High Commodity=High Volatility

ETF Hearsay Tweeted out about an ETF filing from Grant Park. They are probably most known for their Grant Park Multi Alternative Strategy Fund (GPAIX). It's a four star fund and has been around quite a while. We've looked at it a couple of times for blogging purposes but not too often. The new fund will be an income fund but the description reads like it will be similar to GPAIX.

There's another fund, the Grant Park Dynamic Allocation Fund (GPKIX). It's coming up on two years of trading so it is still new. The literature compares it to the S&P 500.

The fund has done well. It's been pretty close to the S&P 500 with somewhat lower volatility and a much lower beta. I threw VBAIX in there because based on the asset allocation, it seems like it is more of total portfolio solution than an equity fund.

Here's the current allocation.

It is an actively managed fund but from what I can find, this mix shouldn't change much, it hasn't changed much so far. If you know different about that, please leave a comment. The fund owns a combination of ETFs and futures contracts to run its strategy. The fund is leveraged and while the amount of leverage is not fixed, Gemini pegged a range of 200-350% of notional exposure. That doesn't mean it is leveraged up, the leverage includes selling short. 

I took a stab at replicating it as you can see. PDBC is held in the fund but I don't believe any of the others are. 

The replication might be selling the fund short a little bit in terms of what they might have done over a longer period but the replication looks far more like VBAIX, and PRPFX too but not really much like the S&P 500. The volatility of the replication is also similar to the vol of the actual fund. I wouldn't expect a fund with a thirty something percent weighting to commodities to have a reduced volatility compared to VBAIX but obviously has a lower vol than SPY. Lower vol is a the wrong expectation. 

The bar chart shows quite a bit of year by year differentiation and reiterating a point we make frequently, being different is not always easy to endure. If we think about it as an alt, pairing it with VBAIX, the result is mixed. Better growth rate and Sharpe Ratio but no place to hide in the couple of drawdowns since it started.

As new as the fund is, it's too early to draw any conclusions but I do think Grant Park knows what they're doing and the fund is interesting so I'll keep tabs and we can revisit in the future.

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