This Fund Should Be Doing Better

The other day I mentioned the Cambria Trinity ETF (TRTY) in passing, noting that it usually looks like a tough fund to hold. Testfol.io shows that it has compounded at 3.89% versus 3.64% for inflation. It has also been pretty volatile in exchange for the low growth rate. Something with essentially no volatility that just keeps up with inflation might be a favorable tradeoff but the same return as inflation with a lot of volatility is tough. 

TRTY has had mixed results with crisis alpha. In 2022 it was only down 3.32% which is really good of course but in the 2020 Pandemic Crash it fell 20%. That might not be a useful way to look at though as the fund currently owns a lot of ETFs that weren't around in 2020. It's opportunity set might be much larger now than it was back then. Shortening the study where I am getting this data to the start of 2023 still shows the fund being relatively volatile for something with more of an absolute return type of result. In the two and a half year lookback, TRTY has compounded three basis points more than client/personal holding Merger Fund but with more than twice the volatility of the Merger Fund. 

So that is why I called it a tough hold. Nonetheless, the allocation strategy continues to fascinate me.

I looked at the holdings to try to figure out why it has lagged. I only have the current makeup so it might be difficult to nail it down. It currently has 7.77% in managed futures which has been a tough place lately but would have been part of the success of 2022 if it had that much in managed futures back then. Right now it has 23% in bonds with maturities greater than 5 years. Even five year duration fixed income got hit some when rates went up. It has a total of about 11% in VGIT and BND which have compounded negatively since the start of 2021, have each bottomed out with mid-teen declines but have been clawing their way back slowly over the last couple of years. 

TRTY has a little over 16% in its shareholder yield (buybacks plus dividends) suite of ETFs which have had varying results and varying lengths of time they have existed but they've been a mixed bag. One is way ahead of its corresponding market cap weighted fund, one has been a push, two newer ones far behind and SYLD which is the first one of these is currently behind by almost 200 basis points but at other times it has been ahead of its corresponding market cap weighted fund. There are also two older value funds totaling 14% of the fund that are far behind their corresponding market cap weighted funds which is consistent with value more broadly.

There's quite a bit allocated to commodities and commodity stocks and there are some other things too that take up smaller weightings including a little bit in Bitcoin and an infrastructure ETF.

The target allocation as we've discussed before is 35% in trend following, 25% in equities, 25% in bonds and 15% in alternatives. The trend following number appears to include a 7.94% weighting in Cambria Value and Momentum ETF (VAMO). I'm not sure where it gets the rest of the trend following exposure.

The following two replications.

And the result

I threw in PRPFX because I think of TRTY as being quadrant inspired. The Trinity concept clearly works which is an observation we've made before. Friday's post was titled Half As Long and focused on simplicity. I don't know if it is fair to say that TRTY has too much going on under the hood but the replications are clearly simpler and more straightforward. 

Lastly, I want to address why I added the RISR/MBB pair we've been talking about for the last few days in Replication 2. It turns out that RISR/MBB looks a lot like catastrophe bonds, at least I think it does. 

The big drop for SHRIX in October 2022 was fear that Hurricane Ian would be a triggering event. It wasn't. You can see the numbers and maybe why I draw that conclusion. I am not sure what to do with this yet, if anything, but it is interesting. 

Now, really the last thing as a disclaimer. Again, I would never want anywhere near 35% in managed futures as backtested in Replication 1. I wouldn't want anywhere near 17.5% for that matter but anyone so motivated to go above 10% (I have less than 10%), I would suggest using several different funds to diversify managers and maybe split exposure to replication and a full implementation. 

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