversifiers or as we talked about the other day, to add differentiated return streams. 

I try to articulate these by saying what they do, it makes it easier when anyone asks. So, client/personal holding BTAL is very reliably, in my opinion, negatively correlated to stocks. Managed futures although is negatively correlated, is more crisis alpha to me that can go up in any environment. Things like merger arbitrage are horizontal lines that tilt upwards almost all the time so they do relatively well when stocks are lagging and do relatively poorly when stocks are doing well. There are alts, like global macro, which tend to have no correlation to equities. At times they will do better and be capable of going up a lot but sometimes not. Lastly, shorter term income sectors like T-bills or floating rate that don't really take meaningful interest rate risk but now have higher yields. 

And finally because I think it is related, this ridiculously short chart, because that's all we have for now, is interesting. Those are three of the four ReturnStacked funds compared to the Vanguard S&P 500 ETF. It's only two weeks which is ridiculously short (repeated for emphasis) but these all seem to be doing different things. 

I don't really ever see myself using their funds but that doesn't mean we can't learn some things about diversification. If these still look totally different a year from now, it would be productive to try to understand these dynamics better. 

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.

Is Diversification Dead?

The title of today's post is essentially the question asked in a Bloomberg Article (syndicated at Yahoo). The TLDR is that broad diversification has lagged behind simple market cap weighting for the last 15 years. I am guessing they chose that timeframe to coincide with the March 2009 bottom. 

We've talked just a couple of times about the market becoming increasingly concentrated which just in terms of math means that a diversified strategy will lag for as long as the big names do well. According to the article, the only "asset allocation" fund to outperform the S&P 500 over the last 15 years has been the PIMCO StocksPLUS Long Duration Fund (PSLDX) which ironically enough is a leveraged fund tracking 100% each to stocks and long term bonds. The concentration issue could continue to accelerate from here with Evercore saying they can see Nvidia (NVDA) growing to 15% of the S&P 500 from its current six-ish.

This sort of top heavy market is a negative for the market. The largest stocks need to continue to do a lot of heavy lift for the market to have its best chance of continuing higher. That does not mean stocks must go lower and of course it is possible for the index to lift without the big three, just that it makes it more difficult. There are always reasons for markets to go up and always risk factors, this is merely a risk factor. 

Despite outperforming for 15 years, PSLDX was down 43% in 2022 which speaks to what diversification is about. Outperformed long term but down a sickening 43% and still down about 25% from its late 2021 highwater mark. In thinking about diversification, what problem are you trying to solve? Or maybe a better way to put it is, what outcome are you trying to avoid while at the same time, what are you trying to achieve?

One headwind to how investors think about diversification is that it is easy and common to forget what large declines feel like after a few months or a couple of years of strong market performance like we're sitting on right now. This is the point in the cycle where the sentiment of "should I put it all in the S&P 500 and forget about it?" happens. The answer for most investors is no. The time to ask that question is after a large decline like Q3, 2022 and the answer for most investors would still be no. 

Going 100% S&P 500 can absolutely get the job done but every now and then the declines will be brutal which is why diversification exists. How many articles have you read about bonds being a good ballast for equity volatility? The love the word ballast. 

Diversification has multiple reasons to exist. First is to help cushion the blow of large declines. Bonds did that for 40 years as interest rates went from mid-teens to just north of zero. In 2022 they didn't work. This might be an example for Karl Popper; all the positives in the world can't prove a theory but it only takes one negative to disprove a theory. 2022 was the negative to disprove that bonds with duration effectively diversify against equity volatility. 

Another important reason for diversification is to avoid an adverse sequence of returns disrupting some sort of near term life event, typically we talk about retiring in this context. Long duration fixed income has always had equity beta, it just so happens that 2022 is when it worked against investors. I looked at the Vanguard Target Retirement 2025 (VTTVX) and the Vanguard Target Retirement 2030 (VTHRX). In 2022 they were down 15.55% and 16.27% respectively, just slightly ahead of Vanguard Balanced Index (VBAIX) which was down 16.87%. I've been bagging on target date funds since they first came out with 2022 being the latest example of why I think they stink. They can get the job done if that is all someone has access to in their 401k but they need to figure something out as they get close to retiring because they are not protected against sequence of return risk.

Back to the questions above, what are you trying to achieve, what outcomes do you want. The point of diversification is to (hopefully) be less volatile than the broad market to minimize the odds of succumbing to emotion and panic selling along with getting a long term rate of growth adequate enough to ensure you have have enough when you need it and stay at least a little ahead of price inflation. All the better if all that can be done without constantly worrying about the ups and downs of markets.

Quick pivot to close out, again invoking Karl Popper. For many years I talked about zero weighting to a sector as being a big bet even if unintentionally. I've been effectively zero weight energy in terms of big oil for quite a while now. Here's an interesting chart comparing the S&P 500 and the Pro-Shares S&P 500 ex-Energy (SPXE).

ETF.com has the energy sector currently at 3.1% of the S&P 500. Back before the financial crisis it was closer to 6% and 40 years ago it was 30% believe it or not. In the period available to study SPXE, there has been no difference in  returns, volatility or portfolio stats. 

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.

Closed End Funds Ain't Easy

Barron's had a quick writeup on tactical funds that can switch between equity and fixed income exposure, either making big changes to their allocations or small tweaks to their allocations. The implication from the article was that the turnover in these is very high. The reason for the article is that "some of these funds are worthy diversifiers for a traditional fixed allocation portfolio."

There were three that stood out as being interesting for blogging purposes because they invest in closed end funds.  

• Modern Capital Tactical Income (MCTOX)
• Matisse Discounted Closed End Fund Strategy (MCDEX)
• Saba Closed End Funds (CEFS)

With the old style mutual funds, I just used the symbols from the article, you'd probably use different share class symbols if you actually intended to buy either of them. Ask your brokerage firm what the correct symbol for you would be. While I am assuming no one will want any of these funds, in general, asking the brokerage for the correct symbol is a good idea. 

All three are more volatile than the Vanguard Balanced Index Fund (VBAIX) which is a proxy for a 60/40 portfolio. MCTOX just started trading in 2021. It is a very small fund but it has a 5 star rating probably because it was up in 2022. It has a much better CAGR than the other two in the short period available because it was up about 13% in 2022 versus mid-single digit declines for the other two. 

I couldn't get a great sense of the investment process from the website but it talked about mispriced securities, value and event driven as contributors to the process. I'm sure talking to them would yield a better sense of what they actually do but we do know, they made at least one very good call in 2022. The process for MCDEX is laid out more plainly. First in screens for funds trading at a discount, then a second step assessing many qualitative factors and then blending CEFs together such that there is at least a little contrarianism embedded. The SABA fund buys funds trading at a discount and hedges interest rate risk. 

Statistically, MCTOX looks a little better but the track is short. Generally the portfolio stats and standard deviation are not great for these and the correlation is pretty high. The great year for MCTOX appears to distort it's track record. If it ever repeats that type of year, that would get my attention but given the vagaries of this space, intriguing as I've found it to be over the last 30 years and counting, it is difficult to make a meaningful allocation.

Closed end funds are more complicated than they seem. In addition to understanding the underlying market a fund is tracking, there needs to be an analysis of the premium or discount to NAV and what might come next for the premium or discount. Did I say analysis? I meant guesswork.  

Blogger Nomadic Samuel Tweeted an interview with Kevin Maki who allocates 50% to quality stocks and 50% to "momentum and trend." I wanted to play around with the momentum and trend idea as follows.

Portfolio 3 is VBAIX. Unlike trying to figure out MCTOX, the back test is decently long to observe various market environments and enough years where the outperformance of 2022 doesn't skew the entire study. Additionally, if you believe in managed futures as a diversifier then you probably think the 2022 result is repeatable the next time there is a big decline, I certainly believe that to be the case.

For what it's worth, QUAL did a little worse than market cap weighted S&P 500 in 2022 and MTUM was essentially right in line, so the 2022 outperformance was attributable to managed futures.

The bigger takeaway for me is that this sort of blend is yet another example where effective portfolio diversification can be had with out adding the dysfunction of longer duration fixed income. 

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.

The Wrong Way To Look At Social Security

A bunch of quick hits from this weekends Barron's as the articles come out today.

For all the worry about retirement readiness, Barrons found a survey where retirees say they are doing just fine. That's great but not really what the potential crisis is about. If there is a problem, it is with people still working who are collectively very undersaved for their retirement. 

It was an odd framing but not the reason to mention the article. There were a couple of comments, always read the comments, that said in effect, how much trouble people are in if Social Security is their primary source of income once they retire. A similar personal anecdote where someone was conversationally dismissive of the income from our Airbnb rental. We currently average a little over double our mortgage payment for the rental and the cabin will be paid off when I am 66. 

My reaction to both sentiments is the same. How great would it be for Social Security to cover a huge chunk of known expenses? How great would it be for a modest income stream (the rental is unambiguously cash flow positive but the dollars involved are not huge) to cover a meaningful chunk of known expenses? Modest income stream could apply to many different things, in this example it is a rental. 

There is a balance to be struck between living in the moment and doing favors, financial and otherwise, for your future self but being able to easily cover your retirement nut is a reward for many years of living below your means. How much will your Social Security be even if you haircut it by 20%? I repeat, how great would it be if your Social Security covered half or maybe more? How much easier would retirement be if that was the case? How much easier would it be if a $20,000 or $30,000 income stream was enough to have a meaningful impact on covering your expenses? 

The second article to look at was about investing in sports collectibles which is coincidental to yesterday's joke about a Rickey Henderson rookie card. There was one traditional advisor quoted who also advises on collectibles. He said if you have $ 1million to allocate to collectibles look for game worn jerseys of the most elite player you can afford (I am not going to use the term GOAT), if your budget is $100,000 look for second tier all timers like "Ted Williams or Stan Musial," for $10,000 buy a card of a first tier all-timer and if you have $1000, just keep your money. He added, or just collect what you like. 

I sort of collect baseball and basketball cards. It's very few actual cards issued by Topps or other card companies, I have more custom or art cards which are very cheap. There's quite few people who make these up. They are the same quality, they look great and are very cheap (repeated for emphasis), like $1-$10. A while back I mentioned having a 1970/71 Bobby Orr card that I bought for $20 that was worth $300 or so when I wrote about it so maybe it went up a little more. I made some sort of joke that even if I knew it would go up that much, it's not like I could buy a few hundred of them for the gain.

I might be sitting on a more meaningful gain on something else though. I stumbled into Daniel Jacob Horine early on in the pandemic on Twitter where his handle is Pop Fly Shop. He had started making mashups of baseball and comic books as small art pieces. I found him early but just stuck to buying what I liked for $35 back then including the pictured Nolan Ryan. A few months later he was featured on the MLB Network twice and his popularity blew up going from selling tens of prints each week to hundreds each week. The Ryan is one of only 88. A couple of years ago, a couple of the Ryans sold in the $2500-$3000 range. This past week, someone was trying to sell one for $6000. If the market really is there, then I will try to sell mine. If the market is not there, I'm happy to keep it.

The print is still in the wrapper it came in, inside the frame. The cards in there with it are examples of custom cards. The reason to tell this story is to reiterate from previous posts how unlikely it will be to actually make money that is meaningful unless you are at the Christies Auction level of engagement. I had no inkling the Pop Fly art would have any value otherwise I would have bought all the early ones. I suppose if someone made it their fulltime job, they might be able to have a meaningful impact on their finances assuming the more you put into something the more you get out of it holds true in collecting. I don't know if it does but if nothing else they are fun little pieces of art to have.  

The next article took an uncharacteristically (for most mainstream media) skeptical look at annuities. The short version is that quite a few annuity providers have large allocations to private placement loans which increase the risk of problems in the space arising. Odd that the term "private credit" was not used. If you do a little digging you will find a lot of current content about the threat to markets posed by private credit.

I've long been anti-annuity. I believe part of my bias stems from my mother having annuity, through my older brother, that failed. She got something like 30 or 33 cents on the dollar eventually. I don't know the details beyond that but interestingly, the Barron's article talks about a large failure at Executive Life in 1991. I don't know if that is the one that my mom got caught up in but it made for interesting reading. 

To be clear, while I do have a bias against annuities as they are commonly structured, I still believe the way in which assets can be annuitized is an important space to follow. I've mentioned the Stone Ridge mutual funds that transition into a longevity pool and Blackrock is sniffing around the space with something vaguely similar. These have the potential to be helpful in a way that I'd say would be a huge improvement over traditional annuities. 

Bill Ackman is listing a new closed end fund that will apparently "overlap" to some degree with his closed end fund that trades in Europe. The US symbol will be PSUS and the OTC symbol for the one in Europe is PSHZF. Barron's has PSHZF trading at a 25% discount to NAV. The way closed end funds typically get listed in the US is there is a selling concession (a commission of sorts) embedded in the offering price so they are issued at a premium to NAV which quickly corrects but maybe PSUS will be different.

PSUS will have a 2% fee but as Barron's notes, his holding can be replicated up to a point for less. PSHZF has done quite well lately but the fee and structure is a little disappointing.

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.