Allocating To Game Stop Gift Cards?

Several quick hits today.

GraniteShares has filed for a suite of what it will call YieldBoost ETFs that will sell put options on levered index and single stock ETFs ranging from 1.5x-3x levered funds. Like a lot of the "derivative income funds," the yields will be sky high. The market won't go against the strategy too often but occasionally, when there are large declines, the risk to these getting torched would be enormous. That's probably a better description for the YieldBoost funds tracking indexes, with single stocks of course the market could turn on them at anytime. 

Like quite a few of the newer derivative income funds, it will be a tall order for the market price to keep up with the dividends which is why I've said that if you need to own any of these, you should reinvest a meaningful portion of the dividend. Not keeping up with the dividend is not the market going against the strategy, more like the strategy going against holders who spend the entire dividend. 

JEPY sells puts, hasn't been around very long and almost looks negatively correlated to the S&P 500.

Since it came out last September, it has paid $6 in dividends. Add that back into the $20/share it started at and the fund is up about 10% on a total return basis. Still far behind the index it tracks but a good example of why reinvesting the dividend should be considered. 

The YieldMax Microstrategy ETF (MSTY) announced its next dividend this morning. MSTY is trading at $31 and change after going ex-div for $3.03 which annualizes out to 106% according to the press release. If Bitcoin doubles from here over the next year then MSTY could very well keep up with that payout but up or down 10% on Bitcoin and I don't see how it could. 

I don't know if the current batch of derivative income funds are the final solution or not but I think at a higher level these funds are part of a movement that is trying to figure out how to harness volatility as a strategy in a retail accessible fund to improve nominal returns or risk adjusted returns. 

A month and a half ago I wrote about the ABR 75/25 Volatility Fund (VOLSX). The title of that post was What The Hell Is This Fund Trying To Do? Crisis alpha is mentioned in the literature but unfortunately the fund lagged far behind the S&P 500 and the Vanguard Balanced Index Fund (VBAIX) in 2022. The fund builds a diverse portfolio of stocks and fixed income and layers long and short volatility in there to seek its objective. Maybe it has a great year coming the next time there is a decline but I don't know that there is any reasonable basis to expect that to happen. The reason to mention VOLSX is that figuring out how to use volatility as a strategy in a fund is not easy.

Blogger Nomadic Samuel posted an interview with Jay Kaeppel who has an interesting spin on asset allocation with what he describes as 30/30/30/10. The first 30% is in plain vanilla stocks, bonds or maybe commodities although he prefers dividend paying value stocks, the second 30 is trend following, then 30% in "objective strategies or systems" and the last 10% in "whatever." There's more to it than that so read the interview if you're curious but I wanted to build an overly simplistic version of this idea.

I chose client holding ROBO as the whatever because I've held it for ages, it has at times outperformed, at times it has lagged but I am not cherry picking the top performing thing I have to distort the results. The other holdings are in the narrow universe of things I use for blogging purposes not what I own for clients. 

I am surprised how closely it tracks to VBAIX. It outperforms by a little, is a little less volatile but outperformed meaningfully in 2022. In the backtest it was down 3.65% in 2015, that worst year was 2018 and in 2022 it was only down 2.72%. It outperformed VBAIX in 5 of ten years including this year so far so not a world beater but clearly a decent performer. Given that much of the period studied was kind of a dark ages for managed futures, it might be able to do a little better going forward especially if interest rates stay off zero. 

And finally a little fun with a crypto called Mother Iggy.

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