In case I haven't stated it plainly, I think there is a lot of value in looking at other people's strategies and ideas for asset allocation and then building their idea with holdings you think would work better. 

We've looked at Cambria Global Asset Allocation ETF (GAA) which is 45% equities, 45% fixed income and 10% alts as well as Cambria Trinity (TRTY) is which 35% trend, 25% equities, 25% fixed income and 15% alternatives in this context several times. TRTY seems quadrant inspired to me. GAA has compounded at 5.98% since its inception in 2014 while price inflation has run at 2.99 and VBAIX clocked in at 9.01%. TRTY has compounded at 4.90% since its inception in 2018 while inflation has run at 3.63% and VBAIX compounded at 9.63%.

Both GAA and TRTY might be having their best years in 2025. GAA is up 14% YTD, it's had two years in the past where it was up 15% so I am extrapolating to say this might be it's best year. TRTY is up 11%, it had one year it was up 15% so it's a coin flip at this point whether 2025 is its best year. 

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The homemade GAA in Portfolio 2 certainly has worked and done far better than GAA. Same for the homemade TRTY below.

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Using three or four funds is fine for blogging expediency but not something I would do IRL. And as we've talked about in previous posts, I wouldn't go anywhere near that heavy into managed futures, cat bonds or a single alternative strategy. 

Pivot to the Rational Reminder Podcast crapping all over covered call ETFs. I'm unfamiliar with these guys, Meb Faber Tweeted the link to their podcast. It's a pretty thorough take down. Their starting point is that dividend investing is fine, suboptimal but ok, they are total return guys as am I for the most part. A diversified portfolio that goes narrower than a broad based index fund should include the attributes that dividend payors typically offer. 

At the other end of their spectrum, the podcast guys put single stock covered call ETFs. The risk return tradeoff of capped upside with all the downside is a bad tradeoff as they see it. At about the 20:35 market though, one of them sort of makes the point we make here about them. They say that if someone is trying to exploit volatility, that maybe derivative income funds aren't so bad. They quickly noted that the fund providers are not marketing them that way and that they don't believe individual investors are trying to do that either. The first point is definitely true and the second one is probably true. 

A few weeks ago or more I stumbled into framing all the derivative income funds as absolutely not being proxies for the underlying reference securities. The context in the Rational Reminder Podcast seemed to try to tie them to the reference security except at the 20:35 mark, where they talk about exploiting the volatility. I think that is close to how our conversation about them has evolved. The derivative income funds combine the reference security and the volatility of the reference security. NVDY and NVYY shouldn't be expected to track Nvidia, they combine Nvidia and selling the volatility of Nvidia which is a different thing. 

If you have an interest in any of these, once you let go of them tracking the underlying and accept they combine the underlying and the volatility of the underlying then I would say you're exploiting the volatility. The next level then would be whether you're exploiting it in an effective manner or maybe better put, a closer to optimal way. 

This popped up on Twitter on Friday.

In the replies, someone noted that CAIE sells volatility and tail risk. It is certainly doing well in nominal terms right out of the blocks. In July I said that 14% in a 5% world clearly has risk regardless of whether we can figure out what the risk is. CAIE is complex and anyone buying it needs to realize that and I would encourage making sure you can wrap your head around what the risk is. To the extent it sells volatility and tail risk (great way to frame it), owning CAIE, one of the crazy high yielders and something like JEPI all take different variations of the same risk. There may never be a consequence for loading up on all of these but the risk is still there. Splitting 10% between a bunch of these types of strategies may not constitute loading up but if some sort of never happened before volatility event occurs, I would expect all of them to get hit to varying degrees. 

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