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.
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.
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