A New Variation Of The Permanent Portfolio?

I stumbled into a recently listed fund in Canada whose name checks a lot of boxes for what we like to explore here, WaveFront All-Weather Alternative Fund (WAAV.TO). I don't think it could be bought through a US brokerage firm but there could be something to learn from the allocation. Or not, that's the reason to dig in a little. 

The asset mix is comprised of equities, REITs, gold, bonds and "diversified futures" which I take to mean managed futures. This is the most recent weightings I could find.

Using testfol.io, I tried to replicate it two different ways; global equities and domestic only.

Since I think bonds will be a poor hold for the foreseeable future, I went with T-bills and because I couldn't find a complete list of the holdings, I assumed equities and index futures to be the same and added them together but the notional exposure I have might be incorrect. I am not a fan of broad REIT ETFs. The case for PSA makes sense to me because we collectively own too much junk but I don't own that one anywhere and AMT makes sense for the increased need for towers, AMT is in my ownership universe. 

WAAV seems Permanent Portfolio inspired which is why I threw in AQRIX and PRPFX along with VBAIX as a proxy for a 60/40 portfolio makes sense as a benchmark. 

The results are a mixed bag. Both the ACWI and SPY versions outperformed AQRIX which is sort of a risk parity fund and PRPFX which is the Permanent Portfolio. Neither version differentiates in terms of volatility versus VBAIX but in 2022 the ACWI version was only down 4.84% and the SPY version was only down 4.75% versus 16.87% for VBAIX. The 2022 numbers are of course favorable but they did get hit hard in the 2020 Pandemic Crash. 

This isn't radically different from a lot of ideas we look at. The bigger takeaway is to reiterate that there are countless ways to build a portfolio to help smooth out the ride without taking on bond duration.

The other side of my argument comes from Cliff Asness via Bloomberg who bumped up expectations for 60/40 results by 0.30% annually as he looks for better performance from.....bonds. As Bloomberg pointed out though, Asness made essentially the same call about bonds ahead of 2024 and of course bonds continued to struggle.

I'm not picking on Asness. Bonds do not do what they used to. Why then take on the variable of unreliable volatility as I have been describing it for a long time. For anyone trying to just manage or offset equity volatility, there are countless other ways to do just that with far fewer issues than what bonds have been going through. 

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