All this talk of Capital Efficient ETFs has led me to create a new test portfolio: the Capital Efficient Butterfly (CEB). It’s 40% NTSX, 25% GDE and 35% RSBT, profitable but still diversified, with 75% in additional leverage. Backtests are awesome - can’t wait to watch its progress!
Inspiration struck like lightning last night, sending me right to the kitchen table to work on this post. Simply put, I have had a hard time not thinking about RSBT ever since it was announced last week! In case you missed it, that’s Return Stacked ETFs’s Managed Futures and Bonds fund, which takes a 100% allocation to bonds and stacks upon it another 100% in a Managed Futures strategy. Exciting times!
Ever since then, I’ve been turning over various portfolios in my mind, wondering how I can take advantage of this great new tool in the toolbox. It's such a welcome addition because it uses capital efficiency to gain access to managed futures - which up until now have been out of reach for most DIY investors. DBMF is a great fund, don't get me wrong, but taking a capital efficient approach is paradigm altering. I've been turning over permutation I could think of, so much so that I couldn't really finish the article write-up I was working on before.
As Oscar Wilde once said, the only way to rid yourself of temptation is to yield to it, so rather than resist and resist the urge to talk about RSBT in a portfolio, I just thought I’d go ahead and create a new test portfolio that I’ll track in the upcoming months. I’ll be including the portfolio with my other test portfolios starting with the February portfolio review (since it will make its first appearance there), and I’ll cover some more of the nitty-gritty decisions I have made about how to account for it, but for now:
Hear ye, hear ye! I am proud to unveil the Capital Efficient Butterfly portfolio, or the CEB for short.
It is pretty simple - made up of three capital efficient funds providing access to four asset classes:

Adding it all together, it’s a 58.5%/59%/22.5%/35% stocks/bonds/gold/managed futures portfolio, with 75% in additional leverage.
Additional Considerations
Before getting to its performance, a couple of notes:
- Astute readers will know that I already have a Leveraged Butterfly portfolio (we’ll call it the LB) and have since the beginning. It is +80% leveraged, using 3X embedded leverage ETFs like UPRO and TMF to create space for commodities and international equities while keeping the same basic proportions. This CEB, though, uses futures contracts to get the leverage, setting up a nice comparison of two main ways to get leverage in your portfolio. The leverage levels are about the same, so we should have a pretty good apples-to-apples comparison (though fund selection is quite different).
- I considered a lot of variations before settling on this 40/25/35 split. I wanted to keep the rough proportions of 2:2:1 for this portfolio, as it is with the original Golden Butterfly (the OGB?). Disregarding managed futures for a moment, the closest I got was with a 32/31/37 split. That gives you 56/56/28 with another 37% to managed futures. If the proportions of the OGB are important, then this may be better for you.
- The presence of the managed futures was something that I felt needed some accounting for. The version I settled on is more like 2.6:2.6:1. At first, that seems to stray quite a bit from the OGB, but I like it because if you have the gold really high AND the managed futures high, you're overbalancing a lot to these against equities and fixed income. If you consider Managed Futures along with gold, it kind of becomes a 1:1:1 with stocks/bonds/alts, which seems reasonable.
- I also played with a 28/28/33 split, which also mimics the OGB’s proportions, 50.4% stocks, 49.8% bonds, 25.2% gold, and 33% managed futures. The great thing here is that you get another 11% to play with in your portfolio, which you could use to take more risk (11% to UPRO anyone?), less risk (maybe that 11% to TAIL?) or even more diversification (PDBC or maybe BTAL). This is a great way to use capital efficiency: you create a stable, diverse portfolio using fewer actual assets than usual, and then apply the “saved” space elsewhere.
- If you’re like me and you want to play around with different possibilities, here is the spreadsheet I used to figure things out. If you change the numbers in the gray column, you can see how the different combinations shake out. Make a copy and fiddle until your heart's content!
- If you want exposure to international equities in your CEB, it’s quite easy to do: just divide the proportion to NTSX to include that plus WisdomTree’s international version (NTSI) and their emerging markets version (NTSE). Instead of 40% to NTSX alone, for example, maybe put 25% to NTSX, 10% to NTSI and 5% to NTSE. To keep things simple, I am just going to use the US-only version, though in real life, I’d certainly do the global version.
Correlation Matrix
Note: I’ll use the proxy funds that go into the portfolio rather than use the capital efficient funds themselves, as it's more helpful to see how the pieces fit together. Data begins in May 2010. Credit to Portfolio Visualizer.

I really like those numbers for gold and managed futures, and expect that in the backtest, we’ll have a stable portfolio since it basically has one-third dedicated to these dampening asset classes. Capital efficiency has allowed this without taking away from the return generating equity side.
Backtest Analysis
Backtests are tricky with this fund, due to the managed futures, which doesn’t have the same history as the others. We can go back to the 1970s with equities, bonds, gold and even commodities, and then use Portfolio Charts to run the backtest, but managed futures are a different animal. While managed future strategies have existed for decades, they’ve been mostly in exclusive funds. We use the Arrow Managed Futures fund (MFTFX) as our proxy here, but even that will likely be quite different from the strategy used within RSBT.
Anyway, you backtest with the data you have, not what you wish you had. So, here is the backtest since May 2010, with the original Golden Butterfly and my Leveraged Butterfly for comparison. I also put in the Classic 60/40 as a baseline. Here is the link for seeing the backtest for yourself via Portfolio Visualizer.

Observations
- The performance of the Capital Efficient Butterfly really jumps off the page: highest in growth rate, but much less volatility compared to the only other portfolio that is in the neighborhood, the LB. The Sharpe Ratio is amazing at .87, and the all important Perpetual Withdrawal rate (PWR) is knocking the door on 7%. Shallowest maximum drawdown too!
- Interestingly, though, the pattern of returns suggests that for many of the past 13 years, you actually would have been more excited for the LB. Take a look:
That red line for the LB was trouncing all portfolios up until the struggles of 2022, going to show just how important the time frame is for a backtest, and also why diversification is so important. I, for one, am tempted during good times to always wish I was taking on a little more leverage and a little more risk, but it’s a great reminder here that it is when things change that you’d be happiest with gold and managed futures.
3. The LB is the worst in terms of Sharpe Ratio, but not necessarily the worst portfolio. Compared to the Classic 60/40, the Levered Butterfly provides for a perpetual withdrawal rate that is 163 basis points higher. In my test portfolios, the LB is grouped with the Bogleheads 80/20, and you can see that the LB has a similar volatility to that one but with higher returns.
4. The Original Golden Butterfly is the worst performing of the four in terms of return and PWR, but in its defense, it’s the portfolio for the people who want less volatility and will sacrifice some returns to get it. Want higher returns? Well, now we’re talking about either the Levered or Capital Efficient Butterflies!
Wrapping Up
I’m super excited about this one. I liked my NTSX and GDE experiments a few weeks ago, but they weren’t quite there. RSBT has come along and provided a crucial new way of taking care of two asset classes at once, and once I had thought through it a bit, it was clear that this was a portfolio I needed to track.
Look for an upcoming post where I talk about some of the choices I have made with tracking it: namely, go back to the beginning (July 2021) and do the withdrawals? Or just start with the same funds that the Levered Butterfly had as of February 1st? A compromise? Stay tuned.
Don’t be shy about your thoughts about this portfolio - feel free to email me at riskparitychronicles at gmail dot com. Questions and suggestions always welcome!