Eric Crittenden sat for a wide ranging interview on the Show Us Your Portfolio podcast. Eric is the brains and manager of the Standpoint Multi-Asset Fund (BLNDX/REMIX). I've written about this fund many times, I've owned it since it's first or second day of trading and added it for clients shortly thereafter. I met Eric and his partner Matt Kaplan a couple of times in the earliest days of the fund. I'm in touch with Matt occasionally.
The podcast was a little over an hour and I'd say the first half was more focused on learning about the fund, the strategy and the influences and the second half was a broader conversation about many different topics.
BLNDX is a combination of equities and managed futures, blended together in such a way as to seek out what Standpoint describes as an all-weather return.
It certainly would be fair to say that four plus years is a a short time frame but it set an expectation and has lived up to it so far. Not every fund we look at here has done that.
Eric talked a lot about diversification. He was critical of the typical retirement planning glide path of owning stocks and bonds and adjusting between the two as people get older. Paraphrasing, he said the diversification benefit of bonds against stocks is unreliable. They aren't far enough apart in terms of correlation. He didn't say there's no place for bonds but this led to an interesting part of the conversation.
He cited Ray Dalio's "investment utopia" of having 15-20 uncorrelated return streams for what I think Eric was connecting to all-weather. He said that BLNDX brings in 8-9 uncorrelated return streams. Dalio's idea of 15-20 would appear to go far beyond his All-Weather idea that has been written about extensively, I've written about it a few times too. Dalio's common All-Weather portfolio is defined as 30% in equities, 55% in long/intermediate fixed income, 7.5% in gold and 7.5% broadly diversified commodities.
Backtesting 18 years at https://tools.archindices.com/portfolio-backtest, Dalio's All-Weather compounded at 5.21% versus 7.61% for 60/40 but had a lower standard deviation, 8.31% to 12.22% and the Sharpe Ratios were within 1 basis point of each other. Shortening up the timeline to the 2020's, All-Weather has lagged 60/40 by 500 basis points annually due to the rough two and half years for longer term bonds. I'm not sure how close Eric and I are on bonds but I see no reason to have more than a token exposure to bonds with duration.
The idea of many uncorrelated return streams is something I've been implementing in client portfolios since before the financial crisis, it is an idea we talk about all the time here but 15-20 is quite a bit more than I believe I target. I don't doubt Eric's word that his fund targets 8 or 9, I'm just not convinced that the best way, as an end user, to view it. Thinking of BLNDX that way becomes an argument for a huge allocation to the fund.
The matrix is from Portfoliovisualizer. It tracks my alternatives ownership universe and three short term fixed income funds I use. A couple of the alts though look just like short duration fixed income like merger arbitrage. There's a lot of uncorrelated return streams in that table.
This is the sort of thing you don't really need until you do like in 2022. Unlike Dalio's All-Weather, I don't want to get too far from a "normal" equity allocation unless there is a client mandate for one reason or another. At times, having this sort of influence in the portfolio is a life-saver and at other times it will try patience. Eric made another point that is relevant here. Whatever it is you do, there will be a tradeoff. A portfolio is not going to keep up with Nvidia without a ton of volatility, it cut in half in 2022.
I tried to find what 15-20 uncorrelated return streams Dalio has in mind but couldn't find the info. Please leave a comment or a link if you have better luck than me finding it. Even without knowing what Dalio had in mind, the matrix reiterates a point we make here frequently which is the fund space, ETFs and mutual funds, are continuing to increase the potential sophistication that retail sized accounts can add to their portfolios. This correlation discussion looks at some complex portfolio construction and it's just a few funds away for anyone who believes in this sort of thing and I realize not everyone does. Maybe most people don't, not sure.
Eric made one other point to address in this post that was along the lines of trying to create a 75/50 portfolio. As a reminder, 75/50 means getting 75% of the upside with only 50% of the downside. It is very hard to do but if you play around with the numbers, it would work out to a fantastic long term result. In the early days of thinking about creating BLNDX and having conversations about his idea, Eric says he got feedback that he described as 80/40 but that people expected that every day. Since its inception, BLNDX is a lot better than 75/50 or 80/40 in aggregate but not every period.
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.
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