I know there is some discussion in some older threads pointing at differences in details that I didn't quite understand; but my understanding is still that a long-only factor fund is the equivalent of a long index exposure plus a long/short fund overlay. The "short" part of the long/short fund will offset the "long" part of the index that has the stocks that are "short" in the long/short fund.On the first, maybe I'm/were getting caught up in semantics, but it is short high beta and long low beta. To me and per their literature, it's a spread bet between the two. Pure low beta to me is a min vol fund like USMV...e.g. you just select low vol/beta stocks with no shorting involved.It's an anti-beta fund. Anti-beta is the same as low vol (for equities, because vol for equities is mostly controlled by beta), correct?
But the history is a bit short. How do we get more history?
I checked the index cited and you can find it on the S&P indexes site, but it started about the same time and was likely produced for this ETF. If one had the right data access and wanted to do the work, it seems to be one you could duplicate. Lots of work though.
It's not like this is unknown market behavior and it is simply how beta plays out in a down market literally by definition...higher beta is going to be a better short/go down more. Personally, I don't see it not working in the future unless betas uniformly compress for some reason and I can't imagine how that would occur.
On PV...try a pure mix of a leveraged ETF and BTAL and keep the total to 100%...way better than the link you provided. Efficient frontier with TQQQ is 35% and 65% BTAL.
Of note...as I've messed around with this a bit, a higher volatility commodity trend fund split equally with BTAL is even better performance wise and better diversified.
And yep...short history.
Nobody will just use long-short factor exposure in their asset allocation. It will always be an overlay to the market risk exposure. So either you overlay the long/short fund over an index investment, or you use a long-only factor fund. The way I see it is that using a long-only factor fund will result in better capital efficiency in terms of margin needed for the target exposure. A long/short overlay will result in higher margin requirements for the same effective market and factor exposure.
Regarding your third paragraph. Yes the fact that low beta stocks will go down less than high beta stocks, is predictable and won't change in the future, almost by definition. That is not the question. The outperformance of low beta (low vol?) on a risk-adjusted basis, or lack of it, is the important question.
Regarding your fourth paragraph. I don't think "leveraged ETF and BTAL and keep the total to 100%" makes a ton of sense. The addition of BTAL just skews the factor exposure (type of equities) within the equities portion of the asset allocation. I don't want to change my equities risk exposure nor my treasuries risk exposure when adding a long/short beta (vol) tilt. I have all 3 exposures at my disposition for my asset allocation. Therefore the more interesting question is "will the addition of BTAL improve my existing equities+treasuries portfolio", which is obviously more difficult and would subsume the question "will the addition of BTAL improve an equities-only portfolio".
I would admit that it is possible that the truth lies in between, i.e. that the optimal portfolio has all three exposures with a reduced treasuries exposure (and perhaps an increased equities exposure, to compensate for the low beta stocks and bring the effective beta exposure back to the original target). Keep in mind when backtesting anything that has treasuries, that treasuries experienced a significant one-off event during the 2012-2024 period. Whatever you backest that includes treasuries, you have to use really long periods, and/or adjust for initial and ending conditions, to extract the long-term anticipated returns, or else the results have little predictive capability. The same is true for many factor returns, and really for any asset allocation.
Statistics: Posted by comeinvest — Fri Apr 05, 2024 12:07 am — Replies 3015 — Views 532600