Long/Short Berserk

Bloomberg had a little fun noting the T-bill & Chill rotation going from iShares 20+ Yr Treasury ETF (TLT) to SGOV which is a very short term T-bill ETF. Although not articulated this way, in the last few days we've looked at a couple of ways to find T-bill volatility but with higher yields than T-bills.

The funds used to compare to SGOV, you could use BIL just as easily, are just examples, there are more than just four. None of the four is the RISR/MBB combo we've been playing around with but that could also be part of the discussion. 

Every so often, they have blips that SGOV does not have but the volatility numbers are quite low none the less. With adequate diversification, having a few with this attribute could be part of the solution for someone not comfortable with a normal allocation to equities. 

And maybe related, on Wednesday the Reckoner Leveraged AAA CLO ETF started trading with symbol RAAA. Here's Bloomberg's coverage. It is a 2X fund but has the leeway to use less leverage when it sees fit.

This is interesting in terms of exploring capital efficiency. If an investor would consider 10% to a CLO ETF, what about 5% to RAAA and the other 5% in T-bills? If that trade could make sense, what about other very low vol alts? 

The backtest stops right before interest rates went up. To build the leveraged backtest you go short CASHX so that it adds up to 100, 200% long the alt and 100% short CASHX. CASHX went from no yield to having a yield which creates a drag like a cost to finance the trade. Depending on how RAAA gets it's exposure, it may face some sort of financing cost to get the exposure which might work against it actually getting a result that is 2x. MERIX is a client and personal holding. This whole idea is interesting and I will keep an eye on this one. 

In yesterday's post I built a portfolio that was heavy in long/short. That made me curious to see what going absolutely long/short berserk would look like. 

The results are compelling but maybe not repeatable. If it drifted more into the realm of being 75/50 (75% of the upside with only 50% of the downside) it would still be a fantastic long term result. In the short term however, something that orthogonal and uncorrelated to the S&P 500 and VBAIX will occasionally lag by a lot. 

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