The Multi Asset Fund I'd Build Myself
Cambria Funds recently launched the Cambria Trinity ETF (TRTY). It is a multi asset fund that has exposure to equities, fixed income and alternatives. Cambria is home to Meb Faber who is a well known author, researcher, blogger and investment manager. I've known Meb for many years, we first met a conference a very long time ago and he helped me get my ETF with AdvisorShares moving forward. A few years ago Cambria began to launch ETFs that cover a wide range of asset classes and strategies with TRTY as a fund of funds being the latest.
The 30,000 foot argument for a multi asset fund of funds is that it can serve as the entire portfolio for people who don't want to actively engage the running of their portfolio but don't want to delegate to someone and it can also be a very economic way (just one trade) to capture a fully diversified portfolio for very small accounts. That last reason is become less and less relevant though as an increasing number of ETFs are available with no commissions.
Looking under the hood, several of the equity funds selected are momentum/trend following funds which is a focus of much of Meb's research. The largest allocation in TRTY by far is the 33% weighting in the Cambria Global Momentum ETF (GMOM) which is itself a fund of funds. Most of TRTY's holdings are Cambria funds but not all of them. Looking at the holdings, TRTY appears to have about 65% in equities, a little shy of 20% in fixed income including TIPS, 4% in REITs, 8% in alternatives specifically managed futures and 2% in cash.
The idea of blending equities, fixed income and alternatives is what I have been doing for clients since I started managing money. The right alternatives can offer great diversification benefits when markets hit the skids. TRTY's use of managed futures is especially interesting. I used what is now known as the Guggenheim Managed Futures Strategy (RYMFX) across the board during the financial crisis and as you can see it mostly went up as the market was going down during the crisis.
My belief in the strategy stemmed from it historically having a low correlation to equities. RYMFX' performance during the bull market does nothing to dissuade that notion. Somewhere along the way I read another theory that plausibly accounts for the poor performance for all those years. Managed Futures owns futures contracts from commodities, currencies, bonds and sometimes equities that have favorable trends and depending on the fund may short those asset classes with unfavorable trends (often the measurement used is 10 month moving average which is very similar to the 200 day moving average).
What this actually means is that a managed futures fund will be sitting on a lot of cash that serves to collateralize the futures contracts, cash that earns interest. Many years ago, cash earned 4-5% which is a lot of return that the strategy stopped getting since the Fed adopted a zero percent interest policy. I still need to sort through whether I would use managed futures again so I might prefer a merger arbitrage alternative be in the mix for TRTY than two managed futures funds.
I do think the underlying premise is strong with TRTY and I wouldn't hesitate to suggest it to someone looking to get it done with one fund. I am sure that Meb would also say it could be used as a core holding to build around and that makes sense to me as well. TRTY could be the dominant position in a portfolio with small exposures to a couple of narrow thematic funds or individual holdings. Where TRTY appears to stick with broad based funds the threat of ending up with some sort of unintended overweight is low, you'd still need to look through to the holdings for any stock or thematic fund that interests you of course but the probability of this is low.
You can read this from ETF.com to learn more about the fund.