There was a quick mention of the Atlas America ETF (USAF) in Barron's. USAF is comanaged by Nouriel Roubini, we dug in when it first listed. For that post last year I constructed a backtest and concluded that it seeks an absolute return or maybe market neutral type of result. There's a lot of short term treasuries and gold, it has a little bit in an inverse long term treasury ETF, there's REIT exposure, a long put spread (bearish position or a hedge) on the S&P 500 and it is short put spreads (a bullish position) on gold. There's also defense industry/cyber security exposure too.
Sure enough, it has been very steady.
Now subbing in for AGG in a 60/40 portfolio.
USAF is only one year old so the sample size is small but the result is a little better than plain vanilla AGG-like bond exposure. Getting a similar result as AGG without the interest rate risk posed by AGG is a good outcome.
Maybe intermediate and longer term rates will never go up again, I don't know but if they do go up then we know that AGG would get hit. A fund that avoids intermediate and longer term rates, like USAF, would avoid that potential hit.
The point is not to be in the business of trying to predict anything but if we can get an AGG like result (from when AGG is doing well) without taking on AGG's biggest risk, that seems like a good trade.
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2 comments:
Hey Roger, USAF is quite appealing as diversifier for me, I'm sure there are others like this. How would you position it in terms of your groupings of portfolio of diversifiers/responders? Assuming they maintain their performance going forward, looks almost like an improved "horizontal line tilting upwards" type of diversifier? Thanks.
If it can continue to do what it has done (you're asking the right question there) then a decent sized allocation like 10%-20% of the 40 might make sense along side others that get to a similar result with different strategies.
Keep in mind, USAF has gotten its result while gold has gone up a ton. The largest allocations are gold, T-bills and REITs. All three have very low correlations to each other which is good but if gold goes down dramatically, T-bills can't rise enough to offset a big drop in gold. REITs at least have the possibility of going up a lot but gold down a lot, T-bills do their thing and REITs only up a little probably means USAF would struggle.
Also USAF is tiny for now which is not the end of the world but important to know.
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