ETF Roundup & Strategy Study

Nouriel Roubini is jumping into the ETF industry with what will be the Atlas America ETF. It looks like it will be a multi-asset strategy to generate stable returns with low volatility and low correlation with downside protection thrown in there too. Roubini is great at laying out the prevailing bear case but if the next cataclysmic event doesn't come for years, the odds are pretty good that his fund will languish. Of course if the next calamity comes right after it launches the fund might do very well. I'm sure we'll have fun digging in if it ever comes but investing with a guy who built his reputation on being a permabear into a market that goes up the vast majority of the time doesn't seem like a great idea. 

Corey Hoffstein wrote a by popular demand paper on return stacking with gold. The article seemed to be more about the diversification benefits of gold, not so much leveraging up to include gold but I thought I'd put some numbers to the idea. First up is a version built around the WisdomTree US Efficient Core Fund (NTSX). This fund is leveraged up in such a way that a 67% allocation equals 100% into a fund like Vanguard Balanced Index Fund (VBAIX).

Obviously, to buy NTSX you have to want AGG-like bond exposure which I don't but it's fine for a blog post. I included gold of course as well as alts we talk about all the time with managed futures and client/personal holding BTAL. Both AQMIX and BTAL have a negative correlation to NTSX so in a way, this portfolio leverages down. 

We're able to backtest this for almost six years and you can the capital efficient portfolio with NTSX has a better CAGR with lower volatility. The capital efficient portfolio with NTSX outperformed 60/40 by 400 basis points in 2022 and was slightly better than 60/40 in every other year except 2023 when it lagged by 167 basis points. 

WisdomTree has another capital efficient fund that combines equities and gold to build around and compare. The allocations to VOO and GDE are very close to apples to apples of the NTSX portfolio.

This is a little closer to how I want to be allocated because TFLO as a fixed income fund avoids the duration taken with NTSX' AGG-like exposure.

The backtest is shorter due to when GDE started trading. The driver of returns for this comparison is avoiding fixed income duration. These both look compelling but there is no reason that gold and managed futures must be negatively correlated to equities. BTAL is the most reliable on this front but I would not assume it is infallible. Managed futures and gold certainly have the tendency to do well when stocks do poorly but the risk here is some event where all of them do poorly at the same time. If that instance were to ever occur, the leverage in the NTSX version would probably be more painful than the GDE version which uses much less leverage. 

A work colleague called me to ask about the Simplify Bitcoin Strategy PLUS Income ETF (MAXI). The fund pairs exposure to Bitcoin futures and generates income by selling option combos on index ETFs, commodity ETFs, treasury ETFs and actual index options on the S&P 500. I am test driving a small position in one of my accounts. 

It usually pays $0.15 per month in dividends which I have not been reinvesting but this month it paid out $1 which I did reinvest. The reason I am test driving it, is that it is not a covered call strategy that could cap any upside Bitcoin might have. It's more like a multistrategy fund that does a decent job of tracking Bitcoin that also benefits from selling the volatility of other types of assets. 

You can see it separated a little bit from the underlying in the last few months. I'm not sure if I think it is tracking close enough to actual Bitcoin. MAXI is up 38% on a total return basis versus 46% for Bitcoin. MAXI is a small part of my Bitcoin exposure, it's just a test drive. The real test of it will come the next time it cuts in half. Bitcoin could drop a ton without having any adverse effect on the markets it sells options combos on thanks to having no real correlation. So the option income could soften the blow of a sickening decline. 

One important note about MAXI is that other than a whopper $4.17 payout last December, every distribution has been labeled as a dividend including the current $1 payout so the fund may not be a good hold for a taxable account. It may not be a good hold for any account, that's what I am trying to figure out. 

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