Duration Still Stinks

The other day I said it would not be a black swan if rising interest rates were a contributing factor to the next large decline for equities as I continued to bang the drum of avoiding duration.

Tuesday's trading is just a microcosm, maybe just a nanocosm but just don't with duration. The 38 basis point declines for IEF and AGG isn't such a big deal but TLT and TLH which go further out, I don't know why an investor needs to own them. 

The second table are all fixed income proxies and substitutes that we talk about here all the time. The symbols don't matter, but they are all the regulars. It would be great if they all went up but flat looks pretty good in a tape like we had today.

Over the weekend I put the following together in order to continue our conversation about building portfolios with growth/stability versus stocks/bonds.

There are no new (to the blog) names in the stability bucket in Portfolios 1 and 2 so frequent readers can probably guess what's in there. Where we figured the Total Portfolio Approach boils down to blending growth and stability, I think we can add a third idea, asymmetry. The first thing that comes to mind for asymmetry for me is Bitcoin. Some people think of uranium as having asymmetric potential. Quantum computing might have a seat at that table too. A little off the beaten path is the Direxion 3x Bull Technology ETF (TECL). The compounding will either kill you or make you rich. We looked at TECL a few weeks ago for being the best performing ETF of all time but you need to stomach the occasional 80-90% drawdown.

The way the stability bucket is built, it works out to the low end of normal equity market returns but I'm not sure I would count on that going forward. We've been writing about these types of funds/strategies for quite a few years and I would say they are meeting the expectation I have for them which primarily is very little volatility which means they behave the way I think most investors want bonds to behave. 

On Tuesday afternoon I listened in on the ReturnStacked quarterly update. They went over the performance of their fund lineup and explained quite a few things. The other day I mentioned their equity and carry ETF which has symbol RSSY. The fund has struggled badly, they acknowledged and explored why it has done poorly.

One fund that sounded like they are pleased with is RSBA which combines treasuries and merger arbitrage. This was the second time I've heard them say that this blend looks similar to credit without taking on credit risk.

The comparisons are all the ways I can think of to try to evaluate relative performance. Portfolio 2 is pretty much what RSBA does. Just comparing it to merger arb with client/personal holding MERIX assesses whether adding treasuries adds anything. I don't know if looking at 2x merger arb is worth doing, RSBA is levered up after all, but if anyone thinks that's useful, there you go. And if treasuries plus merger arb resembles credit, HYG covers that. To leverage up in testfol.io and Portfoliovisualizer you go negative CASHX to get to 100% so that accounts for the cost of the leverage at least a little.

I'm not sure investors are getting any benefit from the complexity of the leverage. I've said before, I spend the time on these trying to see if they can get to a point where I think they can help clients. I've been nowhere near that point thus far and this quick look doesn't get me any closer. 

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.

The Psychology Of Retirement

The Wall Street Journal had a pretty rough piece about retirees losing a sense of purpose in retirement. The article specifically used the word mattering. Retirees can find it difficult to matter anymore which a big negative of course contributing to depression and in some instances, negative health outcomes. 

I read a ton of articles about retirement and the comments when available, always read the comments, and invariably there are plenty of comments from people sharing their retirement successes, they have enough money and they never looked back after going out middle fingers a blazin'. I embellished that last bit some some. 

For anyone who really does ease into retirement that smoothly, great, but part of planning to have a successful retirement requires forethought and introspection. A repeat idea from countless posts, waking up on day one of retirement and asking yourself "ok, now what am I going to do" is a personal crisis waiting to happen.

Some of the people profiled had ideas about what they would do which amounted to part time consulting in their primary career or some sort of organized volunteering related to their primary careers. A couple of weeks ago I made a passing reference to situations where consulting actually works out but was skeptical that a lot of people can actually create that situation for themselves. The article seems to say that there's something to this idea of it being hard to pull off. 

One path to figuring this out is starting long before retirement. I use the phrase "long runway" to describe building a plan for mattering in retirement to use the WSJ's term. The fire department sort of found me when my neighbor with a backhoe, for those who've been reading me for a very long time, recruited me into the department when we moved here full time in late 2002. Then my involvement with Del E Webb Foundation sort of found me from something I did quite a few years ago that was fire department related. It doesn't seem like working on large incidents in the way I talked about for many years and started to actually do on a couple of incidents is going to happen. My day job proliferated in a way I never expected and I am less comfortable with the idea of being gone during our fire season.

This started as a car fire in the middle of last June. This could have been catastrophic based on the time of year but I was home. I live a mile from the firehouse and this incident was in between our house and the firehouse. We got there crazy fast and had it knocked down very quickly. 

This will always create a sense of mattering to me. I've got 20+ years in and hopefully can do this another 20 even if not as chief for too much longer. That's a long runway. The Del E Webb work is very purposeful to me, doesn't matter what anyone else thinks which is probably important to figuring out how to matter, don't worry about what anyone else thinks. We have one board member north of 80, the board member I am replacing is 82 or 83, one of the volunteers is 87 and is the sharpest guy we have, essentially a forensic accountant. One of the fire board members is 83, been on the board since 2010, is also actively involved with the Kiwanis Club, some sort of shooting competition series and takes the occasional private investigation gig (retired customs agent). 

I like to share these examples from people in my life. There are some very interesting people around here and I feel like I've learned from them and been inspired. Thirty year old me never thought about anything related to the fire service yet six years later I was all in and the impact has been enormous.

It's obviously important to get retirement finances dialed in but that's only part of the story. Not worrying about money is certainly nice but that won't prevent someone from losing their purpose or sense of self. 

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.

There's Probably A Simpler Way

Here's an interesting filing from Quantify ETFs.

These guys run the STKd 100% Bitcoin & 100% Gold ETF (BTGD) which we've looked at a couple of times. BTGD has brought in $98 million of assets and you can judge for yourself whether the result is close enough to what it targets.

The idea of blending more of a plain vanilla holding like the S&P 500 or a broad fixed income proxy with short volatility from a far more volatile asset interesting. I realize the filing has all sorts of different combos but I am intrigued by S&P 500 combined with selling Bitcoin volatility and S&P 500 combined with selling gold volatility. I have no idea if they will work but I am intrigued.

Some of these did a whole lotta livin in just two years. YBTC sells calls on Bitcoin. The nature of a covered call fund is capped upside without any expectation of meaningful protection to the downside. If Bitcoin drops 50%, would you feel better if YBTC only fell 45%? Portfolios 1 and 2 endured two pretty big declines, the Tariff Panic last April and last fall when Bitcoin dropped from $126,000 to below $90,000. One challenge to the SPY/YBTC combo, which would be ISSB from the filing, is that the correlation between stocks and Bitcoin might go up in risk off environments. 

When stocks and Bitcoin both go up then yeah, ISSB would probably do very well even if the tracking may not be exact. 

The SPY/IGLD combo, which would be ISSG from the filing is a little more interesting. It's not less volatile than the S&P 500 but a 90% SPY/10% IGLD combo (so 80% SPY with 10% in ISSG if it lists with 10% left over) has lower volatility, a higher Sharpe Ratio and a lower beta than just the S&P 500. Yes, 90% SPY/10% IGLD outperformed just the S&P 500 but I would not count on gold's fantastic performance in 2025 repeating very often. 

I saw the following on Twitter.

My first reaction is to wonder if all of that can do anything in terms of improving risk adjusted results versus a plainer vanilla 60/40 portfolio.

The year by year returns are almost identical. In 2025, the WisdomTree's Cap Weighted Passive Allocation outperformed by 635 basis points thanks to the large weighting in gold. I don't doubt the accuracy of the weightings WisdomTree came up with but if anyone wants the effect captured by this portfolio, there's probably a much simpler way to do it. 

And a little fun from the NY Times, Is This Billionaire A Genius Or A Fraudster about Michael Saylor. You can probably guess where I land on this one. Gift link! 

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.

Growth & Stability, Not Equities & Fixed Income

A couple of months ago we looked at Total Portfolio Approach (TPA) as a "new" type of portfolio construction. If you read that post from November, it doesn't do a great job of dialing in what TPA actually is because the articles talking about it didn't really dial it in either. Jason Kephart from Morningstar managed to crack the code with a very useful article. Based on Jason's article, TPA fits right in with what have been doing/exploring for many years. 

Jason says that holdings are selected based on how they are expected to behave. We talk about expectations in this context all the time. For example, while a staples sector ETF will have equity beta, it's not a correct expectation to believe it will lead the way in a bull market for stocks. It might do that but it's an incorrect expectation. Client/personal holding BTAL can go up when stocks are going up but the reason to own it is that it has reliably gone up when stocks go down. It's reasonable to expect it to go up when stocks drop even if there is no guarantee.

Instead of stocks and fixed income, think instead of "growth and stability." That's useful.

He said the idea is not higher returns at all costs but instead to have a portfolio that "behaves more predictably" when markets get hit. He says this approach can make it easier for investors to hold on or as we say help avoid panic selling. 

Applying this idea in his article, Jason talked about high yield bonds going into the 60% (or whatever number) as part of the equity allocation in a traditional 60/40 because high yield bonds tend to have equity beta. The idea he came up with to build a TPA is 50% in equities, 10% in high yield bonds, 35% in core bond exposure (AGG or BND) and 5% in cash. 

After seeing that he put 35% in AGG he then said "correlations shift, regimes change, and assets that historically provided stability can behave very differently when the underlying drivers of markets evolve" which I found very odd in relation to 35% in AGG. My brother, the regime has changed. Duration is no longer stability. 

If we forget about the term fixed income entirely and replace the word with stability, the stability sleeve wouldn't have to include fixed income in the traditional sense. 

Portfolio 1 is proportional to Jason's 40% AGG/Cash sleeve and Portfolio 2 is built with strategies we use for blogging purposes all the time. It's hard to argue a lot of AGG and a little cash is all that stable. 

A quote from a Barron's article this weekend that says bond investors want "safety, certainty and frugality." Frugality probably doesn't fit in that well in our conversation but safety and certainty do. In terms of TPA, I word it all the time to talk about alts behaving the way I think people want bonds to behave and Portfolio 1 above doesn't do that. It would not be a black swan if a move higher in intermediate and longer term rates were a contributing factor to the next large decline in equities. If so, then AGG which is intermediate duration would again disappoint like in 2022 even if the magnitude wasn't as severe as 2022. 

Kind of related, TheItalianLeatherSofa blog took up our discussion from this week about our all weather portfolio that tried to allocate based on equal weighting standard deviation and excess kurtosis. The author's name is Nicola. Nicola is far more willing to hold duration. True to the Dalio all weather, Nicola models in TLT which tracks 20 year and longer treasuries. He believes that my thoughts about avoiding duration are a shorter term "macro narrative." 

Since I've never held duration in the modern era (my 20+ years as an advisor), it's not clear to me I am expressing a macro narrative but maybe. The way I've described it here is assessing whether or not the compensation for the volatility is adequate or not. TLT is currently in a 40% drawdown that started in late 2021. Circling back to TPA, that is not stability. The investor who bought in 2021 and is still holding will never get back to even on a price basis. 

Anyone buying TLT today at $88 might face a similar dilemma, never making it back if rates take another meaningful leg higher. If you believe four point whatever percent is adequate compensation for 20 years, buy an individual issue instead of TLT. If rates do go up, you'll at least get par back at maturity versus never getting back to even on the ETF. Waiting 20 years to get back to par seems like a terrible position to put yourself into. Different story if the compensation is adequate. If 7% for an individual treasury ever happens, that might be interesting for being at the low end of a normal equity return distribution. I'm not saying we'll see 7%, just saying that if we do....

Jason Buck frequently uses the word ensemble to describe a portfolio as opposed to a list of stocks that you hope will all go up. The cliche response is if they all go up together then they will all go down together. Building an ensemble, maybe in a TPA framework, by combining growth and stability in an effective manner can help mitigate the all go down together portion of the cliche.

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.

ETF Slop

That phrase, ETF slop, was the focal point of an episode of the Rational Reminder podcast. It's a long one but the key point was to question whether newer ETFs actually benefit customers or not. Things like crazy high yielders and 2x single stock ETFs would be part of the ETF slop discussion. 

I'm willing to learn about any ETF or strategy, slop or not. If you read these posts regularly, you probably know what sorts of things I think of as being slop, like the two above, but I think it is time well spent trying to challenge my belief of what is slop or the other way around, study ETFs that maybe people would not consider slop but actually is.

There are some derivative income funds that offer utility without "yielding" 80% and I believe in the idea of capital efficiency even though I am very skeptical about bundling it into an ETF. There are quite a few levered equity/managed futures products either coming or recently listed. Simplify just listed one with symbol CTAP and I believe Man Financial and JP Morgan each have one coming if they're not out already. The capital efficient (levered) space is going to proliferate. 

I believe PIMCO is the first in the space with its Stocks PLUS Long Duration (PSLDX) which is 100% equities/100% long bonds. PIMCO just launched something similar in an ETF wrapper. SPLS looks like 100% equities/100% various PIMCO bond funds. 

Are any of these for the customer's benefit or are they just slop. It depends who you ask but I would encourage skepticism when assessing complex funds. 

Reading the description of SPLS, it almost reads like it is stocks plus carry. It certainly does not appear to be stocks plus duration. Carry can be several different things. It can refer to long backwardation/short contango, it can also refer to the income stream kicked off by a investment like a dividend from a stock or a coupon from a bond. RSSY from ReturnStacked does both.  

While no one suggests putting the entire equity allocation into RSSY, I have no idea why someone would want to own it. But that doesn't mean there isn't something to the idea of stocks plus some version of carry. Stretching beyond the typical definition of carry, the description of SPLS got me wondering about adding arbitrage on top of equities. SPLS seems to want to add fixed income yield on top of stocks without a lot of fixed income volatility and maybe that will work but arbitrage is usually a very low vol, absolute sort of return strategy.

Portfolio 3 might replicate what SPLS is trying to do but I believe SPLS will be active in owning different PIMCO fixed income fund but that model was down 35% in 2022. These are clearly no picnic where it comes to volatility and drawdowns. Portfolio 1 was surprisingly volatile and was down more than just the S&P 500 to varying degrees in 2002, 2008 and 2022. 

There's certainly no magic bullet with this idea but it's time I will continue to spend. 

Closing out, we knew these were coming at some point. GraniteShares filed for a single stock autocallable ETF on Robinhood. CAIE from Calamos has been wildly successful in terms of AUM and having a very high yield but without an eroding NAV. A very high level on how these work is they pay out very high yields unless there's some sort of very large, predetermined decline in the underlying security. CAIE yields 14%. I didn't see any mention of the yield in the GraniteShares filing but if you figure we are in a 4% world then one way or another, getting a 14% yield means you're taking a lot of risk. That's not a bad thing so long as you understand the risk being taken. A diversified portfolio includes holdings with various risk profiles, that really is not problematic when sized correctly. 

For now though, I do not have the risk to autocallables dialed in. I'll get there but for now, it's hard to figure that nothing bad happens with CAIE until the S&P 500 drops 40%.

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. 

Hold On And Just Relax

We throw around the word ergodicity here quite a bit. The big idea is that the market will go up by some amount in the future either with you or without you so it might as well be with you along for the ride. The idea of never doing anything doesn't really fly as occasionally changes need to be made because of something different with the stock or fund or some sort of change in life circumstances where the asset allocation needs to change. 

The following is from a client who has been with me about 20 years. 

The column with the bigger numbers is the current value and the other column is the cost basis. A couple of the holdings are individual stocks and several are sector ETFs. The one in the middle that is flat is a fixed income ETF. This isn't a brag about picking what to own. One of them is a broad tech sector fund, there's no skill or even luck in choosing to own the tech sector. Anyone with a diversified portfolio has the tech sector in there one way or another. 

The client's account is a diversified portfolio so of course there are things in there that have not gone up anywhere near as much as the broad market.

The point is understanding the value of knowing when not to get in the way. Quite obviously none of them went up in a straight line. And while I did shave a couple down here in there to rebalance, this sort of thing is mostly a function of understanding ergodicity. 

A very specific memory for learning about this came from when I was working a Schwab in the 90's. I helped out with some issue on an account that had a little over $1 million which was less common back then, and about 80% of it was Dell Computer. He bought and never sold it and it made him wealthy. 

Whatever the best performing stock of the last 20 years is, there have been long stretches where it traded terribly. Microsoft in this century is up 1219% per testfol.io versus 657% for the S&P 500 yet it lagged badly from 2000-2014. Since its IPO, Microsoft is up 790,000% versus 6841% for the S&P 500.

While I doubt too many people would have held through 14 years of lagging, the point about ergodicity and doing less are still embedded in the result and certainly selling a stock based on a bad quarter is very short sighted. Your "favorite" stock or fund will at times lag badly. 

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. 

All Weather Portfolio Lab

Larry Swedroe had an interesting article at FA Mag about how to size alternatives. The interesting part was the talk of equal weighting various factors including kurtosis (a measure of tail risk) and standard deviation. Larry listed out more but I think those two cover a lot of ground. 

I started at Copilot and then also brought in Claude using Invesco Momentum (SPMO), SPDR Gold (GLD), Saba CEF ETF (CEFS), AQR Managed Futures (AQMIX), Convertible Arbitrage (ARBIX) Stoneridge Catastrophe Bonds (SHRIX). I ask both Copilot and Claude to "build a portfolio with the following funds by equal weighting standard deviation and kurtosis. Do the best you can if its not possible to do it exactly." Here are the weightings they each gave;

The next step was to ask each one to grade the concept for "all-weather robustness" because the results are interesting and the time is not so short as to be useless.

Copilot gave it an A- thinking it would benefit from more explicit inflation and deflation hedges than what I used. Claude was a little tougher, it gave a me a B- with a lot of color that led me to believe it thought Dalio's All-Weather was better. This made no sense to me so I pushed back, "the portfolio I asked you to build and then evaluate outperformed Dalio's all weather allocation by more that 400 bp compounded, had smaller drawdowns than Dalio's all weather allocation and a lower volatility. How do you figure that Dalio's all weather allocation is superior? That doesn't make sense to me, what am I missing?" 

The reply to that was very interesting. Claude said I was right to "call me out" and gave the following;

I think I see this sort of thing frequently where people overly rely on the "conventional wisdom" of bonds and get hung up on how things should work. Claude bumped the grade up to A. As a follow up, Claude asked how I backtested and I told it that I just used testfol.io, compared it a version from Copilot and Dalio and how similar its results were to Copilot. It replied to that saying that fund selection matters more than weightings which is interesting up to a point. 5% in everything and the rest all in ARBIX obviously would have been far inferior to the final result. 

One interesting item from the interaction with Copilot. I plugged in the symbols and then asked to figure the weightings. I made a typo on one of the funds. I typed AQRIX which is sort of risk parity instead of AQMIX which is managed futures. I told it I made a mistake and asked it to rerun with AQMIX which it did. It also told me that AQMIX made much more sense than AQRIX which I thought was funny. 

This was fun and productive. I don't really have the mathematical chops to have figured this myself and tweaking weightings over and over to get close would have taken a long time versus a couple of minutes of both AIs "thinking." 

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.

Ok, But That's A Lot Of Bitcoin

From Twitter;

I am not familiar with this person but maybe their portfolio is interesting. I'm not sure how "broad based indexes" differs from just plain "indexes" in the third slot but I replicated his idea as follows

I used materials and staples for the sectors. If he allocates that much to the Mag 7 and that much to indexes then adding more tech would just compound the duplication. I pretty much equal weighted the Mag 7 names and I used managed futures for the "other" category. I used BTCFX instead of the Grayscale product because going back too far with Bitcoin would yield some results that I don't think are repeatable. 

The results are pretty good. The growth rate is better than the S&P 500 and while the volatility checks in a little lower per testfol.io, Portfoliovisualizer shows the profiled portfolio with a higher standard deviation. The drawdowns for the portfolio have usually been larger than for the S&P 500. With that much in Bitcoin, I am surprised the volatility isn't higher. 

Interesting that the large weighting to SCHD didn't spare the portfolio in 2022 but it and Bitcoin probably held it back in 2025.

The allocation to Bitcoin is way too large for me unless he started tiny and it grew into that amount and he's comfortable letting it blow up. That would be harnessing the asymmetry and I think that is ok but I don't know if that is the case. Whatever Mag 7 means to him and owning indexes, presumably the S&P 500 and maybe the NASDAQ 100, seems like a lot of overlap that I think can be captured with far fewer holdings. SCHD might be a good offset to all the tech, likewise the cash exposure and while I don't know what he uses for "other" the managed futures we used is probably helping too.

Fun exercise, short post.

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.

Don't Give Up On Dividend ETFs

Just some very quick hits today. I lost most of my Saturday, after our monthly fire board meeting, we had to put snow chains on one of the trucks and we discovered a boulder, seriously a boulder, between the dually on the passenger side that turned into a lengthy project. We deflated the outer tire and then used a hammer chisel (may not be the precise name) to break up the rock. It was granite and just the chiseling took 40 minutes. I've got a bunch a tabs open so this is the best way to catch up. 

Barron's wrote about dividend ETFs including SCHD for anyone wanting to be more defensive in 2026. SCHD is an excellent fund. Since inception its total return has compounded at 12.5% and its price only has compounded at 9% versus 15% for the S&P 500. Those are outstanding numbers and of course the drawdown in 2022 was much smaller than the S&P 500. 

The last three full years though, would you be impatient and throw in the towel? Yesterday's post was titled whatever you believe in will not always be optimal. SCHD is no less valid than its ever been but anything you believe in will at times lag. This example is the epitome of the patience required to succeed in markets. 

A quick snippet from a different Barron's article. "So, a 3% fed-funds rate could coexist with a 6.75% 30-year bond. Such a backup in yields would result in a 30% price plunge." Thirty percent?!? The compensation for the risk taken for intermediate and longer bonds at these levels is inadequate. I have no idea if the 30 year can ever get to 6.75% but at that level it starts to get into the lower end of equity returns which starts to become interesting/attractive. 

Panoptica which is kind of like Grantland, wrote about the 4% rule. To be blunt, I don't actually understand what the main point of the article was. The 4% rule is out of date because of some undefined signal says it is? But in the part of the conversation about sequence of return risk something that I've seen more than a couple of times with newly retired clients is they have their first two or three years of retirement somehow covered so they don't have to start withdrawing right away. One client got a separation package after some sort of corporate transaction. Another actually consulted part time for a while. I say "actually" because I think that gets written about far more often than it works out. 

One way to mitigate sequence of return risk is to set aside cash but another one is to figure out how to get by without pulling from an account if your retirement date turns out to be unlucky timing. Figuring out how to get by in this context obviously takes a lot of planning and a little bit of good luck.

The last one is again from Barron's about the withering away of the FIRE movement. The take here on FIRE has always been about pursuing independence as opposed to giving up work. The extreme of doing nothing at 35 seems wholly unfulfilling. Also not talked about enough elsewhere is undercutting your own Social Security if you really stop work at 35. Sixty years is an awfully long time to rely on a portfolio and nothing else, remember no Social Security. Or at least a tiny amount of Social Security. 

An observation I mentioned about FIRE very early in its existence is younger people not understanding what it means to be 50. It's not unreasonable for someone who is 25 or 30 to believe that 50 is very old, too old to enjoy "what little time is left." 50 can be old of course but doesn't have to be. Being 50 (or 60), having a little money in the bank and still being able to get it done can be a great time in our lives. The combination of health and experience is fantastic but I appreciate can be difficult to understand in our twenties.  

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.

Whatever Strategy You Believe In Will Not Always Be Optimal

Eric Balchunas Tweeted out the following.

Meb Faber who runs Cambria replied "I doubt this will happen again in my career, but at least for today, cheers!" While it was probably just an off the cuff reaction there is a useful point of understanding embedded in the comment.

The exposure that GVAL provides is certainly a valid way to go, no question, but it is not always going to be optimal. Whatever strategy you believe in will not always be optimal which is just fine.

Yes GVAL has lagged ACWX but in 13 full and partial years in the backtest, per Testfol.io GVAL has been the better performer six times which is almost a coin flip. If you look for yourself year to year, although they are both proxies for foreign equities, GVAL does differentiate quite a bit, in four out of 13 years, the spread between GVAL and ACWX was more than 1500 basis points. Differentiation is a positive attribute in my opinion but it can be difficult to endure. 

Short one, a lot going on...even on a Friday night!

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.

All Weather Fixed Income Portfolio?

Lately, I've been getting emails promoting the Prospera Income ETF (THRV) which started trading on Sept 30, 2025. The big idea is that it blends an income strategy with a small options overlay for protection to create an all weather income fund. The options strategy doesn't appear to be about enhancing the income. 

Using closed end funds (CEFs) is always interesting. It can be a tricky niche and anytime I see a fund using them, I appreciate the effort being put in. The results may be great or poor, I have no idea but someone is trying to do some work. 

The fund benchmarks to an equal weight mix of SPDR High Dividend ETF (SPYD). iShares Aggregate (AGG) and iShares High Yield (HYG). Backtesting THRV probably isn't productive, it's only three months old and being actively managed, there's no way to know what they would have done previously but we can play around with the pie chart in a backtest and see if there's anything to take from their process. 

I built out the following to replicate the pie chart.

THRV might be constrained to not use mutual funds but we are not. FLOT is a client holding. CEFS is an ETF that owns closed end funds. SHRIX yields 13% per Yahoo Finance, SRLN yields 7.5%, FLOT at 4.8%, CEFS is just under 7% and ETV which I am using for the "equity" sleeve yields 8%. The literature for THRV says it yields 7.5%.

Testfo.io's output didn't look right so I ran it through Portfoliovisualizer instead.

By using CEFS, we outsourced the CEF exposure for a big swath of complexity. Most of the holdings are complex strategies so that is a drawback but the result has a whopper of a yield and a relatively smooth ride. The replication might be a little heavy on credit risk, senior loans and CEFs probably have some overlap there in terms of risk taken. In real life I'd never consider anything close to 20% in single funds, I'd want to diversify more than that. 

GlobalX listed a suite of what appears to be Bulletshares-like products for zero coupon bonds. 

In each fund, all of the issues mature in the year of the name of the fund. for example, in ZCBF, the issues in that fund mature at different points in 2034. These aren't laddered products, they are products to build your own ladder. 

I like that the target maturity/ladder space is evolving. This seems like one of several spaces where fund companies are trying to move toward a more useful solution. I'll have to study these some before really saying anything about them beyond that pound for pound, zeros are very volatile but I am intrigued enough to want to try to learn more. 

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.

Resurrection Payout

Bloomberg has been a lot talking about betting markets for the last couple of days.

Volume has gone up considerably as people figure out there is no end to the things to bet on. Supposedly someone won a large bet involving the seizure of Nicolas Maduro. A little more amusingly, a bet paid off because Jesus did not return in 2025. It didn't pay out a lot not surprisingly but what I do think is interesting is that the payout for him not rising was slightly better than a Treasury bill. 

A few days ago we took a look at prediction markets like Kalshi and Polymarket and wondered if some sort of fund strategy that made thousands of bets through Kalshi, Polymarket or both might yield some sort of absolute return result or maybe look like a form of arbitrage. The Jesus bet paying off 5.5% gives me a little hope of that possibility. Just a little fun. 

Speaking of things not correlated to anything, I reached out to a couple of contacts at different liquid alt mutual fund companies about litigation finance in a fund wrapper. Interestingly, both companies have looked into it. One of the two gave a little more color saying that to put it into a daily liquidity wrapper like a mutual fund, it would require tokenization of the loans to make them more easily transferable. 

There's a lot of talk about tokenizing everything so why not litigation finance? In that post about it from a couple of weeks ago I mentioned trying to follow this to see where it goes. So this is what that looks like. I learned a little more, good, no progress out there though, at least not yet. 

An ETF provider called Tapp Alpha has a couple of derivative income funds, one tied to the S&P 500 and one tied to the NASDAQ. Tomorrow (per a Tweet so it may be incorrect), Tapp Alpha is launching 1.3x leveraged versions of those two funds. In with their literature they refer to "slight" leverage. On a related note, GlobalX has a 1.25x levered S&P 500 ETF that trades in Canada. Direxion filed for a similar ETF but Copilot said it never launched. 

While I am skeptical about the ReturnStacked funds due mostly to the blending of assets, their content to support their funds has contributed mightily to our understanding of capital efficiency. In terms of one of our tenets here to take bits of process from various sources to create your own process, we've taken some of their process which that capital efficiency might be a good idea and now we're trying to see if there is a better way to use it. Like many things, leveraged funds are only going to evolve. Hopefully that means they will improve and maybe "slight" leverage is the answer?

Following through on yesterday's post about my process, this is time spent that may not yield any results. It's too soon to know but curiosity to learn and explore is important. 

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.

Heavy Tools For Portfolio Management

I mentioned a while ago that I've started managing portfolios for other advisors' client bases. It's not like I'm doing this for a bunch of people but today I was having a sort of onboarding, maybe not the best word, conversation and was asked about process. 

The other advisor used to work with someone whose portfolio process was to build a screen that sounded like it tilted to quality and just buy the names that the screen spat out. Generically speaking, something like that can certainly be valid but the way someone specifically implements that approach may or may not be valid.

But with that background to the conversation, he asked if that's what I do and it is not. I thought parts of my answer might be of interest here, so here it goes. 

One part is that I spend the vast majority of my time reading, learning, researching, backtesting and looking for ways to break, again maybe not the best word, various portfolio theses and investment strategies. I made a joke that if you read my blog you might think client accounts are jam packed with covered call funds but I barely use them, a couple of accounts where I think a small exposure is beneficial--not YieldMax products. 

We spend what I think is a lot of timing pouring over catastrophe bonds here but they make up mid-single digits of an overall portfolio. The time spent is probably a lot for such a small allocation but while I believe these are simple, I realize there is some complexity involved and while I want some complexity I don't want too much complexity. 

This other advisor and I have talked about the stock market's ergodicity although I haven't thrown that word at him. I thought of a good analogy from our fire training this past Saturday where we worked with extrication tools. 

These are of course primarily for vehicle accidents where the car is so badly damaged that opening a door isn't an option. The tool being used in the picture (not my picture) is called a spreader. We have an older spreader that I'm sure weighs more than 50 pounds. Older ones can weigh 70 pounds but I don't think ours is that heavy. 

At 50 pounds, there's no way the firefighter pictured is holding the weight of the spreader. It is wedged in there, the spreader is doing the work, he is simply guiding it. Guiding it no easy thing but it is easier than if he was carry the full brunt of the weight in that position. Again, the tool is doing the work. 

With investing, there needs to be some element of letting the market do the work. If someone buys an index fund and is able to hold on no matter what, they are fully allowing the their tool, the index fund, to do the work. That would of course be very difficult every so often but valid so long as there is never a panic sale.

That is important context. The market will go up by some large percentage over the timeframe relevant to your situation. Too much trading and behavioral reactions will impede getting the right return for your tolerances and financial needs. For example selling into a panic or chasing something that has already gone up a lot. Once you fully understand and accept that by and large the stock market is going to go up with or without you, you can start to build a process let's the bottom line grow while avoiding ever succumbing to emotion.

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.

What Is Your Perfect Portfolio?

The other day I mentioned Cullen Roche's appearance on Meb Faber's podcast. I neglected to mention Cullen's new book titled Your Perfect Portfolio: The Ultimate Guide To Using The World's Most Powerful Investing Strategies, not an affiliate link. The book included a look at some well known portfolios like the Permanent Portfolio and a couple that Cullen came up with. 

Pivot to an article by Chuck Klosterman that Tom Brady Is Not The GOAT, he instead makes a very short, thin argument for Jim Thorpe as the greatest of all time. By all accounts, Thorpe was thoroughly dominant in his era but GOAT is a difficult argument even if Brady isn't the greatest. Some argue Jim Brown is the greatest and there's an argument for Jerry Rice, one of my favorites is Earl Campbell but he's probably not the GOAT. Fun sidebar, Google "Earl from Austin" about Campbell for a fantastic story.

A few of the comments on the GOAT article astutely observed that what the article was really about was the folly of comparatives. How do you compare Bill Russell to LeBron James? How do you compare someone who played before the forward pass was invented to anyone from the last 70 years?

Cullen isn't trying to present the perfect portfolio in the book. The idea is to see how others have done it so that readers might then figure out their perfect portfolio. Perfect for you doesn't have to be perfect for anyone else is the point. We've framed this concept as taking bits of process from various sources to create your own process. 

You're 70, been retired for three years, your portfolio is keeping up with inflation while meeting your income needs and isn't positioned in such a way that you freak out any time the market hiccups. Regardless of what you own, if this describes you, how is that anything but the perfect portfolio for you? Maybe, your buddy made a little more last year or maybe a little less, so what, if your portfolio is doing what you need it to do and you can sleep, you have your perfect portfolio. 

Short one today, going through a very busy period. Nothing bad, just busy. 

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.

Twitchy And Investing Success Don't Mix Well

Cullen Roche was a guest on Meb Faber's podcast this week. I've known both of them for many years, both are very smart obviously and the podcast was fascinating. Part of the fascination was how differently they appear to come at portfolio construction. Meb is a big believer in alts, specifically a huge believer in trend following/managed futures whereas I cannot recall Cullen ever talking about alts and certainly his ETFs are comprised of very plain vanilla assets. Both approaches are of course valid, the difference in approaches really is noteworthy. 

There was a shocking nugget that came up that I will get to in a moment but Cullen recently made a change to his ETF offering, essentially shutting down DSCF and replacing it with three different ETFs, each one that targets a specific duration. DDV targets a five year duration, DDX as ten year duration and DDXX at 20 year duration. 

DDV allocates 87% to bonds and 13% to equities. DDX allocates 34.5% to equities and 65.5% to bonds and DDXX allocates 100% to equities. He is blending together assets with different durations to achieve the intended the target duration number in the name of each fund. Part of the understanding here is that equities are a long duration asset. In the podcast he worked through an explanation that lands on equities' duration being 15-20 years. An advisor wanting to use these funds probably needs to really dig into this idea before buying. 

Since we've looked at something similar lately with drawdown strategies and the LDDR ETF, let's look at DDX the ten year product. To be clear, these don't deplete or have a termination date.

Very plain vanilla like I said. In 2022, VGIT was down 10.5% versus down 13% for AGG. Backtesting DDX we get the following;

I started the backtest when the bond market became less reliable to give a better sense of the volatility. To DDX' credit, it has the same volatility as the portfolio that is very heavy in client holding FLOT. If interest rates take another meaningful leg up, not even as much as in 2022, VGIT would get hit which would be rough on DDX. VGLT would go down the most of course but the weighting in DDX is pretty low. On a price basis, VGIT is down 15.5% from its 2021 high and on a total return basis, VGIT is down 1.19% cumulatively. 

I'm not trying to predict anything, I am just pointing out that bonds are now in a different regime than they once were and so they are less reliable. If I was comfortable with intermediate and further out treasuries, I'd use individual issues. VGIT has no par value to return to. Waiting for a bond that is down a ton to get back to par is not a great place to be in but it's better than being in a fund that has no par value to get back to. TLT may never get back to its high for example. 

The shocking part came just past the 37 minute mark when Cullen said "my own career has been a series of me jumping from portfolio strategy to portfolio strategy trying different things and I say this has resulted in a lot of portfolio divorces."

Maybe I am taking that the wrong way but I was very surprised to hear him say that. A practitioner's process is going to evolve of course as they learn more. I hope I know more today than I did in 2015 and more ten years ago than I knew 20 years ago and on into the future. 

Then there was a lot of discussion on the equity as long duration idea which speaks to the importance of taking a long term approach to equities. Getting twitchy (my phrase, not from the podcast) based on short term catalysts is wildly counterproductive for the vast majority of investors and Cullen and Meb did a great job exploring the idea. 

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.

Sizing Risk Or Avoiding It?

Barron's checked in on Microstrategy (MSTR), oops make that Strategy, and apparently things aren't going well in terms of its stock price. Of course Strategy is the first "Bitcoin treasury company." The short version is the company has issued a lot of convertibles and preferreds to then buy more Bitcoin. 

Bitcoin has taken a a hit lately, sort of catching a bad cold while MSTR caught flesh eating disease and the 2x Long MSTR ETF caught flesh eating disease and then was decapitated. 

The Strategy YieldMax fund clocked in with a 73% decline. STRD is one of the preferred issues. 

We haven't mentioned it here yet but in December it was reported that Strategy raised dollar reserves by diluting its common stock. I thought they said they'd never do that but they need the cash to cover payouts on some of its debt and dividends on other issues. 

It is more than ironic that they are safeguarding with fiat currency. 

Here's a fun nugget.

In case you haven't been following along, "Bitcoin yield" isn't a real thing, it's a made up term. For the life of me, I don't know why anyone would want to take on this sort of risk. 

Marketwatch reported on a finfluencer with the nickname Captain Condor who has a 1000 followers/subscribers who mimic his 0dte iron condor option strategy. An iron condor sells a put spread below the market and a call spread above the market. As Marketwatch reports it, the trade as the Captain was recommending it went on a run of losing money and with each loss, they kept doubling down like a version of the Gambler's Fallacy, Martingale bet, that ended with a "catastrophic" loss on Christmas Eve. 

The money involved is serious at the individual level and in aggregate, so much so that at times the group moved the market. I think there was an implication in the article that market makers proactively traded against them which might have contributed their downfall. We're talking retirement money wiped out, that type of scale. 

A guy I follow on Twitter once said that doing farmers carry builds slabs of muscle. I think about turning that to gobs of money in the options market. Farmers carry may build slabs of muscle, but the options market does not give away gobs of money. 

Both buying and selling volatility is tricky and as this latest story shows, there are catastrophes now and then. You might remember the XIV ETF which sold volatility and blew up (had to shut down) in February 2018 as a result of what has been referred to Volmageddon (I think Eric Balchunas gets credit for that one). 

A something, VIX ETF, put selling fund, covered call ETF that "yields" 80%, that goes to zero doesn't have to be a catastrophe when sized correctly. Correct sizing comes from understanding the market that the product is in as well as the actual strategy of the fund. Successful engagement in markets means understanding risk tolerance an then building appropriately toward that risk limit. The XIV product was very successful until it wasn't. "Risk happens fast" which makes sizing so important.

Something pretty fun, the local indoor football team is selling ownership stakes.

We've talked about this sort of thing before. I'm not being facetious, it would be fun but I think the mindset here needs to be that of spending money, not investing it. Sure, "lend" money to a relative just don't expect to get it back. 

We've had quite a few minor league and secondary league teams here but they don't stay long. There will probably be more of this. There are investment companies that buy up stakes in this sort of thing but I don't believe any of those companies have shares trading on public markets, please leave a comment if you know otherwise. This one isn't really even risk, it's spending money. Maybe I'll go buy a t-shirt though, the logo is cool.

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.