Capital Efficient Update: New Funds and a New List

Some randomness in the middle of my capital efficient mini-series: 1) Welcoming a new blended CE fund, RSBT, to the world!; 2) Also a new concentrated one, MFUT, is on the way; 3) Presenting my list of CE funds to gather all the possibilities in one place.


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This is sort of part 3 in my mini-series on Capital Efficient funds, and I say sort of because it wasn’t exactly planned from the get go. After the first post explaining the basics of CE funds, and then the second breaking down some use cases of how they work in a portfolio, I thought the third would be conveying some resources. That one is still on the way, but some things have popped up, necessitating their own post. I couldn’t figure out a narrative to make them all part of the same topic, so here are some random thoughts and announcements related to capital efficiency.

1) Welcoming RSBT to the World!

There was real joy in the Risk Parity household with the announcement from ReSolve Asset Management and Newfound Research that they have collaborated to form “Return Stacked ETFs” and are launching a new ETF now, with another one soon on the way.

The first one is RSBT, and will be 100% bonds and 100% managed futures, filling a space in the existing capital efficient universe. On the bond side, it will have a target duration of 2 to 8 years, though may purchase bonds up to 20 years in term. On the managed futures side, it will be a long & short fund covering 27 separate markets in four asset classes: equities, bonds, currencies, and commodities.

For more, check out the info page below, though you may also like the prospectus, or this presentation which hits the highlights

Bonds Managed Futures - Return Stacked ETF
RETURN STACKED™ RSBT Bonds & Managed Futures Why Invest in RSBT ETF? For every $1 invested, RSBT is designed to provide $1 of broad U.S. bond exposure and $1 of a managed futures strategy. 01 // The Case Investment Case Capital Efficiency: Aims to provide simultaneous exposure to U.S. bonds and a ma…

You may also want to read Nomadic Samuel’s review of RSBT here on Picture Perfect Portfolios, the only person more excited for the launch of this ETF than me, I think!

The second ETF in the works is RSSB, which will combine global equities and bonds. It should be available for trading soon. Details on the website are hidden, but a look at the SEC filings shows it will follow a 90/60 Global Equities/Bonds strategy. If you’re thinking this is competitor to NTSX and NTSI, you’d be correct. Expense ratio looks pretty low, too: .41% (but that’s after a fee waiver of .15% and fine print indicates to my novice eyes that it may be applied in the future, so .56%?).

The birth of these two ETFs is great on their own terms for several reasons: 1) I just want all the capital efficient products out there that I can get, 2) I want all the managed futures products out there I can get, and 3) I want all the reasonably priced CE funds I can get (RSBT is at .97%, which is great considering you get the +100% exposure with it).

It’s also fantastic to see ReSolve and Newfound collaborate and then jump into this part of the investing market. As long time readers will know, I’m a huge fan of ReSolve’s podcast, and also of their whitepapers and explainers on their website. The principals there: Rodrigo Gordillo, Adam Butler, and Mike Philbrick, are great communicators and investing innovators.

Meanwhile, Corey Hoffstein, the CIO at Newfound Research, is another guy on the cutting edge and has combined forces with ReSolve to author a really important paper related to Risk Parity - one that you may want to read as part of learning about this new ETF.

Risk Parity Resources: Gordillo et al. (2021)
Not exactly RP, but adjacent to it. This is an industry white paper about one way to use leveraged funds to free up space in the portfolios to make them more balanced. Authors are influenced by Risk Parity principles, and provide ideas for implementation, even though they call it something else.

Previously, they have been advisers and managers of various mutual funds, as well as running investment accounts for individuals much wealthier than me. I’m really happy to see them venture into the ETF space, and it’s great to see the higher-level strategies and insights now within our grasp.

Of course, some caution is in order. With the arrival of new ETFs, we have to be careful not to get overly excited. Without gaining the proper momentum and assets early on, even great ideas can get shut down before reaching their adolescence, so we’ll keep our fingers crossed for these.

2) New 2X Managed Futures ETF Coming Soon

RSBT will make a big addition to the world of blended capital efficient ETFs, but what about the concentrated side? The bonds and managed futures mix is great, but another way to do it is to combine concentrated versions of the different funds. The bonds side is relatively easy to do: you have TMF and TYD, 3X leveraged versions of a long-term Treasury fund, and can mix and match those as you like.

But on the managed futures side, there aren’t even that many regular ETFs available. Of the few, iMGP DBi Managed Futures Strategy ETF (DBMF) is my choice:

Preferred Asset for Managed Futures: DBMF
If managed futures are going to be included in a RP portfolio, what’s the best asset? My vote is for DBMF, which has had solid returns and low correlation to stocks and bonds in its short history. Proceed with caution for this asset though, because of that very short history.

And you have KMLM, WTMF, FMF, and CTA, but that is not very many, and not surprisingly, there are no capital efficient versions in the space.

Enter Tuttle Capital Management’s projected offering: Tuttle Capital 2X DBMF ETF (MFUT), which will be a double Leveraged version of DBMF. The expense ratio will be a reasonable .85% (the same as DBMF’s) and will launch in April.

Tuttle Plans Leveraged Managed Futures ETF
The proposed fund looks to deliver 200% of the daily performance of one of 2022’s top-performing ETFs.

Great news here, as a concentrated version of managed futures is another approach to creating capital efficient portfolios. Since DBMF has been uncorrelated to the prominent asset classes so far (-.23 to VTI, and -.55 to AGG since inception in June 2019), it has great promise as a long-term portfolio diversifier. A double leveraged version holds promise for reducing the amount of absolute dollars needed to take advantage of the strategy. Of course, 2X leveraged funds carry their own risks, so caution is urged with the,

Still, great to see this addition to the investor’s pantry.

3) New List of Capital Efficient ETFs

I’m a power user for ETF screeners at Barchart and VettaFI (formerly ETF Database), but have had to take a different approach researching capital efficient funds for this mini-series. The concentrated 2X or 3X funds like UPRO or DRN are easy enough to find, as on Barchart you can search by leverage.

But when it comes to the blended funds like NTSX or GDE, there are no search terms to deliver these, either as part of the 2X and 3X searches, or on their own.

Faced with the absence of a product in the market, I started keeping my own. Since I have found it valuable, I’m wondering if you dear readers will as well, so I present the RPC List of Capital Efficient Funds for your convenience:

List of Capital Efficient Funds (as of Feb 2023)
BLENDED TICKER,NAME,STRATEGY,LEVERAGE,EXP RATIO,Resources,Equities,Bonds,Gold,Mangd Futures,BitCoin,NotesNTSX,WisdomTree US Efficient Core Fund,90% US Equities + 60% US Treasuries,50%,0.20%,<a href=“https://www.wisdomtree.com/investments/etfs/capital-efficient/ntsx”>Info page</a>, ,90,60,0,0,0...

I have included official information pages from all the respective providers, and a write-up from Picture Perfect Portfolios, if Nomadic Samuel has reviewed it (if he hasn’t he probably soon will!).

If you scroll over to the right, I have put in allocations for various asset classes that you can sort if you like.

The list is not exhaustive, just what I have as of mid-February 2023. I know there are a lot of capital efficient funds in Pimco’s “StocksPLUS” family, which hopefully I can wade through and put on the list soon. Their website was really complicated in terms of finding out their percentage targets for the different asset classes. I was going to put them on here, but that would have delayed publication by a few weeks I think (!).

I also know of two funds by DoubleLine, DSENX and DLEUX, that belong on the list, but I’ll need some more time to go through them. Finally, Simplify has two capital efficient funds featuring an allocation to BitCoin (SPBC and MAXI), but that was a bit out of my frame of reference for now.

Anyway, I’ll keep adding to it, as necessary. If you know of any funds I should put on, let me know (riskparitychronicles at gmail dot com).