Meb Faber's most recent podcast had a couple of interesting things to say about trend following and one thought provoking idea that we've hit on few times here too.
"Trend is the premier diversifier" for a diversified portfolio and he talked about allocating more than what I think we usually talk about here. The Cambria Trinity Fund (TRTY) allocates 35% to trend. Not allocating enough to trend is one of the biggest mistakes investors make he said. Trend doesn't have to just be managed futures for this conversation, it can also include the momentum factor for equities. There have been a lot more managed futures funds getting listed but also more equity momentum funds too including one from Motley Fool with symbol MFMO. I mentioned MFMO because right or wrong, I associate quality and value with Motley Fool as opposed to momentum.
An interesting tidbit was the belief that "trend chops off the left tail but also gives exposure to the right tail" which I took as being more about managed futures that equity momentum. What that means is that managed futures should protect against extreme negative events (the so called left tail) while benefitting from extreme positive events, the right tail.
Basically Meb was saying that managed futures can get you out before there is crisis and continue to hold when a market, like gold or silver until a week ago, is rocketing higher. This left tail/right tail idea can be true at times but it has also failed plenty of times. If gold peaked a week and half ago and is now going to revert to some sort of mean that would presumably be much lower from the $5600 peak then I would expect most managed futures to ride gold back down if some sort mean reversion happened quickly. Most managed futures programs have slower signals, 10 month moving average is a common one for example. I'm not trying to predict a fast decline for gold, just pointing out that if it happens, managed futures is unlikely to have gotten out. Maybe some sort of risk weighting and/or position sizing process would be a differentiator of returns across different funds though, in a large gold drawdown.
If you lean toward Meb's belief of tiling higher to managed futures, I would suggest owning several different funds. An easy way to differentiate would be to have one fund implementing a full managed futures program and one fund that was a replicator. I plugged KMLM, DBMF and AQMIX into Grok and asked how they differentiate risk weighting and position sizing. KMLM replicates using 22 markets while DBMF replicates using 10 markets. Grok actually had a lot to say about the differences between the three so this is doable if, again, you want a large allocation to trend.
There was a quick mention in the podcast about one fund portfolios. We've looked at this idea before so I was curious to hear Meb's thoughts but they didn't really explore it with specific funds. It is intellectually appealing to have just one fund truly be all-weather giving a real return (inflation plus X%) of more than 2% while being robust in the face of market turmoil.
One way to think about what would be ideal is to net out a result that exceeded the inflation rate plus a 4% or so withdrawal rate. That's not really about beating the stock market or even keeping up with it. Yes, some sort of diversified equity fund like domestic ITOT or global ACWI should annualize out above the inflation plus withdrawal hurdle but equities won't be robust in the face of market turmoil. They would be market turmoil.
A few weeks ago I asked Copilot and Claude to each construct a portfolio comprised of SPMO, GLD, AQMIX, ARBIX, CEFS and SHRIX that equalweighted the funds by standard deviation and kurtosis. I got the following result.
The backtest looked pretty good. Since then we had the panic down in gold but the results still look good YTD despite the larger decline....because of the gold directly but also in AQMIX. Make of that what you will.
I circled back to this based on the idea of a one fund portfolio. Is there one fund that might best capture the attributes of the portfolio that equalweights standard deviation and kurtosis. The portfolio is pretty robust so maybe there is a single mutual fund or ETF.
Copilot's first answer was AQMIX. It offered some other funds too which matters in that Copilot didn't feel constrained to just the components of the portfolio. The other suggestions were client/personal holding BLNDX and AQRIX which is essentially risk parity. Based on thinking it knows me, it thought that BLNDX would be the best choice I could make.
That's funny on several levels including that at one point I said BLNDX is probably the closest to a single fund portfolio I'd ever go. Keep in mind, Copilot might have read the post in which I said that.
Inflation compounded at 3.88% in the period studied. I threw in TRTY guessing that it would be Meb's contribution to the one fund portfolio discussion. Yes it is only six years going to BLNDX' inception but in that period, Copilot's portfolio (my names, its weightings), AQMIX, BLNDX and VBAIX all cleared the 7.88% hurdle (inflation plus a 4% withdrawal rate).
As a single fund portfolio, BLNDX clearing the hurdle by 264 basis points compounded, with a lower volatility is impressive.
To the other point about chopping off the left tail while maintaining the opportunity to get the right tail, a lot of images coming.
First Copilot's monthly bell curve
AQMIX
BLNDX
I'm not sure I would pound the table on chopping off the left tail but there is something to it. I think Copilot does chop off the left tail pretty well but based on the monthly distribution, it seems to also chop off the right tail which is corroborated by the volatility numbers and the standard deviation numbers which although not shown are about half that of the others.
I feel no push to ever consider a one fund portfolio but teasing out some all weather attributes is productive. BLNDX should be all weather to some extent versus a technology fund or some other volatile equity sector fund. Understanding what various holdings should be doing and how close they are to trading inline with those expectations is pretty high on my list.
A final point is with any sort of portfolio strategy, there will be years where whatever you are doing will lag, maybe by a lot. BLNDX lagged VBAIX by 600 basis points in 2025 and almost 1200 basis points in 2023.
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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