Shots Fired In The Portable Alpha ETF Space

Anytime I've ever made a joke about an ETF going to eleven or melting my computer, well this new one really does go to eleven. The Defiance Leveraged Long + Income MSTR ETF (MST) checks a lot of buzz word boxes. It targets 150-200% exposure to Microstrategy and sells weekly call spreads for income. The literature talks about the fund also being a play on Bitcoin. 

Long time listener, first time caller, I own Microstrategy, REX Bitcoin Corporate Treasury Convertible Bond ETF, two different Bitcoin ETFs and I just bought MST for a little income. Am I diversified?

Shots fired in the portable alpha ETF space.....I might be overreacting. The ReturnStacked ETFs invoke a strategy called portable alpha which as we have discussed before, uses leverage to combine beta (plain vanilla exposure like an equity index) with alpha which these days typically means some sort of alternative strategy. 

Harbor Capital, fairly new to the ETF space I believe, filed for an Alpha Layering fund which will leverage up stocks and managed futures to offer 75% to each, 150% overall. The proper name will be Harbor Alpha Layering ETF with the proposed symbol being HOLD. I could swear there was a cash proxy ETF at one point with that same symbol but either way. 

Speaking of which, the ReturnStacked guys have another paper out in support of their funds. I would encourage giving it a read. I've been very skeptical of course but there is always plenty to learn or study. The title of the paper is "Finding The Right Match." I put together a portfolio using a variation on their idea to try to find a different match. 

The way Microsoft is added in, I am replicating 5% in MSFL which is a 2x long Microsoft ETF with a short track record. I picked Microsoft for being growthy but without crazy-CEO risk. Portfolio 2 leverages up Microsoft the same way and the S&P 500 with a small exposure to SSO. 

Where portable alpha funds might use S&P 500 futures, there can be friction embedded in the futures pricing based on interest rates. I've seen theories that a similar thing can also impact SSO. I'm not entirely sure but where the futures might be a little off from perfect tracking so too might SSO so if you're willing to own futures then you might be willing to own a little SSO too. Portfolio 3 is intended to be the same as Portfolio 2 but without leverage. 

The unleveraged version does lag the two leveraged versions but with less volatility. Also, the unleveraged version outperformed VBAIX by 169 basis points with less volatility while leveraged versions clearly did better but with more volatility. Not surprisingly, the unleveraged version consistently had small drawdowns. 

I will be curious to see how the Alpha Layering fund does. It should land in the middle of RSST and client/personal holding BLNDX but we'll see. For now though, I just can get there with the leverage. 

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