How do you count HFEA as part of your AA?

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OhpBuddy
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How do you count HFEA as part of your AA?

Post by OhpBuddy »

I have money in Vanguard Roth IRA that I will not be able to implement HFEA in (since they don't allow leveraged funds). It's in a domestic/international (63/37%) allocation, with a SCV tilt. I know Hedgefundie said that an international/SCV tilt WITHIN HFEA is difficult because of increased volatility, which is fine, but my question is about inclusion of HFEA as part of your overall AA.

I have HFEA in equal parts in another non-Vanguard Roth and my taxable (55 UPRO/45 TMF) - but I know most people aren't 100% in HFEA, and only gamble with a portion of their portfolio.

How do you count HFEA when considering domestic/international/bond allocation? Do people accordingly overweight international in their non-HFEA portfolio to account for this domestic bias (holdings of HFEA)? Or do you have the same domestic/international allocation even w/ HFEA?

Similarly with bonds - underweight bond allocation because of bonds in HFEA? Or same AA here?
bgf
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Re: Do you count HFEA as part of your AA?

Post by bgf »

Yes, two ways. First, I have 50-25-25 of IXUS, UPRO, TMF. So my international exposure is not through a leverage fund but works out to Vanguards 60-40 US - International split.

1) as part of my 90/10 allocation, in which case its 100% equities.

2) as what the exposure truly is 125/75, or ~74/36 at 2x leverage.

My overall portfolio is either 90/10 using the first method, or 75/25 at ~1.2x leverage using the second.

I wonder how many here believe 75/25 at 1.2x leverage is riskier than 100% equities or even 90/10.
Last edited by bgf on Wed Jan 26, 2022 5:01 pm, edited 1 time in total.
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Topic Author
OhpBuddy
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Re: Do you count HFEA as part of your AA?

Post by OhpBuddy »

bgf wrote: Wed Jan 26, 2022 4:42 pm Yes, two ways. First, I have 50-25-25 of IXUS, UPRO, TMF. So my international exposure is not through a leverage fund but works out to Vanguards 60-40 US - International split.

1) as part of my 90/10 allocation, in which case its 100% equities.

2) as what the exposure truly is 125/75, or ~74/36 at 2x leverage.

My overall portfolio is either 90/10 using the first method, or 75/25 at ~1.2x leverage using the second.

I wonder how many hear believe 75/25 at 1.2x leverage is riskier than 100% equities or even 90/10.
Hm... so do you normally count it as 1) or 2)? Seems a little weird to count the TMF part of HFEA as "equities" in this instance, but I think I might be completely misunderstanding your point.
bgf
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Re: Do you count HFEA as part of your AA?

Post by bgf »

OhpBuddy wrote: Wed Jan 26, 2022 4:57 pm
bgf wrote: Wed Jan 26, 2022 4:42 pm Yes, two ways. First, I have 50-25-25 of IXUS, UPRO, TMF. So my international exposure is not through a leverage fund but works out to Vanguards 60-40 US - International split.

1) as part of my 90/10 allocation, in which case its 100% equities.

2) as what the exposure truly is 125/75, or ~74/36 at 2x leverage.

My overall portfolio is either 90/10 using the first method, or 75/25 at ~1.2x leverage using the second.

I wonder how many hear believe 75/25 at 1.2x leverage is riskier than 100% equities or even 90/10.
Hm... so do you normally count it as 1) or 2)? Seems a little weird to count the TMF part of HFEA as "equities" in this instance, but I think I might be completely misunderstanding your point.
You're correct, and I agree with you. I think that 1) is an oversimplification. It basically assumes that HFEA is benchmarked to outperform your equity allocation, so to simplify things you allocate as 100% equities. Again though, this is an oversimplification.

The second method is accurate but potentially more difficult to apply.
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OhpBuddy
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Re: How do you count HFEA as part of your AA?

Post by OhpBuddy »

Any other HFEAers? Am I posting this in the wrong thread? Not sure if all HFEA related things go in the HFEA mega-thread under "Theory."
ekid
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Re: How do you count HFEA as part of your AA?

Post by ekid »

What does HFEA stand for?
Human Fertilisation and Embryology Authority- according to GOOGLE.

I struggle to insert that into an Asset Allocation.
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xraygoggles
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Re: How do you count HFEA as part of your AA?

Post by xraygoggles »

Old thread but the way I allocate HFEA is just the entire portion (upro/tmf) as 5% of my portfolio. I don't separate the allocations in % stock vs % bonds, b/c it doesn't work without both components.
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Walkure
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Re: How do you count HFEA as part of your AA?

Post by Walkure »

ekid wrote: Thu Jan 27, 2022 3:11 pm What does HFEA stand for?
Human Fertilisation and Embryology Authority- according to GOOGLE.

I struggle to insert that into an Asset Allocation.
HEDGEFUNDIE's Excellent Adventure.

As an early accumulator, I don't really calculate AA. I do however include HFEA along with mortgage for the purposes of calculating my overall portfolio leverage ratio.
Marseille07
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Re: How do you count HFEA as part of your AA?

Post by Marseille07 »

I'm not a HFEAer but I'd just count the whole HFEA portion as equities if I were doing it.
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nisiprius
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Re: How do you count HFEA as part of your AA?

Post by nisiprius »

Take the percentage of your total portfolio allocated to HFEA. Call that H.

Since you are using 55 UPRO/45 TMF, and since they are 3X leveraged, take 3xHx55% and count that as your US stock allocation. Take 3xHx45% and count that as your US bond allocation.

So if H were 10%, then you'd count it as 30% x 55% = 16.5% US stocks and 30% x 45% = 13.5% US bonds.

Since they are leveraged, when you add it all up your total portfolio will add up to 120% instead of 100%.

To take a crazy example to make the mental arithmetic clearer, suppose the rest of your portfolio were 90% international stocks.

Then your final answer, for 90% international stocks and 10% HFEA, would be

16.5% US stocks
90% international stocks
13.5% US bonds

Total 120%
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xraygoggles
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Re: How do you count HFEA as part of your AA?

Post by xraygoggles »

nisiprius wrote: Tue Apr 05, 2022 12:18 pm Take the percentage of your total portfolio allocated to HFEA. Call that H.

Since you are using 55 UPRO/45 TMF, and since they are 3X leveraged, take 3xHx55% and count that as your US stock allocation. Take 3xHx45% and count that as your US bond allocation.

So if H were 10%, then you'd count it as 30% x 55% = 16.5% US stocks and 30% x 45% = 13.5% US bonds.

Since they are leveraged, when you add it all up your total portfolio will add up to 120% instead of 100%.

To take a crazy example to make the mental arithmetic clearer, suppose the rest of your portfolio were 90% international stocks.

Then your final answer, for 90% international stocks and 10% HFEA, would be

16.5% US stocks
90% international stocks
13.5% US bonds

Total 120%
Let's say someone had HFEA as 20% of Roth portfolio, and it was 100k total portfolio size, would the leverage ratio of the entire Roth be 20k*3 + 80k / 100k = 1.4x?
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er999
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Re: How do you count HFEA as part of your AA?

Post by er999 »

I don't think you should count it and you should set your AA as though it doesn't exist. in 5-10 years later you can reassess. That is assuming HFEA isn't more than 10% of so of your portfolio, it it's bigger to the point where having it go to zero would cause you big concern maybe you should reduce the amount of your assets in HFEA.
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