What Going Heavy Managed Futures Looks Like

Simplify included this in promoting one of its funds.

That is a great way to phrase it, not relying on past correlations. The relationship between stocks and bonds is no longer as reliable as it used to be. This makes bonds less effective at helping manage equity market volatility. Yes, I am absolutely a broken record on this point and will continue to bang that drum. 

Next item, a good blog post from Ben Carlson, Can You Live Off Your Dividends? It was really about covered call ETFs with a look not so crazy high yielders and another chart with crazy high yielders. The starting point was answering a question for a 42 year old, single guy with a lot of money saved who wants to quit his job. If he put all the money into SPYI, he said the 11% would bring in what he needs.

That's Ben's chart. We do something similar here in terms of looking at total return and price only. If a fund like SPYI (there are others of course) can pay out 10, 11, 12% and still get a price only return of 3%, I think that's pretty good. That's not keeping up with the stock market of course, that should not be the expectation. Plenty of ifs there but still. 

The way we've looked at this idea is as a short term strategy like stopping work but wanting to wait a few years to take Social Security. 

Here's a simplified version of ideas we've looked at before.

Total Return versus price only.

The "yield" is about 11%. Inflation ran at 2.41% annualized during this period. So the real return, after taking out the distributions is above inflation but it's not great. It could limp along though for several years until the person wants to take Social Security. It's not a very robust portfolio if something bad happens in markets. Ben's reader is only 42. I would not want to try to ride that idea out for the next 45 years. There's very little likelihood it survives anywhere near that long. 

The scenario of like a five year window where you might allow a small portion of investible assets to deplete while waiting until Social Security kicks in is something we started playing around with quite a while ago, there are now ETFs from several providers that are intended to deplete for just this scenario so I'm not the only one. 

Speaking of Simplify, they launched a managed futures fund in partnership with DBi who already has their own ETF, DBMF which has done pretty well but absolutely killed it in 2022. DBMF is a replicator and the new fund which has symbol SDMF is also a replicator. Today was the first day so it is too soon know what the difference is between the two. 

I got an idea from looking at the fund and how some people believe in huge allocations to managed futures. Anyone wanting to more than dabble in managed futures should probably have several funds. We've gone over the performance dispersion between strategies including just the other day. 

The period studied captures an awful run for managed futures so I am very surprised that Portfolio 1 was anywhere close to plain vanilla 60/40.

Here's what the same three portfolios look like just looking at the last six years.

Portfolio 1 didn't really crash during the Covid Crash of 2020 and it was up 71 basis points in 2022.

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