Would balancing leverage across assets—for example, 2x gold (UGL) and 2x SPY instead of 3x SPY—help reduce the path-dependent losses that a 3x SPY ETF can suffer in extreme equity moves due to daily resets?
Great question! It depends on what you’re trying to do. Balancing risk will improve risk adjusted returns for sure, because you’ll have more diversification by sizing up Crisis Protection. BUT it will increase tracking error versus a “S&P + Protection” profile. So if you’re okay with more tracking error vs the benchmark— that’s probably a good way to go about it and in fact, closer to an optimal approach.
With regard to the path dependency— a lot of this is mitigated by rebalancing weekly which is our preference. You resize your position to 30% of AUM every week. That keeps the vol drag in check
Would balancing leverage across assets—for example, 2x gold (UGL) and 2x SPY instead of 3x SPY—help reduce the path-dependent losses that a 3x SPY ETF can suffer in extreme equity moves due to daily resets?
Great question! It depends on what you’re trying to do. Balancing risk will improve risk adjusted returns for sure, because you’ll have more diversification by sizing up Crisis Protection. BUT it will increase tracking error versus a “S&P + Protection” profile. So if you’re okay with more tracking error vs the benchmark— that’s probably a good way to go about it and in fact, closer to an optimal approach.
With regard to the path dependency— a lot of this is mitigated by rebalancing weekly which is our preference. You resize your position to 30% of AUM every week. That keeps the vol drag in check