Everyone's Going After 'Boomer Candy'

Long/short is a category that can mean anything. All three of the following are different types of long short.

The Merger Fund is a client and personal holding. Keeping it simple, Invenomic swings for the fences, the AQR fund says it is "seeking equity like returns with less risk" and the Merger Fund is an absolute return vehicle. 

The correlations between them are pretty low other than between BIVIX and QLEIX.

Each of the three introduce different effects when combined with equity exposure.

The above are all 50% VOO 50% one of the long/short funds. BIVIX  was clearly the outperformer but as we've discussed before, the fund did phenomenally well in 2021 and 2022. The rest of the years look nothing like those two. I have no idea whether BIVIX can repeat those two years again but if it can't, then you have something that looks a lot like QLEIX with a lot more volatility. 

This is another example where the longer term result is pretty good for all three but the returns get quite lumpy from year to year. 

Blending all three equally with a 50% weighting to VOO yields an interesting result.

It has a much higher CAGR with less volatility. This is a good argument for diversifying your diversifiers.

ABR Dynamic Funds manages the ABR Absolute Convertible Arbitrage Fund (ARBIX). This is not in my ownership universe but I've referred to it for blogging purposes many times. This month, the managers wrote a letter going after one flavor of "boomer candy," buffer funds. 

My now standard disclaimer with buffer funds, is just don't. You can read their letter to learn more. This table was interesting though, it plainly lays some things out.

It shows what you're getting in terms of setting expectations...sort of. The letter only went into buffer funds, they never said what they were referring to as hedged equity. I am unfamiliar with "oldest collar fund" but they did say it goes back to the 1970's. And of course we talk all the time about the differences between the premium income category also know as derivative income funds and also covered call funds. 

Again, a couple of funds that seem similar based on their description that so far, in the short existence of ISPY do very different things versus the underlying. If the difference stands up, it is because XYLD sells close to the money calls that expire in a month which caps almost all the upside. ISPY sells close to the money calls for one day allowing for much more upside capture. ISPY is in my ownership universe. It's made a good impression for highish yield without being 60% and decent upcapture.

When you look at XYLD, you might think what about using it as a fixed income proxy? It dropped 12% in 2022, it fell 23% in the 2020 Pandemic Crash and it did just a little worse than the S&P 500 in 2018. Whatever XYLD is, what it isn't is a fixed income proxy.

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