It seems like it’s bond futures that you pay 0.2% for, and they manage the futures and rebalance in/out of equities for you.
Is there something I’m missing there?
It seems like it’s bond futures that you pay 0.2% for, and they manage the futures and rebalance in/out of equities for you.
This makes sense. Other part of my question: Is there a more cost efficient way to get leveraged bond exposure through futures than by using NTSX?muffins14 wrote: ↑Mon Dec 20, 2021 4:01 pm Right now, EDV yield is about 1.9%
A blend of 5 year and 10 year treasuries has a yield around 1.28%
Bond yield contribution to your portfolio is 0.1 * 1.9 = 0.19% for a 90/10 portfolio w 10% EDV
For NTSX, it’s 0.6* 1.28 = 0.77 for the NTSX bond exposure
Say that’s 0.77 - 0.2 = 0.57% for NTSX after fees
getting 0.4% more is enough to offset the fact that you’re paying 0.2% more on your equity exposure by using NTSX, I think
It's complicated. If you really want to learn about this strategy, please read: viewtopic.php?f=10&t=357281vpiguy88 wrote: ↑Mon Dec 20, 2021 6:09 pm Really simple question that I can't for the life of me find an answer to: Do futures actually give you incremental interest or just interest rate exposure? There are items here talking about intermediate yield, etc, but do futures actually give yield?
Trying to understand whether futures have positive expected returns or are just used to hedge interest rate movements.
If it is just a hedge, and no coupon/interest rate payment, it would seem to significantly diminish the incremental value of futures.
The short answer is that you do not get the interest per se, but the lack of interest payments is baked into the price (or rather, the value of the contract). In other words, it doesn't really matter whether you hold the future or the underlying (except for the cost of the leverage).
It depends on when the prices hit those levels... NTSX's pricing can lag slightly behind when closing prices change rapidly and not be updated end-of-day so keep on eye on NTSX's share price next opening day.Admiral Fun wrote: ↑Thu Dec 23, 2021 8:09 am NTSX went up by .59% yesterday while the SP500 grew by about 1%. Intermediate treasuries were also slightly positive.
Why did this underperformance happen given that NTSX is 90% SP500?
Fund does tend to have large (relatively for ETFs) premiums and lower volume. Currently at almost 1% premium! So price does not entirely follow its NAV.Admiral Fun wrote: ↑Thu Dec 23, 2021 8:09 am NTSX went up by .59% yesterday while the SP500 grew by about 1%. Intermediate treasuries were also slightly positive.
Why did this underperformance happen given that NTSX is 90% SP500?
Is 6x the 10%, so a 90/60 allocation meaning the bond portion for ntsx should track 60% intermediate treasuries instead of 600%Admiral Fun wrote: ↑Wed Jan 05, 2022 8:35 am From my understanding, to approximate the expected return of the bond portion of NTSX, you can just multiply the yield of intermediate term treasuries x 6 (e.g. 1.5% x 6 = 9%). Is that right?
Furthermore, is it fair to say that it is unlikely for the bond portion to lose money if held for at least the average duration period? (7 years)
So 6x leveraged intermediate treasuries are an asset that...
- is expected to return ~9% (higher than expected returns for stocks)
- is highly unlikely to lose money nominally if held 7+ years
- has low correlation to stocks
This sounds too good to be true. What am I missing?
Doing NTSX in taxable and HFEA/PSLDX in retirement account would mean your entire stock exposure is the S&P500.hiddenpower wrote: ↑Wed Jan 12, 2022 9:47 pm Considering the worst case scenario, how badly could this blow up versus a 60/40 portfolio (and also compared to PSLDX and HFEA)? i.e. stocks and bonds correlating and going down. I'm considering running this 100% in my taxable account, and then HFEA in my retirement accounts (27%). To anyone else considering going 100% NTSX, do you plan to deleverage or get out of the fund later in life or is that unnecessary? It looks unnecessary based on the backtests and better drawdowns, but that's also why I want to get a sense of the worst case scenario and what you all think about it. Thanks!
Sure didn't feel flat. I lost half my net worth twice. I think cherry picking dates is really worse than saying nothing.
Fair point - "flat" was not a the best term. How a about, "being 100% in the S&P500 from 2000-2010 would not have been fun"?firebirdparts wrote: ↑Thu Jan 13, 2022 7:30 amSure didn't feel flat. I lost half my net worth twice. I think cherry picking dates is really worse than saying nothing.
Better to just say all your stocks would be S&P500 and it is what it is.
I mean it could be Really Bad, let’s be honest. You’re talking about HFEA as a core holding, which are 3x leveraged funds. Your “diversification” is more S&P 500 plus treasury futures.hiddenpower wrote: ↑Thu Jan 13, 2022 8:43 am Thanks I will heed that advice and look into diversifying too.
I am just curious how bad this ride could really get with NTSX/HFEA as core holdings? It's not clear to me from reading the thread what the worst case scenarios are, and it sounds like free lunch . I'm inexperienced with futures and bonds though and have been absorbing what I can this past week.
Cheers.
I think you are missing the cost of leverage. The fund is borrowing in order to buy the 6X Treasuries. The fund prospectus does not state outperforming S&P500 as a goal. The goal is to match the return of 90% S&P with less volatility.Admiral Fun wrote: ↑Wed Jan 05, 2022 8:35 am From my understanding, to approximate the expected return of the bond portion of NTSX, you can just multiply the yield of intermediate term treasuries x 6 (e.g. 1.5% x 6 = 9%). Is that right?
Furthermore, is it fair to say that it is unlikely for the bond portion to lose money if held for at least the average duration period? (7 years)
So 6x leveraged intermediate treasuries are an asset that...
- is expected to return ~9% (higher than expected returns for stocks)
- is highly unlikely to lose money nominally if held 7+ years
- has low correlation to stocks
This sounds too good to be true. What am I missing?
I think you intended something additional for your link?TXGator wrote: ↑Thu Jan 13, 2022 10:35 am I view ntsx as a way to juice the the “Buffet”allocation of 90% S&P and 10% STT
https://www.portfoliovisualizer.com/bac ... sisResults
The new WisdomTree ETF GDMN is a potentially interesting pairing if you want to maintain a similar level of leverage to NTSX. It is 180% exposure for ER=0.45% including 90% exposure to gold through futures and 90% exposure to gold mining stocks. Not everyone agrees with the exposure to gold mining stocks though viewtopic.php?t=364933PluckyDucky wrote: ↑Mon Jan 17, 2022 2:22 pm Has anyone thought about pairing NTSX with a gold fund?
Portfoliocharts has an interesting recent article about various portfolios and how gold can help returns and ulcer index.
https://portfoliocharts.com/2021/12/16/ ... ortfolios/
I just have no interest in goldPluckyDucky wrote: ↑Mon Jan 17, 2022 2:22 pm Has anyone thought about pairing NTSX with a gold fund?
Portfoliocharts has an interesting recent article about various portfolios and how gold can help returns and ulcer index.
https://portfoliocharts.com/2021/12/16/ ... ortfolios/
I'm curious how bad the ride could be compared to 100% VTI, like is this an okay replacement or would the tail risk be too extreme? Is the downside 150% worse than a 90/60? And it sounds like that can be worse than 100/0?Mortgasm wrote: ↑Thu Jan 13, 2022 8:56 am HFEA is a different beast entirely. Stagflation will really harm returns in a leveraged portfolio.
RobertT posted this somewhere
"HFEA in 40:60 rather than 55:45 form, 1973 to 1981: Annualized return (%)-9.0 =
For the 20 year period ending 1981 - annualized return of the 3x leveraged strategy = -3.1%"
One might not be worried about stagflation. But you asked about how bad the ride could be. Changing the ratios will affect the outcome somewhat in backtests, but I think that would be an analytic mistake to think that changes the outcome drastically. However I did not do my own test.
nisiprius wrote: Question #3b: What are the effective differences between:
--a 60/40 fund bought using actual 1.5X leverage, i.e. if it drops 67% you have lost all your money;
--90% plain unleveraged stocks and 60% bonds bought with 10% cash using 6:1 leverage;
--90% plain unleveraged stocks and 10% futures contracts?
Question #4: Is 90% unleveraged stocks + 10% holding of 6:1 leveraged bonds effectively the same thing as a 1.5X leveraged holding of a 60/40 portfolio? First I keep thinking it isn't, then I keep thinking that because money--even negative money, borrowed, is fungible, maybe it is.
It has been changed so in order to get that letter you need 10M in assets. It’s inconsistent to allow 3x leveraged funds but not one that mostly tracks an index fund - but it appears the “active” management of the bond portion is the issue, not the leverage. Merrill Lynch supposedly allows it, but not Merrill Edge.pepys wrote: ↑Thu Aug 12, 2021 2:20 pmThat's odd. Sorry for possibly wasting your time.sfmurph wrote: ↑Wed Aug 11, 2021 11:21 amI just tried this and was declined. Talking with a trade rep, NTSX is "blocked on the platform." Now, it may be that I just got a rep who doesn't know, but I wouldn't say it "It isn't too difficult to get around this restriction." I don't see any form available for me to just sign and send in either.
I originally got it in 2019 after sending a secure message asking for it. Full name was "Block List Exchange Traded Products Client Representation Letter Purchases of Blocked ETPs". At the bottom said "ETFCLTRP (v. Sept 2019)".
It's possible they made it more difficult.
This has been discussed, you can search for ithiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pm
Moreover why use this instead of VTI/VOO + a 3x treasury etf. Thanks!
It's a treasury futures ladder, not a bond fund leveraged to 6x. The risk is the same as buying the equivalent futures contracts and I don't see a mechanism where that could go to zero without much larger repercussions that anyone wants... this also answers the second question.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pm Specifically I'm kind of wondering the true risks here. If the treasuries are 6:1 leveraged, and the underlying drops 16%, does that mean the bond part of this portfolios wiped out? And would it be reloaded the next day? What would be the chances of this shitting the bed? I'm trying to assess if it can be used as a full on replacement for VTI.
Moreover why use this instead of VTI/VOO + a 3x treasury etf. Thanks!
600% leverage on treasuries is ridiculously tame in the eyes of most fund managers. With quarterly rebalancing and rebalancing bands there is literally nothing to worry aboutkevinf wrote: ↑Tue Jan 18, 2022 7:52 pmIt's a treasury futures ladder, not a bond fund leveraged to 6x. The risk is the same as buying the equivalent futures contracts and I don't see a mechanism where that could go to zero without much larger repercussions that anyone wants... this also answers the second question.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pm Specifically I'm kind of wondering the true risks here. If the treasuries are 6:1 leveraged, and the underlying drops 16%, does that mean the bond part of this portfolios wiped out? And would it be reloaded the next day? What would be the chances of this shitting the bed? I'm trying to assess if it can be used as a full on replacement for VTI.
Moreover why use this instead of VTI/VOO + a 3x treasury etf. Thanks!
In a taxable account, I don't really worry about it with a portfolio margin account. I try to target a cash balance of $0, but if it goes negative and I'm paying margin interest, it's whatevs.
$10 million *at Merrill Edge*, or do you just have to say you're worth $10 million? I had to say the latter (I said I was including present value of my future labor), but only had ~$100K on the platform.F8_Tributo wrote: ↑Mon Jan 17, 2022 7:08 pmIt has been changed so in order to get that letter you need 10M in assets. It’s inconsistent to allow 3x leveraged funds but not one that mostly tracks an index fund - but it appears the “active” management of the bond portion is the issue, not the leverage. Merrill Lynch supposedly allows it, but not Merrill Edge.pepys wrote: ↑Thu Aug 12, 2021 2:20 pmThat's odd. Sorry for possibly wasting your time.sfmurph wrote: ↑Wed Aug 11, 2021 11:21 amI just tried this and was declined. Talking with a trade rep, NTSX is "blocked on the platform." Now, it may be that I just got a rep who doesn't know, but I wouldn't say it "It isn't too difficult to get around this restriction." I don't see any form available for me to just sign and send in either.
I originally got it in 2019 after sending a secure message asking for it. Full name was "Block List Exchange Traded Products Client Representation Letter Purchases of Blocked ETPs". At the bottom said "ETFCLTRP (v. Sept 2019)".
It's possible they made it more difficult.
If the fund moves 6x to interest rates, does that mean a 16% increase in rates is what would be needed to kill the 10% portion? Which is obviously unheard of, but say a major 4% spike occured, would that deplete the cash collateral by 24%?corp_sharecropper wrote: ↑Tue Jan 18, 2022 8:22 pm600% leverage on treasuries is ridiculously tame in the eyes of most fund managers. With quarterly rebalancing and rebalancing bands there is literally nothing to worry aboutkevinf wrote: ↑Tue Jan 18, 2022 7:52 pmIt's a treasury futures ladder, not a bond fund leveraged to 6x. The risk is the same as buying the equivalent futures contracts and I don't see a mechanism where that could go to zero without much larger repercussions that anyone wants... this also answers the second question.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pm Specifically I'm kind of wondering the true risks here. If the treasuries are 6:1 leveraged, and the underlying drops 16%, does that mean the bond part of this portfolios wiped out? And would it be reloaded the next day? What would be the chances of this shitting the bed? I'm trying to assess if it can be used as a full on replacement for VTI.
Moreover why use this instead of VTI/VOO + a 3x treasury etf. Thanks!
If I'm reading this right, are you saying it's also likely that in a taxable, Reg-T margin account at IBKR, you can hold treasury futures without holding any cash as collateral, and you just use your remaining portfolio as equity. Thus as there are price changes in the futures value, you just let losses get turned into margin debt, and hope eventually gains pay off the margin debt?DMoogle wrote: ↑Tue Jan 18, 2022 11:36 pmIn a taxable account, I don't really worry about it with a portfolio margin account. I try to target a cash balance of $0, but if it goes negative and I'm paying margin interest, it's whatevs.
In a tax-sheltered account, I asked how much people keep in cash in the mHFEA thread, and the only response that I got said they keep 15% of the contract's value in cash (knowing that they might be auto-liquidated once in a rare while).
On no planet is HFEA a replacement for VTI.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pmI'm trying to assess if it can be used as a full on replacement for VTI.
I'm referring to NTSX as the core of the portfolio and inquiring about the risks of being 100% NTSX in a taxable. HFEA/PSLDX as supplemental percents.David Jay wrote: ↑Wed Jan 19, 2022 2:30 pmOn no planet is HFEA a replacement for VTI.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pmI'm trying to assess if it can be used as a full on replacement for VTI.
One of the reasons why you are getting minimal responses to your HFEA questions is the HFEA is way, way out of the mainstream here at BH. We didn't censor HedgeFundie (we don't censor anyone who follows the forum rules) but his approach is light-years away from Boglehead Philosophy. Note that even HedgeFundie said he was only investing a small portion of his portfolio and a 100% loss would not significantly affect his financial future.
As a relative newcomer to investing, I would recommend that you avoid all forms of portfolio leverage until you have at least one major downturn under your belt. It is hard to describe the emotions that well up during a major downturn and you need to observe the person in the mirror through such an event to get an understanding of how you react. 100% stocks will be a wild enough ride the first time around.
You referenced both HFEA and NTSX in a single post more than once, so it was not clear.hiddenpower wrote: ↑Wed Jan 19, 2022 2:32 pmI'm referring to NTSX as the core of the portfolio and inquiring about the risks of being 100% NTSX in a taxable. HFEA/PSLDX as supplemental percents.David Jay wrote: ↑Wed Jan 19, 2022 2:30 pmOn no planet is HFEA a replacement for VTI.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pmI'm trying to assess if it can be used as a full on replacement for VTI.
One of the reasons why you are getting minimal responses to your HFEA questions is the HFEA is way, way out of the mainstream here at BH. We didn't censor HedgeFundie (we don't censor anyone who follows the forum rules) but his approach is light-years away from Boglehead Philosophy. Note that even HedgeFundie said he was only investing a small portion of his portfolio and a 100% loss would not significantly affect his financial future.
As a relative newcomer to investing, I would recommend that you avoid all forms of portfolio leverage until you have at least one major downturn under your belt. It is hard to describe the emotions that well up during a major downturn and you need to observe the person in the mirror through such an event to get an understanding of how you react. 100% stocks will be a wild enough ride the first time around.
@Hiddenpower, I think the reason you are not getting a precise answer like "there is a 0.4% risk of an NTSX wipe-out in the next 30 years", is because it is not possible to give one. However, to the best of my knowledge, if you use backtesting data as far back as it goes, I don't think there has ever been a situation where NTSX would have been wiped out. Even if intermediate treasuries were to fall 50% in the span of a few months (I don't think this has ever happened in history), NTSX would still only fall 30% since its overall exposure is 60%.hiddenpower wrote: ↑Wed Jan 19, 2022 2:32 pmI'm referring to NTSX as the core of the portfolio and inquiring about the risks of being 100% NTSX in a taxable. HFEA/PSLDX as supplemental percents.David Jay wrote: ↑Wed Jan 19, 2022 2:30 pmOn no planet is HFEA a replacement for VTI.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pmI'm trying to assess if it can be used as a full on replacement for VTI.
One of the reasons why you are getting minimal responses to your HFEA questions is the HFEA is way, way out of the mainstream here at BH. We didn't censor HedgeFundie (we don't censor anyone who follows the forum rules) but his approach is light-years away from Boglehead Philosophy. Note that even HedgeFundie said he was only investing a small portion of his portfolio and a 100% loss would not significantly affect his financial future.
As a relative newcomer to investing, I would recommend that you avoid all forms of portfolio leverage until you have at least one major downturn under your belt. It is hard to describe the emotions that well up during a major downturn and you need to observe the person in the mirror through such an event to get an understanding of how you react. 100% stocks will be a wild enough ride the first time around.
I've seen this mentioned a few places where it's a better substitute than going with VTI/VOO so I wanted to put on the strawman hat here since I imagine someone much more familiar with this allocation has considered various forward looking scenarios. If there's a 50% drop over treasuries, that's more like 6x, 300% on the treasury futures side I would imagine, and each 50% drop on the futures side would reload the 10% cash balance due to the rebalancing bands. This does seem like an upper bound of 30% as you stated. But I'm a complete noob with futures and wanting to learn more. i.e. The underlying question I'm getting at, is the risk really worth the 1% extra CAGR.a_s_h wrote: ↑Wed Jan 19, 2022 2:47 pm@Hiddenpower, I think the reason you are not getting a precise answer like "there is a 0.4% risk of an NTSX wipe-out in the next 30 years", is because it is not possible to give one. However, to the best of my knowledge, if you use backtesting data as far back as it goes, I don't think there has ever been a situation where NTSX would have been wiped out. Even if intermediate treasuries were to fall 50% in the span of a few months (I don't think this has ever happened in history), NTSX would still only fall 30% since its overall exposure is 60%.hiddenpower wrote: ↑Wed Jan 19, 2022 2:32 pmI'm referring to NTSX as the core of the portfolio and inquiring about the risks of being 100% NTSX in a taxable. HFEA/PSLDX as supplemental percents.David Jay wrote: ↑Wed Jan 19, 2022 2:30 pmOn no planet is HFEA a replacement for VTI.hiddenpower wrote: ↑Tue Jan 18, 2022 6:40 pmI'm trying to assess if it can be used as a full on replacement for VTI.
One of the reasons why you are getting minimal responses to your HFEA questions is the HFEA is way, way out of the mainstream here at BH. We didn't censor HedgeFundie (we don't censor anyone who follows the forum rules) but his approach is light-years away from Boglehead Philosophy. Note that even HedgeFundie said he was only investing a small portion of his portfolio and a 100% loss would not significantly affect his financial future.
As a relative newcomer to investing, I would recommend that you avoid all forms of portfolio leverage until you have at least one major downturn under your belt. It is hard to describe the emotions that well up during a major downturn and you need to observe the person in the mirror through such an event to get an understanding of how you react. 100% stocks will be a wild enough ride the first time around.
Since the level of leverage is low and is applied to a negatively correlated asset (treasuries tend to go up when stocks go down), the probability of a wipe-out is in my opinion effectively zero, but no one knows for sure. Asking the same question over and over again will not get you a quantitative and precise answer, because no one can give one as no one can know the future. If you feel the need for a quantitative and precise assurance about how NTSX will behave in the future, then you are probably better off investing in a low risk portfolio and staying clear of leverage.
That is correct. I haven't done an in-depth analysis of it. Because the daily fluctuations are taken out of (or put into) your cash balance, you can start at $0 one day and a week later have a cash balance of several thousand positive or negative.muffins14 wrote: ↑Wed Jan 19, 2022 12:24 pmIf I'm reading this right, are you saying it's also likely that in a taxable, Reg-T margin account at IBKR, you can hold treasury futures without holding any cash as collateral, and you just use your remaining portfolio as equity. Thus as there are price changes in the futures value, you just let losses get turned into margin debt, and hope eventually gains pay off the margin debt?DMoogle wrote: ↑Tue Jan 18, 2022 11:36 pmIn a taxable account, I don't really worry about it with a portfolio margin account. I try to target a cash balance of $0, but if it goes negative and I'm paying margin interest, it's whatevs.
In a tax-sheltered account, I asked how much people keep in cash in the mHFEA thread, and the only response that I got said they keep 15% of the contract's value in cash (knowing that they might be auto-liquidated once in a rare while).
If that's the case, have you done any analysis to show the opportunity cost of that (taking on margin debt), versus having cash sitting as collateral?
I'd be seeking to make something like NTSX, but with a more diversified portfolio, like 60/40 US/INTL and include small-cap value as well. Perhaps overall I'd be trying to get an exposure like 95% equities, and then use 5% cash as collateral for however many treasury futures that would buy me