New Fund Roundup

Some new, or just new to me, funds to take quick, introductory looks at and a theory.

Earlier this month, Simplify launched the Gamma Emerging Market Bond ETF (GAEM). Despite the fund name and so many other Simplify funds using derivatives, GAEM appears to simply be a bond fund although it is quite a bit more exotic than most other emerging market bond funds, focusing on Latin America. 

The holdings include the Dominican Republic, the Bahamas, Telecom of Trinidad & Tobago bonds, even El Salvador. These types of bonds are usually dollar denominated to make them more marketable to US buyers but I haven't dug in yet to see if that is the case with GAEM. Are the El Salvadorean bonds denominated in Bitcoin? I doubt it, but hey. It's only been a couple of weeks but GAEM has been less volatile than iShares JP Morgan Emerging Market Bond Fund (EMB). That might not be real though, I don't know when it got fully invested. With almost 7% in cash now, it might not be fully invested yet. Like we mentioned the other day about cat bonds, maybe this pocket of emerging market debt has no risk or volatility until there is risk and volatility.  

The Catalyst/Aspect Enhanced Multi-Asset Fund (CASIX) just started trading at the start of the year. It seems to take a page from client/personal holding Standpoint Multi-Asset (BLNDX) by layering managed futures on top of, in this case, a passive 60/40 portfolio. We can backtest this a couple of different ways.

NTSX is leveraged up such that 67% equals 100% into a 60/40 portfolio. The first portfolio listed captures what CASIX is actually doing and the second one could be constructed very simply and should give some of the effect.

It's interesting that the version with just 33% in managed futures had a milder worst year. The CAGR of Portfolio 2 is certainly lower than Portfolio 1 but that tradeoff would be compelling if this combo could maintain that trajectory. In 2019, 2020 and 2021, all three performed very similarly. In the partial year 2018, the very leveraged version lagged by a lot in a year that was very difficult for managed futures. In 2022 both backtested versions outperformed VBAIX by a considerable margin. 

In terms of do it yourself, I think this shows that less (of the negatively correlated holding) can actually be more. I make that point all the time, there are all sorts of pundits getting on board with making huge allocations to things like managed futures. I am not in that camp and for the record, 33% is way more than I would put into managed futures. If you want that much in alts, ok but diversify your diversifiers. There's a good chance of getting essentially the same effect with much less risk of being vulnerable to something breaking or at least bending a lot like managed futures in 2018. I would also note that managed futures did worse in 2016 than 2018.

It is interesting that our attempt to backtest CASIX looked like 60/40 very frequently but deviated away considerably when investors would hope it would with 2018 being a tradeoff. 

Closing out with a theory. We've spent some time trying to figure out the carry strategy. The theory I'm putting out is that the ReturnStacked US Stocks & Futures Yield ETF (RSSY), similar to what we just talked about, will end up looking like 60/40 much of the time and hopefully for holders, it will diverge when holders would hope that it would. Where RSSY is levered up 100/100, I don't think the correct comparison is putting everything into RSSY versus 100% into VBAIX. There's probably a number in the 40-60% range in RSSY, the rest in cash, to see whether my theory will turn out to be right or wrong.

RSSY has only been trading since late May and so far my theory is not obviously wrong but it is way too soon to draw a conclusion. I'm quite certain at this point, I'm never going to use the fund but it's done a great job bring in assets so far and while I am curious, I imagine there's about $150 million that cares. 

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