Asymmetry As An Asset Class?

Exploring different ways to build asset allocations has always been a fun and fascinating topic. It's not so much that I want to deviate very far from some mix of stocks, bonds, and cash; but small deviations -- which I believe I've been practicing -- can be constructive for improving risk-adjusted results, avoiding trouble spots (how excited would you be about lending the government money for 30 years in exchange for 1.85%?), and better managing volatility.

I recently started following @trader_ferg on Twitter. He has some interesting opinions on asymmetry, which is something I've written about a lot over the last few years. In a recent Tweet, he cited some rules he's come to learn and incorporate into his trading process, including "asymmetry in all positions."

From what I can tell, he specializes in energy and is currently focused on the uranium space. Having asymmetry in all positions probably doesn't work in a typical investor's portfolio. If you're starting point is a mix of stocks and bonds and is building out from there, you're not realistically going to find an asymmetric opportunity in bonds or bond proxies.

In trying to come at asset allocation with a completely different framework than 60% stocks/ 40% bonds, the first sleeve might be bond proxies. In this category, we'd be looking for something that has similar volatility and return attributes, but without the interest rate risk that goes with lending money with rates very close to all time lows.

Trying to trade bonds for capital gains in a portfolio for an individual investor seems like it would be very difficult and has a "picking-up-nickels-in-front-of-a-steamroller" feel to it. For my own personal holding, as well as my clients', Merger Fund (MERFX) fits the bill as a bond proxy. In the last ten years, per Morningstar, it has only had one down year -- in 2015 when it was down less than 1%.

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