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The phrase, 'ETF slop,' was the focal point of an episode of the Rational Reminder podcast. It's a long one, but the key point was to question whether newer ETFs actually benefit customers or not. Things like wild high-yielders and 2x single stock ETFs would be part of the ETF slop discussion.

I'm willing to learn about any ETF or strategy, slop or not. If you read these posts regularly, you probably already know what sorts of things I think of as being slop, like the two mentioned above. However, I think it is still time well spent to try to challenge my belief of what is defined as slop, or the other way around, and to study ETFs that perhaps other people would not consider slop but actually fall under the definition.

There are some derivative income funds that offer utility without "yielding" 80%, and I believe in the idea of capital efficiency -- even though I am very skeptical about bundling it into an ETF.

There are quite a few levered equity/managed futures products either on the way or recently listed. Simplify recently listed one with the symbol CTAP, and I believe Man Financial and JP Morgan each have one coming, if they're not out already. The capital efficient (levered) space is certainly going to proliferate.

I believe PIMCO was one of the first in the space with its Stocks PLUS Long Duration (PSLDX), which is 100% equities/long bonds. PIMCO also recently launched something similar in an ETF wrapper. The fund, SPLS, looks like it is 100% equities/various PIMCO bond funds.

So, are any of these for the customer's benefit, or are they just slop? It depends who you ask, but I would encourage skepticism when assessing complex funds.

Reading the description of the SPLS fund, it almost reads like it is stocks plus carry. It certainly does not appear to be stocks plus duration. Carry can mean several different things. It can refer to long backwardation/short contango, and it can also refer to the income stream kicked off by an investment like a dividend from a stock or a coupon from a bond. Meanwhile, the RSSY fund from ReturnStacked does both.
 

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While no one would suggest putting their entire equity allocation into RSSY, I have no idea why someone would want to own it in general. But that doesn't mean there isn't something to the idea of stocks plus some version of carry.

Stretching beyond the typical definition of carry, the description of the SPLS fund got me wondering about adding arbitrage on top of equities. SPLS seems to want to add fixed income yield on top of stocks without a lot of fixed income volatility, and maybe that could work, but arbitrage is usually a very low volatility, absolute sort of return strategy.
 

Portfolio 3 might be able to replicate what SPLS is trying to do, but the SPLS fund will be active in owning different PIMCO fixed income funds, and that model was down 35% in 2022. Volatility and drawdowns in this space are clearly no walk in the park. Portfolio 1 was surprisingly volatile, and it was down more than the S&P 500 to varying degrees in 2002, 2008, and 2022.

There's certainly no magic bullet with this idea, but I will continue to spend time on this approach.

Closing out, we knew these were coming at some point. GraniteShares filed for a single stock autocallable ETF on Robinhood. The CAIE fund from Calamos has been wildly successful in terms of AUM, and it has a very high yield without an eroding NAV. These kinds of funds often pay out very high yields -- unless there's some sort of very large, predetermined decline in the underlying security. CAIE yields 14%.

I didn't see any mention of the yield in the GraniteShares filing, but if you figure we are in a 4% world, then one way or another, getting a 14% yield means you're taking on a lot of risk. That's not necessarily a bad thing, though, as long as you understand the risk being taken. A well diversified portfolio would include holdings with various risk profiles, so that kind of risk is not overly problematic when sized correctly.

For now, though, I do not have the risk to auto-callables dialed in. I'll get there. But for now, it's hard to figure that nothing bad could happen with the CAIE fund until the S&P 500 drops 40%.

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