We've looked at the Cambria Trinity ETF (TRTY) a couple of times lately. I am intrigued by the allocation at a high level which is 35% trend, 25% equities, 25% fixed income and 15% alternatives. We've looked at the asset mix many times, and I think it works. Cambria's research supports that it works of course, the fund wouldn't exist if they researched it and it floundered.
A similar backtest to what we've done many times.
The results are consistent with what we usually see.
A consistent result is that the strategy works better than the actual fund most of the time. TRTY has had a couple of very strong years mixed in but as a long term hold, TRTY lags a long way behind Portfolio 1 but with much more volatility.
So, what's missing? I asked both Copilot and Claude. At first, Copilot blamed TRTY's lag on the mechanics of managed futures trading. That answer made no sense since Portfolios 1 and 2 have the same weighting to managed futures. It took quite a bit of back and forth to convey the point.
Claude seemed to blame it on heavy equity factor weightings with a lot to shareholder yield. The way the fund is put together, Claude says it is complexity without a clear edge and that the way the factors are assembled makes it overly vulnerable to certain market environments.
When I figured out how to tell Copilot it was looking at this incorrectly, I told it I believe TRTY is too complex relative to the concept. It replied that TRTY is over engineered with too much structural friction. Both Portfolios 1 and 2 are simpler it said. The "too complex" answer felt more genuine coming from Claude because it was unsolicited versus my telling Copilot what I thought.
Related to managed futures, iM Global Partners filed for an ETF that would leverage up to hold 30% in US equities and 100% in managed futures. This is the firm that runs the DBMF ETF. I saw one comment on the Tweet that brought this to my attention, it described this as being risk parity. That's a good observation, there's something to it, maybe it's risk parity influenced or risk parity adjacent?
On testfol.io, we can simulate DBMF back to 2000.
I am very surprised the result is so good.
This second look includes a more diversified mix of managed futures funds instead of 77% in one fund (yikes) and AQRIX which used to be AQR Risk Parity and still is risk parity influenced.
There have been some long stretches where managed futures really was a pain trade but it's hard to argue with the underlying premise of the filing.
A final iteration in Portfolio 3 which takes the filing, reduces the managed futures/equity sleeve down proportionately to 60% of the portfolio and combines it with 40% in fixed income.
Portfolio 3 is pretty close to a 75/50 version of VBAIX. The way it weighs out, Portfolio 3 is risk parity adjacent or inspired which along with Trinity's allocation is another idea that I find very intriguing.
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.
No comments:
Post a Comment