Scottish Portfolio Management

Barry Ritholtz had a great post about Sturgeon's Law. As Barry explains it, Theodore Sturgeon was a science fiction writer who when asked why so much science fiction is bad he said "90% of everything is crap." Barry pivoted that quote to what he called Sturgeon's Corollary, "90% of all investment products are crap."

This works on a couple of levels for what we do here. The most important one for what you actually do in your portfolio or for clients if you're an advisor is to avoid most of the new stuff, most of the complex stuff and most of the expensive stuff. We talk about private equity and credit in this context but there are others. The odds are high that expensive, complex products will not be worth the extra fees. Some will be but most will not whether Barry's 90/10 idea is the right number or not, most should be avoided. 

That doesn't mean it's not worth sifting through what is likely to be crap for that 10% that won't be crap. I've never thought about this sort of pareto principle aspect to it but this is why we spend time revisiting things like derivative income funds (mostly crap), some of the levered products (mostly crap), managed futures (mixed bag) or catastrophe bonds (pretty good for the most part). 

By sifting through, occasionally I find something I believe will be additive to the portfolio

There is a different layer for advisors, maybe, for me anyway. I've said this before but I don't want to get asked questions by clients for which I have absolutely no answer. It could happen that I have no answer for something of course but I am very motivated to try.

That gets us to this chart. I saw a Tweet promoting the ETF version of RDMIX, the ETF trades in Canada, RDMIX trades in the US. RDMIX has changed its strategy at least twice and is currently 100% equity and 100% global macro. The fund did great in early 2022 and has struggled since. This year it corrected hard in April and is up a lot since, netting out to a 6.3% gain per Yahoo Finance.

RDMIX is in blue, HEQT is hedged equity, LCR is multi asset core and of course VBAIX is plain vanilla 60/40. Since the April low, RDMIX is up 18% which is in line with the other three funds. Far more often than not, when we look at these funds, I struggle to see what benefit the complexity (leverage) gives you.

I will always be willing to sift and revisit but also very selective to use.

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