Does It Differentiate?

A reader left a comment asking for my take on the 3Fourteen Real Asset Allocation Fund (RAA). It allocates to equities, fixed income and alternatives based on a proprietary model. The fund holds some ETFs but a lot of individual issues. We can replicate at the asset class level though.

The replication below is as of 10/29. I was going to write about this yesterday but we had a fire department call for service in the afternoon when I usually write. 

RAA just started trading earlier this year but this backtest lets us look at four years.

Of course, there's no way to give RAA credit if the process would have navigated 2022 better than the broad market. I included AQRIX because it is risk-parityish and somewhere in the literature I saw a quick reference to risk-parity.

Here's how actual RAA has done since inception. 

I threw FAPYX in because it is also risk-parity but only been around a couple of years. Without knowing how RAA was positioned earlier, it's hard to know why it lagged the replication we built. Looking at the drawdown chart, really only FAPYX seems to differentiate in any noticeable way.

If the idea is to differentiate, then it is not clear that RAA does that but in fairness it might be too soon to know. It has been a little more volatile than VBAIX or either risk parity fund and had a slightly larger drawdown. If the idea is simply to be a better mousetrap versus VBAIX then it might very well do that, it has so far. 

Portfolio 2 just has the S&P 500 and ACWX for equities, cat bonds, bank loans and plain vanilla for fixed income and I narrowed alts to just managed futures, gold and client/personal holding BTAL but it uses there allocation weightings. 

A lot of Portfolio 2's out performance came from going down a lot less in 2022 but it has also been a smoother ride. Unintended is the reiteration of how important it is to go down less during that part of the cycle. Portfolio 2 lagged by a lot in 2023 and has been nothing special in the other years except 2022 yet it came out ahead for four+ years. 

There doesn't appear to be anything obviously wrong with RAA but at this point, as noted above, I'm not sure it will differentiate. As a believer in alts, it seems plausible that it could be a slightly better mousetrap than VBAIX.

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.