ETF Battles: Alternative Strategies for Beating Stock Market Volatility - A QUADRUPLE HEADER!

when financial markets get Rocky people want Alternatives now this can help to ease volatility diversify risk with the goal of smoother returns now today's audience requested quadruple ah header is between four antiba managed Futures alternative strategy ETFs so what's the best choice find out right after this I'm Ronda legi you're watching ETF battles an original program series that's now in season six and we're glad to have you here our goal is to help you make better investment choices so if you need help analyzing any specific ETFs and you're not sure how they Stack Up versus the competition send me your ETF ticker symbols in the comment section below or on our X feed at etfguide I want you to visit the description section below we got links to our program uh judges we've also got links to our program sponsor Direction who's been expanding their ETF lineup from um single stock ETFs to to more Diversified index linked funds lots of good choices there so be sure again to check out the description section we've got outbound links going to Direction and also lots of good viewer resources down there uh so don't miss it now today's quadruple header actually triple header was was requested by a longtime viewer named Gladstone and it's between ETF ticker symbols strike that this is a quadruple header man of I scrambled eggs today scrambled eggs and Sloppy Joe's we've got Bal versus mrrk versus CTA versus kmlm thank you so much Gladstone for this ETF battle suggestion judging today's contest we've got Shaina sisle with banry and Capital Management also known as the queen of alts and we've got David Durkin with the street.com judges welcome back great to see you thank you so much for having me again yeah thanks good to see you so we've got our four battle categories of cost exposure strategy performance and then the mystery mystery of course is where our judges can surprise us with any factor or thing that they feel is crucial to today's contest our judges can also nominate wildcard ETFs if they feel there's better choices elsewhere or they can opt for split decisions it's up to them I've got the scorekeeping duties and at the end of the program we will declare an overall winner keep in mind none of the battle outcomes are ever predetermined or known Advance by myself or our judges so it's sisters before misters let's begin with the first category cost Shaina please get us started well I want to start by saying that you're basically asking me to choose my favorite child in this battle because um three of uh these ETFs uh are issued by partners of bonan BT mrsk and CTA so you're asking me to choose between my favorite child and I don't want to make any of my clients mad so um with that in mind I uh will do my best to provide the viewers with very objective clear and David can keep me honest um the in terms of expenses um there's a couple of things that are worth noting and that is that in this alternative space especially with products that short um in within the fund there are some regulatory requirements in the calculation of their expense ratio that results in what I call Phantom expenses so the only one of these ETFs that it impacts is BTO because it's the only one that is actually shorting within the ETF um individual Securities CTA and cmlm are going long short but they are investing in a Cayman uh uh based uh product um and so they're like investing in a fund that shorts and then the Cayman that it's it's calculated and taxed differently but ball actually does short individual Securities so they are impacted by this Phantom expenses meaning that the um SEC requires that they add back into the expense ratio the cost of shorting meaning the cost of margin as well as the cost of any dividend payment that they have to pay but it's Fant because it's also calculated as part of the nav of the value of the security so it's not really an expense that's it's being double counted so in this battle Bal is my winner and the reason why is because even though the stated expense ratio everywhere you look is 1.43% that isn't the actual expense ratio the actual adjusted expense ratio is 45 basis points that is the actual expense IO that anybody who invests in this fund is paying it's not 1.43 that's with the Phantom and then the adjusted is 45 basis points as such it is the lowest expense ratio of the four it has a spread of three cents which is the lowest of the four um and so for that reason ball is my winner um and again I I felt the need to preface and uh allow the uh viewers to understand that um there is this Phantom thing that happen s and anytime you're evaluating an ETF that is shorting actual Securities not using Futures not using options not using some sleeve impact like the ctas actually short where you look at the Holdings and it shows the short position it is going to be impacted by this SEC Rule and so you need to go and look into perspectiv to find out what the adjusted actual expense ratio is and in the case of Bal it's 45 basis points the devil is in the details thank you so much cha for that strong start and uh we appreciate that Dave you're up next give us your analysis on cost well and this is why I am not the queen of alts or uh anywhere in the Royal Court or even in the building um yeah that was I I don't think there's anything I can add to that um I was looking strictly at expense ratios but maybe I should change my mind now based on on what Shaina said um yeah I was looking at CTA with the expense rati of 76 basis points as uh the pure lowest stated expense ratio obviously uh not the case with betail uh as Shaina laid out um spreads on on these funds are okay there's uh there's enough liquidity to trade here um you know I'm just going to stick with my original choice on this one uh CTA based on the lowest expense ratio okay well thank you very much uh that takes us next to exposure strategy and Dave you're up so break it down for us yeah shanea kind of started laying this out already um these are really some different strategies within this sort of risk management umbrella uh Bell uh again is long low beta short high beta so it's designed to uh really outperform regardless of what the Market's doing uh as long as low baa is outperforming so it can generate gains in both up and down markets which is what you want in a uh in a good hedge and uh Bell's got a relatively large negative correlation with the S&P 500 so so that could be a good match mrsk is pretty much kind of a standard S&P 500 holding with a protective put on it and then an out-of-the money covered call in order to help pay the fees for that uh for that put so um in in an up Market it this is going to pretty much look like the S&P 500 and it's really not going to uh provide much protection unless things start heading down and then of course you've got um you've got the cost of the option strategy which is going to add uh is going to be a performance drag on the fund overall over the long term CTA and kmlm are kind of your traditional manage future strategies and that they're looking at you know currencies and energy and commodities and all these other things to uh sort of diversify the portfolio and really give you sort of that risk uh risk managed component to your port folio so uh in that sense I like those two funds A little better I do like CTA in that it uh specifically excludes equities from the equation so it tries to give sort of a pure non-correlated portfolio that'll do hopefully a little better over the long term and uh managing the risk of the portfolio so I'm going to give the slight Edge to CTA here because I think uh you know this fund and kmlm probably do uh a better job of more traditionally what manage future are supposed to do thank you Dave Shandon you're up next for exposure strategy how do you see it so this is where the asking me to pick my favorite child part comes in I actually use all of the um uh the products Bal mrsk and CTA in my model portfolios because they actually are complimentary to each other um and when you're building an alts portfolio you really want to have just like with equity and fixed income a diversified mix of strategies I usually pick four or five um that have low excess return correlations to each other and then low correlations to traditional fixed income and Equity I use mrsk is kind of juice in the portfolio when um markets are going up and having that really negative uh correlation from the CTA and ball is not in a is not helping um but they are as as Dave pointed out very different um so ball is a market neutral fund which means it goes long and short in equal measures it goes as as was pointed out long low beta and short high beta it looks at the Thousand US stocks in the Dow Jones index and it uh picks what it goes long based on the top quartile of uh names and then bis sector and then it's it's neutral and it's waiting bis sector it's equal weighted um and then on the short side it does the same thing to pick it shorts and the goal here is to have literally neutral exposure so it should be neutral um uh sector it should be neutral um and it's um individual stock weightings and and it's supposed to be beta zero um and so that's the focus what I like about this product is a lot of Market neutral funds the gain you get it it has as was pointed out nothing to do with what the Market's doing so it has to do with are your shorts um underperforming your Longs because that's how you make money even if they're both down um as long as your long book is outperforming your short book you have positive return so um it's a lot about stock selection and this product is very clear in what it's trying to achieve it's trying to achieve the Arbitrage between the outperformance of low volatility stocks with high volatility stocks and when low V is outperforming even if the Market's going up ball will do well and vice versa if if higher beta names are doing well and lower beta names are not it will do worse and it will be magnified in both directions because of the nature of these products right um because it's basically lowall on steroids because you're not just getting low Val exposure but you're actively choosing to short high Val and and so that can lead to quite a bit of volatility this fund is I've seen it profiled by a lot of quote industry expert websites who have no knowledge and no understanding of alss in general and they don't understand how this product works and they just trash it and say well you can buy managed Futures and I would say well that is a copout because this not a managed Futures fund and those two things pay different roles in the portfolio and they're not actually correlated to each other and they actually can both be used at the same time and add value so Ball's role is an important one and quite frankly if you look at what it did in this last month particularly with the Deep seek stuff it crushed everybody else by far even the managed future strategies when the market was going down because of the nature of How It's performance now mrsk is looking to give you Market exposure it wants to give you the return of the s&p500 it just wants to protect you on the downside generally speaking the product does just that so when the Market's going straight up it consistently will perform in line with the market maybe with a a little bit of underperformance just due to the Hedge nature of the products it does use um puts um long dated puts contracts uh to hedge on the downside and then pays for them by writing call options and put options and then playing on the spread um so it's near or in the money long-term put options and then it writes far out of the money call or put options and plays on the spread to pay for the cost of the puts That's Unique most of these bught strategies that are doing this type of product don't actually do that second effort to try to cover the expense of it so that helps the fund keep up with the markets so it will do well in good markets and that's why it's in portfolios that I use it has downside protection but gives you market performance if you think the Market's going to go straight up now the CTA funds are managed future funds they are very much managed futur are completely uncorrelated with traditional markets they're basically Trend following they use Futures to take advantage of global Trends um another version of this that just expands what the underlying base of investment opportunities are is called Global macro and um TTA is a strategy that goes back forever in fact the kmlm product is based on the mount lugas index which has been around for decades um CTA is actively managed and kmlm is not um so um they're doing the same type of thing um they're structured the same way but CTA being actively managed has done better performance- wise so now you're going to ask me which one I think has the best exposure strategy and I I I I can't pick they all have Merit um I think the one that implements the most unique strategy that stands out in terms of like doing something that you don't see its peers doing is M mrsk so there Market neutral is not a new thing hedged Equity is not a new thing manag future is not a new thing the only thing that mrsk is doing that is unique is this um writing calls and puts to cover the cost of their long-dated put options for them the Hedge and that is unique so if I have to choose one again you're asking me to choose my favorite child I'm going to choose mrsk just because if you look at it in the the advantage of hedged equity which is the category it sits in that that one thing is unique to them and it is not something that you'll find in a lot of other places so I will give it to mrsk but I just want to go on record saying that I think all of these strategies have Merit in what they're doing and they're very different um but in terms of what is unique that's the only one that has something truly unique that it's doing that you won't find somewhere else wow solid analysis and I can tell you none of your children are angry with you right now I don't know I'm gonna have to check with them they might be after this airs all right well that takes us next to Performance so Shan you're still up uh how does the performance of these four ETFs uh look so this is going to be super point in time biased yeah and and that is if you were to look at these funds in three months or a year there would be a completely different winner so I'm just going to start there point in time bias right now the winner is ball um Ball's performance on one month year to date three months and is is superior CTA has a much better one-year number um but doesn't have a three-year number and ball has you know a stronger three-year number it's kind of in line with mrsk um so I'm going to give it to Ball but again I preface that by saying saying if the Deep seek thing didn't happen earlier this month this would not be the case it crushed crushed um during that downturn because technology stocks specifically Nvidia and all the AI names or high beta names that are short in the portfolio so it did great um but it is very point in time so I'm I'm going to choose it as my winner but I'm going to preface it as saying that from a consistency standpoint for a fund that's going to give you good outsized returns that is not correlated with some consistency and you're not going to have this volatility the winner is CTA so it's a tie all right gotcha between CTA and BTO thank you Shaina Dave you're up next on performance how do you see it yeah Shaya made the same point that I was going to and that these aren't funds that I don't think you can really judge on performance in absolute terms because they try to do so many different things here um looking back since CTA is the most uh well I guess is the youngest of these funds it's about three years old and if you just look at Absolute performance since then CTA is the winner it's up about 38% I think is the number but um again like Shaina said these are you know very situationally dependent and you know they're all going to outperform in different situations it just really depends on kind of what's happening at the moment and uh again that's the good thing about these funds if you you know you can find very different Hedges to you know however you want to layer that on your portfolio so so um I'm just going to stick with the uh since Inception return or since the common Inception return and call CTA the winner on this one but uh again same disclosure that Shaina made all right well that takes us next to the mystery battle category where our judges could pick a certain factor or thing that they feel is important to today's contest so Dave what is your mystery battle category and which of these ETFs wins it yeah my category is going to be the efficient Frontier and I I look at that because you know if these funds are really designed to you know risk manage and diversify you really kind of want to find out what the the right balance is that sort of U maximizes risk adjusted returns and uh mrsk there's really you know not much different than the S&P 500 um you know the market really hasn't gone down substantially over the last three years at any given point so um there hasn't been a significant amount of advantage of pairing that up with the S&P 500 the other three funds uh do a much better job in the right quantities and usually that's somewhere in like the 50 to 60% range S&P 500 and about 40% in one of these managed Futures funds or in a fund like Bell um if you look historically I found that CTA uh does has done at least recently the best job of producing better risk adjusted returns over the last year and that's been you know roughly a uh 40 50% allocation to CTA with the rest going to S uh the S&P 500 um and that's done the best job of uh managing risk adjusted returns now you're giving away a little in absolute performance um to get that um but the trade-off is on a risk adjusted basis you're you're doing a little better at least you've done better over the last year or so so um I'm going to call CTA the winner on this one but uh again for the same reasons as performance it's really kind of uh situationally dependent what you're looking to do and kind of what time period you're looking at thank you Dave uh shander you're up next your mystery battle category what is it and which of these four ETFs wins it so I appreciate David's aggressive nature of saying 40 to 50% one of these names I would never ever put that much money in any of these that's not what they're meant to do in fact will um I mean yes they have will help with risk but they will absolutely start to eat at your returns um I would never put more than 20% in an alts Fund in a diversified portfolio like ever that's like the optimal um percentage to do an ALT sleeve a diversified alt sleeve I wanted yeah I I think he did that just uh as an example okay um but I'm actually kind of going to use the same idea and and approaching this what I wanted wanted to look at is um which one of these funds provides the most ability to um even out the ride without taking too much away from your returns and as much as I love CTA it doesn't have a long enough track record for me to really be um have high conviction in the analysis um if you just were to replace CTA with kmlm as a proxy for managed futures um it doesn't actually um help as much um in that sense I want something and this is going to sound crazy that has High Vol but not volatility correlated with traditional markets right so this is the Bitcoin argument sometimes if a small percentage of Bitcoin even with its insane amount of volatility can juice your portfolio in a meaningful way um and in that case the winner is ball so ball even with its crazy B and the fact that it can be up 19% and then down you know 15 um the nature of the volatility of returns and when that up and down happens is so negatively correlated to the markets that it evens out your ride but if you don't put a huge percentage of that product in your portfolio it's not going to eat away at your returns so for me if I were just going to pick one it would be ball and the waiting would be somewhere between 8 and 10% % against a 6040 um that's and and it would give you the most amount of alpha without taking away from returns and it would it would absolutely smooth out the ride um however I tend to use these funds as a basket and I don't use kmlm because I pick one managed Futures fund and for me that's CTA because it's a better fund and we've kind of established that and I choose those three funds Bal mrsk CTA and then I throw in two more funds with them cbls which is the cloud um um Equity Fund which is a long short actively managed almost hedge fund like strategy and then I put in a fund called rdfi which is by RAR view Capital it's a RAR view Dynamic income which is a closed end fund Arbitrage kind of thing and I take those five products and put five well 5% in e or is it five 4% in each and then I have that as a 20% sleeve within my um traditional 60/40 Arrangement so it ends up being like 50 TW uh 30 20 or something like that um but that's how I do it and that gives you R return just a quick question within that 6040 sleeve is that is that percentage reducing the 40 or reducing the 60 both so that's why I said it ends up being more like a 50 30 20 oh gotcha okay perfect I actually do it a little bit differently but that's the simplified version personally if somebody gave me a million dollars I would take $ 800,000 and put it in a 6040 and then take 200,000 and put it in this alt but that ends up with like a very like I would have to pull out a calculator and it's not it's not clean um but it essentially is like 503020 got it okay well thank you very much Shaina for that detailed analysis now we gonna give our judges an overall uh final opportunity to give us their overall winner and so far my scorecard this this has been a a uh a quadruple header but it looks like there's three that are leading the way and vying for the win so how will this go down Shaina give us your final take so I think we've sort of established there's nothing against kmlm it's a very good managed Futures strategy it's based on the mount Lucas managed Futures index which has a very long track record I wrote a white paper on the benefits of um alternatives for diversification in 200 9 2010 and I used that as my managed future proxy so it has a super long track record but it's passive and um and you can actually add a lot of alpha in an actively managed CTA portfolio so um CTA beats kmlm so it's just you know scratch off so now I have these three left I'm G to tell you that I have five winners because that's how I would build a portfolio and it would be what I just said it would be ball mrsk CTA cbls and rdfi and those five funds are my winners of this battle because I would use them in combination and I would never use any one of these on their own at all um and so I have a five-way tie of those five funds because that is the allocation portfolio that I manage that I actively manage at this moment and that's how it's allocated Dave your final chance to weigh in with your overall winner well I have no favorite children here so I'm just going to speak my mind um I I like CTA on this list um you know you can look at cost you can look at short-term performance things like that um I don't think those are the driving factors of why you'd want to choose a fund like this so I kind of lean on the exposure strategy as my tiebreaker I just like how it's constructed um I I like the long short nature of uh the multiple assets that they use in in constructing the portfolio I like that equities is kind of removed from the equation so you have a true uncorrelated asset um yeah I think it's just got the best structure and composition for I think what you're looking for out of a managed Futures prod uh product and it just checks the boxes for me so I'm going to go with CTA well our judges have weighed in and according to fi my battle final battle scorecard this is going to be a split decision between five ETFs we had two wild cards from Shaina cbls and rdfi and then it was between those three in today's headliner bit Bal CT ta mrsk and uh we had a lot of different children in this battle so to speak Shaya of course making the argument that each of them does something a little bit different and so in that sense they complement each other rather than compete Dave bringing his point that CTA he likes uh obviously it for all of his actually it was pretty much a clean sweep for him on all categories it is actively managed so it does kind of the same thing as kmlm but with an active hand and uh wow we got some incredible analysis today on today's program we had the queen of alts breaking it down and of course Dave's solid analysis what did you think about today's Showdown let us know in the comments section below Shaina and Dave great job we couldn't have done it without you thank you so much for having me I love these all battles keep them coming yeah when the when the chef's cooking get out of the kitchen it was fun poor Dave has to be on the show with me and he is like why why are you doing this to me Ron Hey Hey I learn as much as anybody on this this is beneficial for me as well so I I love it iron sharpens iron as it says in the Proverbs and so we definitely appreciate the solid analysis all the way around uh be sure to hit us up in the comment section below with your ETF battle suggestions again a big thanks to Gladstone for this particular battle suggestion nice job job I'm Ronda legi thanks for watching ETF battles we'll see you on the next episode