Tail Risk & MOVE

Matthew Tuttle talked about this a couple of weeks ago but his firm just filed for the Tuttle Capital No Bleed Tail Risk ETF. The name of the fund refers to the tendency of tail risk strategies to lose a lot of money waiting for the next disaster. There aren't too many tail risk funds out there. The Cambria Tail Risk ETF has been around for a long time and its chart captures the bleed that the proposed Tuttle fund is trying to avoid. 

The other fund that I am aware of is the Alpha Architect Tail Risk ETF (CAOS). That seems to avoid the bleed issue and while it did react well during the Great Dip Of Early August 2024, it doesn't seem to be very reactive when the S&P 500 goes down,

The Tuttle fund will mix long volatility via VIX products, use S&P 500 option combos for both income and downside protection and try to take advantage of VIX term structure (carry) when possible, all with an assist from AI. You can read the prospectus for more details. 

Trying to do anything with VIX is very difficult. I believe it was the VIX strategy in the Simplify Tail Risk ETF (CYA) that blew that fund up. Between TAIL, CAOS and CYA, the ticker symbol game is very strong in this space but the Tuttle fund may have the best one.....OHNO. How great is that?

I'm so inspired by OHNO that I have decided to launch my own tail risk fund and the symbol will be OCRP. I assume the SEC wouldn't greenlight SHIT so oh crap OCRP it is. OCRP will have 50% in CBOE Holdings (CBOE) and 50% in AGFiQ US Market Neutral Anti Beta ETF (BTAL) which are both client and personal holdings. If they can have single stock ETFs why not an ETF with just two holdings?

I threw tail in as well as the S&P 500. In late 2018 OCRP moved up when the market had a fast drop. It did go down almost 9% in the 2020 Pandemic Crash but that was just a fraction of what the S&P 500 dropped and in 2022, OCRP was up 9.15%. You can see a couple of other shorter S&P 500 declines where OCRP went up. Portfoliovisualizer says OCRP has a -0.09 correlation to the S&P 500 and the Calmar Ratio and kurtosis both look pretty good too. 

This is tongue and cheek of course, I am not going to launch an ETF with two names that I've been blogging about forever but maybe this crystalizes the effectiveness of very simple first responders. I did not include an inverse index fund in OCRP because it has no chance of going up if the market is rising where OCRP clearly can go up. 

Barron's has a useful article recapping research from Paul Marsh, Mike Staunton and Elroy Dimson. You might recognize that third name. One of their conclusions was that bonds stink but you probably need them. Part of their logic is the supposedly low or negative correlation to stocks. As we've pointed out, that low or negative correlation to stocks has become unreliable and the volatility as measured by the MOVE Index entered a new regime in 2022 and has remained very high ever since. 

Invoking Karl Popper, if it only takes one negative to disprove a theory, what about several hundred blog posts disproving the need for bonds? There are many different and diverse ways to get exposure to segments and strategies that reliably offer the yield and very low volatility that people hope to get with bonds.

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.