Whatever Keeps You Invested

Quick hits today.

AQR has a paper with some ideas about how to protect against inflation.

They involve leveraging up by 15% as you can see. I replicated the three ideas with URTH for global equities, IEF for bonds, STIP for US TIPS, ARCIX for commodities and DBMFsim for trend following. Portfolio 5 mimics AQR's Portfolio 2 but eliminates the leverage by reducing IEF from 19.2% to 4.2%.

They all outperformed 60/40 but an interesting observation is how little differentiation there has been from year to year with a couple of exceptions including 2022 when inflation first flared up. It's remarkable actually. 

Man Institute wrote about buffer funds. The TLDR is that they do help (work the way they are supposed to) on the way down and still help part of the way up as the market recovers but then gradually fall behind plain vanilla equities. 

The article's conclusion supports their 100% Equities/100% Managed Futures ETF that has symbol MATE.

The results are adjusted for inflation so the CAGR numbers are CPI plus whatever the result. The first three funds are obviously not market cap weighted, they all have a defensive element to their respective strategies and the volatility and beta numbers bear that out versus SPY and the MATE replication in Portfolio 5. Looking back, SPY was CPI plus 10% which is great. Will it be that strong going forward? Who knows but if SPY does half as well over the next eight years, cool, but BJUL, JHEQX and USMV very likely will not do that well. Once that is fully understood and accepted, they are not likely to capture the full gains of the stock market, if the lower volatility profile they offer make it easier to stay invested then go for it.