Closed End Fund Palooza & A Follow Up

 A reader asked about the 15/15/15 portfolio we studied on Monday. He wanted to know how it did in The Great Hiccup of August, 2024. It was too soon to know from Portfoliovisualizer I said but remembered that the backtesting tool at Arch Indexes can do this.

As a reminder, this is the portfolio;

• 15% Northrup Grumman client holding
• 15% iShares US Technology ETF client holding
• 15% SPDR Consumer Discretionary ETF client holding
• 10% Stone Ridge Hi Yield Reinsurance this is a cat bond fund
• 10% AQR Managed Futures
• 5% BTAL client/personal holding
• 30% iShares US Treasury Floating Rate

Running it through Arch Indexes for one month;

And the chart

The 15/15/15 is the purple line. BTAL and NOC went up a lot, the two sector ETFs did worse than the S&P 500 as should be expected, we noted this yesterday, and AQMIX did about the same as the SPX. I don't put much stock into what amounts to a bad week but it's still an interesting result and better than completely blowing up. It is worth repeating that I chose two sectors that are usually more volatile than the broad market which of course cuts both ways. And I think defense companies might be the most important theme so I went with the name I've owned for 20 years for clients. The rest are all names we talk on the blog about all the time.

Bloomberg wrote up a warning about the ReturnStacked ETFs. There's a free version at Yahoo Finance to read. Yes there should be less risk with leverage that blends assets or strategies with a negative correlation but as popular as these funds are out of the blocks, I feel confident that people are using leverage incorrectly and just because the blend of negatively correlated assets should not blow up doesn't mean they can't blow up. The realistic consequence of layering 10% of managed futures on top of a portfolio is probably some sort of noticeable underperformance. But as is the case with just about every market calamity where leverage is part of the story, the people most hurt are the people who misuse the leverage. 

We don't spend much time on closed end funds (CEF). Here's a thread from Twitter from a CEF-centric account that lists a bunch of 13f disclosures of CEF portfolios. I'm not a big fan of CEFs but there could be some utility. I hope to find time to dig into some of these and refamiliarize myself with this niche. 

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.