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Cullen Roche had a good blog post over the weekend that was a prompt to take a look at the Discipline Fund ETF (DSCF) that he manages. DSCF is a multi asset fund of funds that will either be 30/70 or 70/30 based on equity valuations which is inspired by how Jack Bogle managed his portfolio (didn't know that about Bogle). 

Right now, the fund is closer to 30/70. The fixed income portion is split between treasury ETFs of varying maturities. The fund started trading in late 2021 and as bad luck would have it, it immediately fell 20% +/- with the bond market so its since inception numbers don't look good but if you look from 12/2/2022, it's done pretty well. 

We just looked at a 30/70 call from Vanguard coincidentally a few weeks ago. Not surprisingly, I want no part of the volatility and interest rate risk that goes with intermediate and longer dated treasuries. We can revisit if we ever see 7% interest rates again. The idea of 30/70 is intriguing though in a 75/50 sort of way. 75/50 refers to an idea that I know from John Serrepere writing for the old Index Universe15-20 years ago. It seeks 75% of the upside with only 50% of the downside. It is hard to pull off exactly but the math is very compelling for long term results. 

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I think DSCF and Portfolio 2 are a fair comparison, Portfolio 3 is of course more of a default portfolio and Portfolio 4 is pretty consistent with how we look at fixed income but to be clear I have smaller weightings to more holdings. I started the study in late 2022 to get a cleaner look, including 2022 would have disproportionately favored Portfolio 4 setting an unrealistic expectation. But if there is another serious leg up in interest rates then I would expect AGG and anything holding duration to get pasted again like they were in full year 2022. 

Portfolio 4 seems to get help from stripping out the volatility of longer dated bonds in AGG and DSCF which is why it can be sort of close to plain vanilla 60/40 in terms of growth rate but with much less volatility. 

And a couple of very quick items.

Inverse funds reverse split, that should be expected. Going to zero won't happen too often but it's not impossible. An inverse 3X AMD ETF terminated recently because the stock jumped 40% one day. If the 5X funds ever hit the market the odds of a terminating event would increase but some providers might embed some sort of safeguard. 

Strategy's convertible debt has been given a junk rating by S&P. One of their concerns is that a maturity date could coincide with a decline in Bitcoin's price. That's interesting but I'm not sure why that would be a concern unless they believe Strategy intends to sell some Bitcoin to pay bondholders. There's a lot moving parts here but I do not know why anyone would think they need these debt issues. 

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