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%.

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