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A Two ETF Combo that has proved resilient

A two ETF portfolio that has shown remarkable resilience over the past year and year-to-date is a 50/50 split between BTAL and DFND.

Over the past 12 months, this combo is UP 15% while SPY is DOWN -13.82%.

YTD the DFND/BTAL combo is up 5%, while SPY is down -25.2%.

I’ve attached total return charts of DFND/BTAL and SPY, with a standard intermediate corporate bond ETF thrown in for further comparative purposes. As you can see, DFND/BTAL proved far more resilient than even a relatively safe bond holding.

 

Price Mar 19, 2019-Mar 19, 2020 for BTALDFND SPY VCIT.png

 

Price Jan 1, 2020-Mar 19, 2020 for BTALDFND SPY VCIT.png

The thing I find interesting about the DFND/BTAL combo is they are both 100% equity ETFs. I came upon this combo last year when I noticed they gave equity exposure with little more risk than a bond ETF holding. I did not appreciate at the time how well they would hold up in one of the most stressed markets of history.

They are also remarkably tax efficient in that they produced little taxable income.

DFND and BTAL are both long-short ETFs.

DFND goes long dividend-paying stocks the managers believe have a safe dividend and shorts stocks they believe have the greatest chance of cutting their dividend. This typically results in a portfolio of 70% long, 30% short.

The risk-adjusted returns of DFND have been excellent, with a Sharpe Ratio > 1; Treynor ratio of 17.06%; low beta of .45; positive alpha of 3.84; and capturing 2/3s of the markets UP returns with only 1/3 of the markets down returns. For my own purposes, I’ve found DFND a perfect holding for getting some equity exposure while putting a serious dampening effect on downside risk.

If I wanted to hold something like VWIAX as a conservative holding, I would consider DFND as an alternative. DFND alone finished the past 12 months UP 4.9% with VWIAX DOWN -4.4%. The 30% short positions put on by the managers have proven to provide far better downside protection than the 70% bond holdings of VWIAX. And I'm still getting 70% market exposure to boot.

This shows how a well managed long-short ETF CAN be a better way to get equity risk exposure than the classic equity / bond mix.

I capitalize CAN because there are several long-short ETFs out there and some of them have abysmal records. I spent some time studying them to understand why such a disparity of returns exist and have found DFND is the only one that gets the approach and formula right (just my opinion; PLEASE do your own diligence and don’t follow a mere poster on an investment board.)

BTAL is categorized as a market-neutral ETF, though it is also a long-short. BTAL goes long low beta stocks and short high beta stocks. This means that whenever low beta stocks outperform high beta stocks, you have positive returns, and vice versa.

Before you buy an ETF like BTAL, you need to understand why you would want to gain exposure like this. I would not hold BTAL as a stand-alone product. For my purposes, I hold a big chunk of it, as a close-sister compliment to the already risk-adjusted superior DFND.

BTAL has a negative beta, so in my portfolio it acts like a PUT. But it’s not as efficient as a PUT. It doesn’t always behave on a day-to-day basis the way you might want. But over weekly and monthly periods it has a strong tendency to be up when the market is down. Combining with another long-short, DFND, has resulted in the best way to gain lower-risk market exposure that I’ve found.

At any rate, make sure you thoroughly understand these two ETFs before you incorporate them yourself, if at all. Just my thoughts, offered since I know people are looking for alternative ways to think about handling risk in their investments.

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Participant ○○○

Re: A Two ETF Combo that has proved resilient

 

Hey, @deepbluepi!!

It's been a while.  Either that or you've posted while I'm drinking and I've missed it.  Or you're some other deepbluepi.

 

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Follower ○○○

Re: A Two ETF Combo that has proved resilient

Hey Cliff,

Nice to hear from you. I missed you. I haven't posted anything on these new boards until this morning. I actually couldn't find them after the change went into effect.

I made a new effort this morning by entering "discussion morningstar" on duckduckgo and found this place. I figured some people might be hurting from yet another black swan tanking their investments. So I wanted to show other ways are out there to skirt around these sinkholes if you take the blinders off of conventional wisdom.

I don't plan on staying. Just a mad dash in and out. Nice to say hello to you, though.

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Participant ○○○

Re: A Two ETF Combo that has proved resilient

hi Tod!

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Frequent Contributor

Re: A Two ETF Combo that has proved resilient

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Frequent Contributor

Re: A Two ETF Combo that has proved resilient

deepbluepi.

Gotta analyze this.

deep    blue   pi

So pi...as in pi squared.

blue...as in blue state.

deep as in deep-thinker.

Got it...it's Tod.

...thanks for input, and welcome back.

R48

 

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