In this episode, we explore the concept of portfolio diversification by way of capital-efficient investing, through a strategy coined ‘Return Stacking™’ and how historically, institutions have traditionally had more access to sophisticated products than retail investors and financial advisors. That has changed in the last 2-3 years with the advent of the introduction of ETF wrapped strategies now available to retail investors. We discuss why diversity and prudent use of implicit leverage are important factors in investing, and how adding leverage to an asset that is already expected to outperform cash can increase excess expected returns. We touched on the performance of a 60/40 portfolio and why adding something to the portfolio that will diversify and have positive expected returns may be beneficial, particularly if you don’t have to trade down or out of core model portfolio allocations. We also discuss the 2022 market environment as an example of a growth down/inflation up environment and how using capital efficient ETFs can allow investors to introduce a diversifying secondary return stream and enhance returns, without introducing tracking error risks.
Capital Efficiency, Managed Futures, Systematic Macro
